Opinion: Mexican Logistics and Sorting Out the Border

This Opinion piece appears in the July 11 print edition of Transport Topics. Click here to subscribe today.

By Richard DeBoer

Executive Vice President

Carter Logistics

The logistics industry in the United States is rapidly evolving. Thirty or 40 years ago, we worked within our own borders to manufacture and produce many of our own goods. In the 1980s and 1990s, this quickly shifted to China and India, because production costs and labor were much cheaper overseas. Even with the costs of transportation, the United States could manufacture goods much easier in China than in our own homeland.

DeBoer

Increasing labor cost in China and the long shipping routes have changed, again, the face of logistics and third-party logistics companies, or 3PL, in the recent years. Because of the changing landscape, automotive manufacturers from Japan, China, Germany and United States have increasingly begun to rely on Mexico for the manufacturing of their vehicles. This also has spurred on the building of new manufacturing facilities in Mexico to accommodate those companies that supply parts for the these automotive manufacturers.

The increased volume of manufacturing within Mexico has stretched the infrastructure of Mexico ports, borders and highways. In addition, U.S. politics make the Mexican border a tenuous political subject, and an easy target for additional red tape. So even though Mexico has become an excellent, inexpensive relocation for our manufacturing, the border creates its own set of challenges.

Such as any international logistics, the border crossing between Mexico and the United States is problematic. While both governments seek to streamline the process to take advantage of economically beneficial trade and production, the process is not simple and it has not changed overnight.

One clear difficulty in logistics with Mexico is the higher transportation costs and longer supply chains to transport automobile parts into and out of Mexico. Lisa Terry of Inbound Logistics, citing her company’s report, said that logistics in Mexico currently costs 20% more than in the United States. Although Mexico has improved its highway infrastructure in the last 10 years, many of these roads have tolls, driving up the cost of transportation. In addition, the roads between Monterrey, Mexico, and Laredo, Texas, are very congested, which increases transit time to and from the border.

The only real way to compensate for the higher transportation costs in Mexico is to allow extra time. Border crossing issues including Mexican holidays, limited border crossing hours and custom clearance issues, coupled with the additional time of transportation, results in shipment delays. The only solution to these delays is to allow additional time in the supply chain. This increases the number of days manufacturers allow for carrying safety stock for production and thus their cost of goods.

As the logistics industry has evolved, options emerge. The smaller, denser shipments are expensive, but other lighter shipments can be combined with them to make the most of each load. Combining two shipments with different weights — one that might be much heavier and another that compensates and is lighter — allows for a cooperative program. In sharing shipments, an automotive company can benefit while sharing the costs with another company.

Mexican manufacturers are promoting near sourcing, which is requiring their suppliers to relocate to Mexico. While near sourcing takes the pressure off the border, on the other hand, logistics providers need to find creative alternatives to drive cost out of the supply chain through combining customer routes within Mexico. This combination of routes also assist in maximizing the internal cube of the trailer and thus reducing the number of tractors required to operate within Mexico.

Changes in border laws attempt to streamline the process to reduce the congestion and speed transport. However, the current political environment stalls any radical changes in border laws that might make traveling across the border easier. For the time being, your best bet is to work with well-known carriers who have partner carriers in Mexico. Working with an experienced carrier will ensure that even when something awry happens, the carrier will know what to do.

Such as many problems with Mexican logistics, working with a company that understands the laws and the culture will help streamline the process and minimize the problems.

Logistics practices evolve all the time. Because of the complex political environment and the specific U.S. presidential issues with the border and immigration, the Mexican border will probably not become significantly easier in the next year, at least until the political environment changes.

We shall see.

Carter Logistics offers complete supply chain logistics expertise, including shared milk runs, intra-Mexico and border services. Its headquarters are in Anderson, Indiana, along with partner carrier, Carter Express.