Nearshoring Will Bear Fruit In 2 Years, Mexican Logistics Firm Traxión’s CEO Says

According to the CEO of Mexico’s largest logistics company, the relocation of production chains already represents 70% of the company’s business, which invoices more than $1.1 billion annually

Aby Lijtszain, CEO of Traxión.
May 25, 2023 | 06:30 PM

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Bloomberg Línea — For Traxión (TRAXIONA), Mexico’s largest logistics group, investments by the manufacturing and services industry amid the nearshoring phenomenon will begin to bear fruit in two or three years, once the opening of new plants and the rearrangement of production chains in the country become a reality.

“Nearshoring started a few years ago, we saw it coming and that’s why we invested in the group,” said Traxión’s CEO Aby Lijtszain in an interview with Bloomberg Línea. “So the big thing is still to come, and we are going to see it in a year and a half or two.”

Lijtszain makes this calculation based on the fact that, for now, companies that have made large investment announcements are setting up operations, especially large automakers, which will start operating in a few years’ time.

One of them is Tesla Inc. (TSLA), the electric vehicle assembler of South Africa-born US billionaire Elon Musk.

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According to Samuel Garcia, governor of Nuevo León state, where Musk chose to build the company’s next gigafactory, this plant will represent an investment of $10 billion.

“From my point of view, this is just beginning,” Lijtszain said, and who heads a company that saw revenues of more than 20.32 billion pesos ($1.14 billion) in 2022 and, as he mentions, has grown 20% per year since its founding 25 years ago.

The volume of what could come in investments for companies such as Traxión, as well as for industry analysts, cannot be measured with certainty. For Lijtszain “it is a few hundred (billion) dollars what this increase in industrial activity between Mexico and the United States could imply”.

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Lijtszain says logistics services companies such as Traxión have been preparing for years for this phenomenon, starting with USMCA, the free trade agreement signed between Mexico, the United States and Canada, and which is why it has invested some 16 billion pesos ($896 million) over the past five years.

That tranche of investments, he says, has been to create logistics infrastructure to serve its customers who require transportation of raw materials, finished products and personnel, as well as warehousing close to the production and consumption areas.

Nearshoring, he says, with the arrival of companies from the US, Canada and other countries, including China, has accelerated the demand for the company’s services.

However, he anticipates that in order to continue growing, investment should remain at the same level, or increase.

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Traxión’s most recent financial report states that the company derives 70% of its revenues from the demand for services from its customers to reinforce its production lines due to nearshoring.

The US-China standoff helps because, according to Lijtszain, interruptions or disruptions to global supply chains, as was seen recently, “makes manufacturing companies nervous”, and they are therefore unable to bring products from their factories, such as automobiles or household appliances, from China.

The truth is that for some analysts, the macroeconomic contribution of nearshoring is difficult to measure and much depends on how the current trade and financial conflict between the United States and China evolves.

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A projection by UBS Evidence Lab suggests that for Mexico to benefit from nearshoring, it would have to capture between 25% and 100% of the manufacturing capacity lost to China. This means, says the model, that over a five-year period Mexico would need to expand its export base, requiring investments of between $36-130 billion during that time.

That investment, says UBS, can be of national origin, or foreign direct investment, but it must exist.

In Traxión’s case, says Litzjain, the company will continue to invest its own resources and access debt markets to leverage its growth and also invest in acquisitions around nearshoring.

“With the resources we have between our cash flow generation plus access to debt, we will be able to invest and the company will be able to grow quite well. We plan to channel this investment to issues related to nearshoring and can be both organic growth and possible acquisitions focused on this practice,” said the CEO.