SOUTH OF THE BORDER IS GETTING HOT

Several months ago, we wrote about the trends in “near-shoring”, particularly from Asia to Mexico. As wage rates increase in Asia and political and human rights issues continue to be problematic, more firms are considering production and/or distribution closer to the U.S. Mexico has emerged as the country of choice for many. While wage rates there are higher than those in Asia, they are significantly lower than U.S. salaries. In addition, the economic climate and transportation infrastructure are improving, as well. Security continues to be a concern, but the Mexican government has taken major steps in improving both prevention and enforcement. President Enrique Pena Nieto said his country is “consolidating to be a trustworthy destination to invest in.”

The automobile manufacturers were early entries into the Mexican market. Mexico accounts for about 18% of North America’s auto production, expected to increase to 25% by 2020. According to the Brookings Institution, employment in the industry has increased 46% since 2009. Honda, Nissan, Audi, Kia and Volkswagen manufacture in Mexico; and Ford, Toyota, and Goodyear all have announced multi-billion dollar projects. Mercedes is considering a facility there. The auto industry has set the pace for other industries through their labor education and quality initiatives; and the recent West Coast port labor difficulties were painful reminders that a lot can go wrong on shipments from Asia to the United States.

But for those firms that continue to buy and/or manufacture in Asia and ship to the U.S., there is a Mexican answer for them, as well. Mexican ports on both the Gulf and Pacific coasts are experiencing record growth, and several million dollars are being spent on improvements. During the labor problems on the U.S. West Coast, a number of firms utilized the ports of Lazaro Cardenas and Manzanilla with a considerable amount of success. The Kansas City Southern railroad has helped to make Lazaro Cardenas attractive to several firms. Containers can be shipped from Asia to the port, transferred to flat cars, and moved directly to Kansas City where they are inspected and clear customs. Processing these shipments at Kansas City can eliminate days of delay at the traditional border crossings. Containers destined to other parts of the U.S. move through the import process more quickly, as well.

The new mega-ships currently being placed into service will only make matters worse. While they may be economical for transport, they will only increase unlading problems at the U.S ports, many of which already struggle most of the year.

So whether a firm is interested in Mexico as a source country for its products or a port of entry from Asia, it appears that it can be an attractive link in many supply chains.

Written By: Clifford F. Lynch