The Mexico automotive manufacturing industry has been active since the 1930s. Yet, in the past 20 years, the cost benefits, convenience, and proximity of “nearshoring” in Mexico has lured a host of OEMs, tier one and tier two companies south.
In this idea exchange, Frank Bateman, Director of Customer Logistics for Ryder Supply Chain Solutions, discusses the evolution, challenges, and opportunities found in the Mexico automotive logistics services market.
To some, Mexico’s role in automotive manufacturing might seem new. What’s the history there?
It’s hardly new. The Big Three – GM, Ford, and Chrysler – have been operating in Mexico since the 1930s. Datsun, which later became Nissan, as well as VW built plants there a few decades later. Today, we are seeing what some describe as a Mexican “Automotive Boom” with major OEMs including Nissan, Volkswagen, Chrysler, Honda, and Mazda investing billions of dollars to build new plants.
What are important logistics considerations for automotive companies considering adding Mexico to their mix?
When potential customers talk about their challenges, three issues typically come up: visibility, communication, and cost savings. All three are required to fully support a production plant. Planners and material follow-up personnel rely on accurate, up-to-the-minute information regarding their shipments. A good third party logistics provider (3PL) has the right people, processes and systems to communicate with the carriers or drivers and get reliable arrival ETA’s so that plant staff can keep the production line moving. To avoid breakdowns in the process, having contact lists and an escalation process will help the right people at the plant know the status of their critical shipments – and can make contingency plans if necessary. Of course, cost savings is key. Every company is under pressure to reduce costs and optimize the supply chain. A good 3PL delivers innovative solutions that keep costs in check.
What significant challenges affect logistics in Mexico?
Infrastructure is currently one of the most pressing logistics challenges in Mexico. Many roads are in poor condition, and the best highways require you to pay tolls. In order to meet coming needs, Mexico must invest in roads, rail, and sea ports. Security is another important challenge. In an effort to elevate safe passage, companies participate in programs such as Customs-Trade Partnership Against Terrorism (C-TPAT), in the U.S., and the Nuevo Esquema de Empresas Certificadas (NEEC), Mexico’s equivalent program.
How has NAFTA affected trade?
Trade imbalance and communications are constant struggles. The North American Free Trade Agreement (NAFTA) opened borders, but for every three northbound loads, only one southbound load crosses the border. This makes it difficult at times to secure competitive northbound rates. In the case of intermodal shipments, we have seen the imbalance reach up to 10 northbound loads for a single load southbound. Although it’s only a few miles to cross from Mexico to the U.S., this small part of the supply chain can be very complicated if communication is not handled properly. To cross a trailer, you need to have your shipper, border dray carrier, and U.S. and Mexican customs brokers all coordinated and synchronized to ensure that the handoffs are monitored and executed on a timely basis.
What is the future of the automotive industry in Mexico?
In one word: Growth. Back in 2004, automotive production in Mexico was roughly 1.4 million units. By 2014, it had more than doubled to 3.2 million units. With the construction of various OEM plants over the next couple of years, analysts expect production to top 5.1 million units by 2018. With the right logistics partners in place, automotive companies can optimize their supply chains and minimize costs.
To learn more about automotive manufacturing in Mexico and tips for maximizing your cross-border supply chain, download this webinar from Automotive Logistics magazine.
Authored by Frank Bateman
Frank Bateman is Director of Customer Logistics for Ryder Supply Chain Solutions. Frank leads the Ryder Cross-Border Solutions team that provides 3PL, Transportation Management, Distribution Management, and Customs Brokerage services to customers on both sides of the U.S.-Mexico border, managing more than 3,000 border crossings per week.