Learn the top 3 reasons why companies are moving manufacturing from China to Mexico and what that means for cannabis packaging, cannabis brands, and the companies behind those brands.
Remember the January 2021 reports of early 500,000 container ships carrying 12 million metrics tons of goods waiting to get into Southern California ports during the COVID-19 pandemic? We saw the images on the news every day, but as those lines decreased, supply chain disruptions didn’t decrease at the same rate. Today, a significant factor in supply chain disruptions continues to be shipping delays – particularly overseas shipping.
However, supply chain problems in 2023 aren’t limited to shipping delays. Added costs to ship from the opposite side of the planet to the United States combined with political, social, and economic volatility in China and other parts of the Eastern Hemisphere make manufacturing and sourcing overseas – including cannabis packaging – a significant risk for any company today.
Smart companies are looking for alternatives to manufacturing their products and packaging in China, and many of them are “nearshoring” all or some of their manufacturing to North America – more specifically, to Mexico, a country providing a number of benefits that companies are just starting to discover.
Top 3 Reasons Manufacturing is Moving from China to Mexico and Why Cannabis Brands Should Care
China is still the global manufacturing behemoth, but that’s changing – quickly. Mexico is becoming one of the world’s main manufacturing countries. Following are three of the top reasons why companies are moving manufacturing from China to Mexico and what that means for cannabis packaging, cannabis brands, and the companies behind those brands.
1. Reduce Delays
During the COVID-19 pandemic, deliveries from China often took seven times longer than they did pre-pandemic. While the worst of COVID-19 is behind us in the United States, supply chain delays that can be traced back to manufacturing and shipping from China continue today.
Delays have motivated many companies, like BMW and MGA Entertainment (the manufacturer of Little Tikes toys), to move some of their manufacturing from China to Mexico. New World Packaging is manufacturing some cannabis packaging in Mexico too!
The reason is simple – location, location, location! Not only is Mexico closer to the United States than China but many shipments can be made over land. The shorter and more efficient the shipping route and process are, the fewer delays there are likely to be. It’s called nearshoring, and it’s becoming more popular every day because of benefits like reduced delays.
2. Lower Costs
Shipping from China to the U.S. is always going to be more expensive than shipping from Mexico to the U.S. due to distance, so costs will go down when manufacturing moves to Mexico. But that’s not the only way costs will decrease.
When the Trump Administration raised tariffs on imports from China from 2.5% to 25%, businesses had to start paying more to produce the same goods. Those costs can’t be absorbed by the business, so they have to trickle down to consumers in the form of higher prices.
That 25% tariff doesn’t apply to imports from Mexico thanks to favorable trade agreements between the U.S. and Mexico (i.e., North American Free Trade Agreement - NAFTA), so instantly, businesses that manufacture in Mexico will pay less overall than businesses that manufacture in China.
Another way that manufacturing in Mexico decreases costs is on labor expenses. According to Noel Maurer, professor of International Affairs and Business at George Washington University, wages in China have been higher than those in Mexico since 2014 or 2015.
3. Less Risk
Political, economic, and social volatility can add significant risk to your company’s supply chain, and uncertainty in China has added more risk than many companies want to accept. Many of these risks are reduced when manufacturing is done in Mexico instead.
Trade agreements between the U.S. and Mexico also offer intellectual property protections for U.S. companies that manufacture in Mexico. From fake iPhones to knock-off Nikes, it’s well known that trademarks, trade secrets, and other intangible assets are often stolen and exploited by manufacturers in China.
Knowing protections are in place when you work with manufacturers in Mexico reduces your company’s risk and associated litigation expenses in the future. In fact, NAFTA includes specific dispute resolution processes that further reduce U.S. companies’ risks.
Key Takeaways about Packaging Manufacturing
Mexico’s manufacturing industry has grown significantly in recent years, and a number of large packaging manufacturers that New World Packaging has relationships with are already established there. The time is coming to consider moving your cannabis packaging to Mexico to reduce delays, lower your costs, and decrease your risk. Contact us and let’s talk!