Manufacturing Boosts Mexico’s Standing in North American Economy, Calderon Says

This story appears in the Oct. 28 print edition of Transport Topics.

DENVER — Felipe Calderon, the former president of Mexico, said his country is poised to become the centerpiece of an economic revival in North America as new supplies of cheap energy fuel a boon in manufacturing.

He also said a more stable job market will create demand for products and services from a growing middle-class population in Mexico and Latin America.

Speaking here at the Council of Supply Chain Management Professionals’ annual conference, Calderon described how he expects North America to be self-sufficient in oil and gas production by the end of the decade and how this, combined with rising wages in China and high shipping costs, will trigger a dramatic shift in industrial production away from Asia to Mexico and the United States.

“We together have an incredible opportunity,” Calderon said. “No more oil imports from the Middle East or Venezuela. This will be a dramatic change.”

Calderon said he sees a shift in manufacturing from Asia happening “very soon” as companies take advantage of low-priced natural gas from shale deposits and as high fuel prices make shipping costs from distant markets more expensive.

Calderon also described steps taken by his administration from 2006 to 2012 to make Mexico more competitive. He cited cutting government red tape for starting new businesses and boosting government spending on education, health care and infrastructure.

“We erased 16,000 federal regulations,” Calderon said. The average time spent to start a business fell from 58 days in 2006 to nine in 2013. The government also offered loan guarantees to organizations that lent money to small and midsize businesses.

Other measures taken by the Calderon administration included using funds from the sale of toll roads to finance new highway projects, including a road carved through the Sierra Madre Mountains to improve access from a key port on the Pacific coast to fast-growing industrial areas in the central part of the country. The road has 82 tunnels and the world’s longest and highest suspension bridge, the Baluarte.

After losing 441,000 jobs in 2009, Mexico added more than 1.8 million from 2010 to 2012. Unemployment is around 5%, and the historically large migration of people from Mexico to the United States has dropped sharply and may be reversing, Calderon said.

In 1994, Mexico, the United States and Canada signed the North American Free Trade Agreement. Since then, Mexico has established similar trade pacts with Japan and the European Union.

“Everyone gains by trade,” Calderon said.

To spur more foreign investment by automakers in Mexico, Calderon said, tariffs on imported parts were reduced from an average of 10% in 2006 to 4.2% in 2013. The government also offered land for manufacturing plants in rural areas where poverty and unemployment were high.

Mexico is now the fourth-largest exporter of motor vehicles and has nine automakers operating 20 assembly plants in the country, Calderon said.

Logistics executives attending the CSCMP conference echoed Calderon’s bullish assessment of business for Mexico and other countries in Latin America.

Brett Bissell, executive vice president for Ceva Logistics in Brazil, said the company’s business has grown 40% in the past five years in Latin America, and in Mexico the business has “almost doubled” in the same time, reflecting a trend of companies moving manufacturing and product distribution centers closer to customer markets.

The discovery of significant offshore oil deposits in Brazil also is “driving investment” in that country’s energy business, Bissell said, along with an increase in government spending on construction projects ahead of the 2014 World Cup and 2016 Summer Olympics.

“We’re doing everything from white-room electronics to assembly and disassembly of automobiles and commercial vans,” Bissell said of Ceva’s logistics activities in Brazil.

Trade among countries in Latin America also is growing rapidly. Bissell said he expects the volume of intra-Latin America trade to increase more than 15% in 2014.

Many of the companies that have set up manufacturing operations in Mexico will use those plants to supply markets in Latin America, Bissell noted.

David Frentzel, vice president of contract logistics for APL Logistics, a unit of Neptune Orient Lines in Singapore, said his company worked with Walmart de México to create a fulfillment center for goods purchased online. Using FedEx couriers, the first-of-its-kind operation is able to deliver products directly to consumers virtually anywhere in Mexico within 48 hours.

Shanton Wilcox, a principal at Capgemini Consulting in Atlanta, said companies seem more willing to engage third-party logistics companies to design distribution networks and manage transportation, especially in emerging markets, because many firms are reluctant to hire people or build new facilities after cutting back to survive the economic downturn in 2008 and 2009.

“They want to keep their spending as a variable line item going forward,” Wilcox said.