Friday, June 20, 2014

Mas o Menos in Mexico

‘Nearshoring’ from south of the border comes with its own challenges.

The advantages of sourcing from Mexico versus Pacific Rim countries such as China are clear. We are linked to our next-door neighbor by a network of highways and railroad tracks, and our two countries are not strategic rivals on the global stage. Bureaucracy and regulations in Asian countries can be mind-numbing and shipment-delaying, and coming from Mexico, your goods avoid both ocean voyages and U.S. port headaches. But Mexico comes with its own challenges, and the decision to source from Mexico demands a thorough and careful consideration of the pluses and minuses.

“The fact is, when you start crossing a border, you have all sorts of other costs. Historically, it’s more difficult for a shipper to get something out of Mexico than for a shipper in China to get something out of China,” said Virginia Thompson, senior director for global transportation and trade compliance at retailer Crate and Barrel, during a webcast sponsored by Stifel Capital Markets. Mexico’s customs agency remains hard to work with, despite recent improvements, and imports from Mexico have a higher percentage of inspections by U.S. Customs and Border Protection, largely to guard against drug smuggling.

One big advantage for Mexico as a point of origin, the North American Free Trade Agreement, could be essentially wiped out if pending free trade agreements such as the Trans-Pacific Partnership, which would include several Asian nations, are allowed to take effect. “If we can start importing things duty-free from those countries, the savings will offset any transportation savings that we might have from sourcing more closely,” Thompson said.

But Mexico has more free trade agreements in place than the U.S. and China combined, as an article in Bloomberg BusinessWeek pointed out. Soaring Chinese wages have made Mexican labor a relative bargain, and Mexico’s growing technical expertise, with 70 appliance manufacturers and 91 of the world’s top 100 auto parts manufacturers locating production facilities there, offset the downside of the drug-related crime that plagues the country.

If this decision is in your future, TOTALogistix can help. Working with you, we will perform a Total Landed Cost analysis, looking at the myriad factors involved, taking into account risk management and other variables as well as just transportation costs. As we have with other clients, we can give you the underlying issues and data points needed to make the call based on a foundation of knowledge.

If you’re thinking that Mexican manufacturing might be right for you, don’t put it off until mañana.

Kirk Shearer
800-989-0054 x103

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