NOT SO LONG AGO, ASIA WAS THE CLEAR DESTINATION
of choice for companies looking to set up offshore manufacturing
and distribution operations. Much of the draw, of course, was
low-cost labor—back in the day, the wage savings easily offset the
higher transportation and supply chain costs. Now that’s starting to
change. As wages rise in Asia—and other complications, such as the
recent economic and political unrest in China, emerge—U.S. companies are increasingly exploring the possibility of relocating those
operations to a country much closer to home: Mexico.
While wages in Mexico are higher than those in Asia, they’re
still significantly lower than U.S. pay scales. In addition, the eco-
nomic climate and transportation infrastructure are improving.
Security continues to be a concern, but the Mexican government
has taken major steps to boost both prevention
and enforcement efforts. President Enrique Peña
Nieto said his country is “consolidating to be a
trustworthy destination to invest in.”
When it comes to shifting manufacturing to
Mexico, the automotive industry has led the
way. Mexico now accounts for about 18 per-
cent of North America’s auto production—a
figure that’s expected to reach 25 percent by
2020. According to the Brookings Institution,
employment in the industry has increased 46 per-
cent since 2009. Honda, Nissan, Audi, Kia, and
Volkswagen manufacture in Mexico, and Ford,
Toyota, and Goodyear all have announced mul-
tibillion dollar projects. Mercedes is considering opening a facility
there as well. The auto industry has set the pace for other industries
through its labor education and quality initiatives.
As for those holdouts 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 recent port labor dispute on the U.S.
West Coast, a number of importers had considerable success using
the deepwater ports of Lázaro Cárdenas and Manzanillo. AEM
Global Terminal Network has signed an agreement to design, build,
and operate a new terminal at Lázaro Cárdenas, spending over $900
million for more docking space, cranes, and equipment. To encourage the use of Lázaro Cárdenas, the Kansas City Southern railroad
offers intermodal service between the port and U.S. destinations.
Containers can be shipped from Asia to the port, transferred to flat-
BY CLIFFORD F. LYNCH fastlane
Welcome to the neighborhood
cars, and moved directly to Kansas City, where
they undergo inspection 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. And things could soon
get even easier. In January, the Department
of Transportation declared that after 20 years
of dispute, the U.S. border would finally be
opened to Mexican carriers. Assuming the
move isn’t blocked again by Congress or the
courts, these additional carriers will help facilitate the movement of goods
across the border.
The new megaships cur-
rently being placed into ser-
vice will put added pressure
on the West Coast ports.
While they may be economical for transport, they are
too large to move through
the newly expanded Panama
Canal. East Coast ports are
preparing to receive larger ships, but the megaships
still must call at West Coast
ports. The ports on the Mexican West Coast
can provide a valuable safety valve for this
group of carriers.
Whether a company is interested in Mexico
as a source country for its products or a port
of entry for shipments from Asia, it appears
that it can be an important link in many supply
chains. I believe that Mexico will soon become
a true NAFTA “partner.”
Clifford F. Lynch is principal of C.F. Lynch & Associates, a provider
of logistics management advisory services, and author of Logistics
Outsourcing – A Management Guide and co-author of The Role of
Transportation in the Supply Chain. He can be reached at cliff@
cflynch.com.
