Mexico, benefitting from a trend towards nearshoring in light manufacturing, is now the go-to centre in North America for the manufacturing of electonic consumer products, high tech products, automotive parts and air conditioners.
A rise in inflation in Asia means labour costs in China will reach the same in 2016-2017 as they are now in Mexico, said Gene Sevilla, VP Supply Chain Solutions, Ryder International.
“Mexico is definitely a market for growth and needs to be looked at if you have manufacturing needs to take care of. For most light manufacturers it would not make a lot of sense to move manufacturing to Asia considering transport costs, with regard to higher inventory costs. I think in general trade between Mexico, the US and Canada is growing every year as Mexico becomes the centre of manufacturing for North America. We have a very solid presence in Mexico, and we do have a lot of north-south movement between Mexico and the US and Canada and Mexico,” he said.
“From a lot of Canadian perspectives NAFTA has made Mexico the clear winner, but on the positive side all trade partners have benefitted from an increased integration of supply chains,” said Troy Ryley, Director, Mexico at Transplace Mexico, LLC.
Ryley said that most companies who have limited experience in Mexico take a very silent approach, and may have a fragmented logistics strategy.
“But there is a tremendous opportunity for companies to work with ‘integrated suppliers’ to get rid of the ‘black hole at the border.’”
Among other services, Transplace in Mexico offers bilingual customer service and a Transportation Management System (TMS) with capabilities tailored for the Mexican market. In 2011, Transplace Mexico became a licensed US Customs Broker, Ryley noted.
NAFTA has raised the bar for transportation and competition in Mexico, and as China becomes more of a service economy with an aging workforce, Mexico, which has simplified business procedures, and which boasts a young population who are high consumers of goods, is poised to take its place.
“The most important factor is people want things quicker and faster, and that proximity to Mexico creates an important dynamic,” he added.
However Mexico faces the challenge of ramping up its infrastructure to accommodate the increase in import and export traffic.
“Some of the bigger challenges with Mexico becoming a manufacturing centre are that a lot of finished product is flowing from Mexico to the US northbound in trucks and rail, but not as much is flowing southbound. The other challenge is the border. There are issues with security in Mexico. A lot of programs like C-TPAT deal with issues like drug smuggling and security, and there has been tremendous improvement over the last few years where the border crossing processes have been streamlined, and they continue to be streamlined. Customs clearance has been accelerated as well,” Sevilla said.
Ports infrastructure improvement also points to more streamlined and faster flow of goods into the manufacturing centres.
“For many years what we would see in Mexico is stuff that would come from Asia would get offloaded in Los Angeles and be trucked to Laredo, Texas. Mexico has improved its ports infrastructure tremendously. Some rail companies even have service from Manzanillo all the way through the Northeast in the US. It’s a potential avenue for imports into the US,” he said.
Laredo, the 5th largest port in the US, is the main US-Mexico gateway and sees some 14,000 shipments crossing per day.
“It’s the shortest entry port to the largest markets of Mexico City and Monterrey, and 70% of its industrial base is in the triangle of Mexico City, Monterrey and Guadalajara,” Ryley said.
He credits former president Carlos Salinas with having the foresight to seek investment from private groups into better infrastructure in the country.
Investment around toll roads “changed the dynamic of the country tremendously,” said Ryley.
Cross-border trade is largely centered around truck and rail transport (80%) with 20% ocean and some airfreight.
Between May-July a mix of agriculture and auto retooling absorbs a lot of northbound capacity. The imbalance of 1 southbound to 3 or 4 northbound loads changes the price competition, Ryley noted.
“Mexicans need to consume more in order to balance this. Mexico City is the main consumer right now. There is a trend toward more integration at the border between US and Mexican agencies but the biggest thing is trying to interact with all of those distinct business partners,” Ryley said.
On the Atlantic side the ports of Altamira and Veracruz are two large container ports offering lots of access to ocean liners from the eastern seaboard. According to Sevilla there is lots of talk about expanding rail service from Veracruz to Mexico City and from Altamira to Monterrey, an industrial city close to the US border.
In terms of service offerings in Mexico Ryder is offering warehousing capabilities including value-addeds such as labeling and the Mexicanization of products.
Transportation management services, in terms of managing common and dedicated carriers in distributing products nationwide throughout Mexico, whether LTL or truckload, are also widely required.
“We also offer line feeding-managing the inbound materials that may come from Asia and the US, and delivering them to the assembly lines on a JIT basis according to the manufacturing schedule. We manage all the yard operations of some manufacturing plants-that means all the rail operations inside the plants, and the distribution of inbound freight to the manufacturing facility,” Sevilla said.
Distribution of finished cars, following quality inspection, see them loaded into rail cars and shipped northbound to the US and Canada.
“They vary in the routes and processes but being NAFTA vehicles there are not a lot of customs issues. We just need to make sure they get to the right ramp head,” Sevilla said.
Ryley also noted that one of the fundamental consistencies in Mexico is inconsistencies, and having the contingency plans around these.
If you’re doing business in Mexico, Ryley advises, you should ‘build in flexibility’, by having backup customs brokers, using more than one carrier and different ports as options.
There are some misnomers around security in Mexico.
“Drug cartels sell drugs. Cargo thieves deal in cargo. They are seldom the same elements,” he said.
“The real issue in Mexico is limited liability- this causes a lot of heartache for carriers on cargo liability. Mexican truckers don’t understand our concept of liability. Their legal liability is extremely limited to the merchandise they haul. Our recommendation is if you need a lot of insurance you should leverage your global policy,” Ryley said.
On the intermodal front, Transplace and Celtic International recently announced expanded intermodal services in Mexico, considered the ‘final frontier’ for the North American intermodal market, according to a Raymond James and Associates report.
“The use of intermodal transportation continues to grow across North America, but there are few companies that have an intermodal marketing company presence across all three North American countries,” said Steven Golich, president, Celtic International. Celtic has access to more than 75,000 pieces of rail equipment in the network and extensive experience working in North America, he added.
Loads can move in-bond to Mexico interior ramps with Customs clearance performed at strategically located key Mexican markets and the company has partnerships with all the Class 1 railroads, as well as Mexican primary carriers FERROMEX and KCS de Mexico.
As of May, BNSF Railway and Ferromex also have a new intermodal service running between Chicago and Silao, Guanajuato, Mexico.
“Our partnership with Ferromex to launch this service from Chicago to Silao means that automakers and manufacturers in the U.S. and Mexico will now have direct access to the advantages of intermodal rail in the Bajio region,” said Steve Bobb, BNSF executive vice president and chief marketing officer.