The Mexican automobile manufacturing industry has been booming in recent years thanks to relatively cheap labor and facility costs, and proximity to U.S. markets, increasing demand for automotive supply chain services and cross-border logistics offerings.
The Mexican automobile manufacturing industry has been thriving in recent years as automobile companies continue to set up shop in the nation thanks to relatively cheap labor and facility costs, and proximity to U.S. markets. This growth has provided third-party logistics providers (3PLs) with even more opportunity to ramp up operations within Mexico, along with cross-border operations with the United States.
In an effort to support Mexico’s booming automobile manufacturing industry, Yusen Logistics, the 3PL subsidiary of Japan’s NYK Group, established the Bajio Logistics Center in the Apaseo el Grande area of Guanajuato, Mexico, back in February 2017.
The state of Guanajuato in particular is a hot spot for automobile activity. Honda and Mazda have built large factories within the state over the last few years, while Toyota will start producing Tacoma trucks there in 2019, Jordan Dewart, president of Yusen Logistics Mexico, told American Shipper in a recent phone interview.
The Mexican government has drawn in vehicle manufacturers in part by providing tax incentives and access to cheap land, Dewart said. Inexpensive labor also makes it extremely economical to set up operations in Mexico when compared with the United States.
In addition, the fact that Mexico can be accessed from either the Pacific or the Atlantic coast, coupled with its well-established rail service to the U.S., makes transporting vehicles to the U.S. less expensive, making it all that much more appealing to companies looking to set up shop in the region.
“Mexico has risen to become the seventh largest car manufacturer in the world and a large proportion of the additional container traffic to the country is made up of raw materials and components consigned to the growing number of car assembly plants and suppliers,” London-based shipping research and consulting firm Drewry said in an October Container Insight Weekly newsletter. “New investments from Kia, Toyota, BMW and Daimler Benz will see Mexican car manufacturing capacity reach 5 million vehicles by 2022, up from 3.4 million in 2015, and by the end of this decade, the country’s output is expected to account for one in four cars made in North America, up from one in five today.”
Changing Landscape. Dewart said Yusen is seeing increased demand for a new type of supply chain service, automotive logistics. Auto manufacturers want 3PLs to offer internal logistics in which they transport collections of parts in a “milk run” fashion, delivering them just in time and just in sequence. He said it is no longer enough to just pick up steering wheels and bring them to the assembly line, because companies now want them delivered in precise order, along with the steering columns and other parts associated with that piece of the manufacturing process as well.
Some of these automotive factories have extremely tight just-in-time delivery windows, as small as 90 minutes, said Dewart. They need 3PLs to provide subcontracted services, but they also want them to have assets in the game.
“The logistics landscape has changed significantly in Mexico versus 20 years ago,” he said. “Today, manufacturers require 3PLs that are sophisticated in north-south supply chains (cross-border), east-west (air and ocean), as well as domestic services within Mexico.”
changed significantly in Mexico
versus 20 years ago.
Today, manufacturers require
3PLs that are sophisticated
in north-south supply chains
(cross-border), east-west (air
and ocean), as well as domestic
services within Mexico.”
Jordan Dewart, president,
Yusen Logistics Mexico
Tom Sanderson, chief executive officer of transportation management services and logistics technology provider Transplace, told American Shipper his company has seen significant growth in customs brokerage and freight transportation management in Mexico due to the country’s booming automobile industry. Transplace had seen year-to-date revenue growth in Mexico of 22 percent from the corresponding 2016 period, Sanderson said.
He said Transplace has taken on new office space in Mexico City and Monterrey, Mexico. In addition, the company has expanded its warehousing space in Laredo, and now has about 700,000 square feet of warehousing space in Laredo, much of which is focused on transloading.
Mexico’s growing automobile manufacturing industry has also spurred Kuehne + Nagel’s cross-border business, Bob Mihok, president and chief executive officer of Kuhne + Nagel North America, said in an e-mailed statement. Kuehne + Nagel also manages logistics operations in Mexico for many of the top automotive companies and suppliers.
“Kuehne + Nagel provides services for automotive suppliers through inbound logistics, for original equipment manufacturers (OEMs) through production logistics, and for OEMs and after-market suppliers through outbound logistics and after-sales service,” he said.
C.H. Robinson has also experienced tailwinds from Mexico’s booming automobile manufacturing industry.
“The automotive industry has quickly grown over the last few years to become one of the largest verticals we service in Mexico,” Mike Burkhart, director of North America surface transportation, Mexico region at C.H. Robinson, said in an email. “We work with the largest OEMs, Tier 1, and Tier 2 parts manufacturers, developing world-class, intricate solutions that improve supply chains. We currently enjoy a large and continuing expansion in the automotive sector.”
Speed Bumps. Despite Mexico’s thriving automobile manufacturing sector, Dewart and Mihok both noted that infrastructure in the country still has some catching up to do.
“While the transport infrastructure in Mexico is improving, it is still not prepared for the huge operations of the arriving trades into the country,” Mihok said. “This is a challenge for 3PLs, as is the congestion of cities that demand more effective distribution models.
“In addition, the growing trend towards automation and digitalization implies investment in automated equipment and digital solutions, but also represents the vital need of preparing skilled talent to achieve excellence in customer service, analysis, and strategy for logistics solutions,” he added.
Looking ahead, lingering uncertainty regarding the future of the North American Free Trade Agreement (NAFTA) could potentially cause headwinds for Mexico’s flourishing automobile market, especially given that, according to Drewry, roughly 80 percent of of Mexico’s car production is ultimately destined for the U.S. market.
President Trump has been pushing to bring vehicle production back to the U.S. and is determined to lower trade deficits with Canada and Mexico. However, the primary cause of the trade deficit with Mexico is automobile imports.
Little headway in general was made in NAFTA renegotiations during the fifth round of talks that were held in November, and a U.S. proposal to increase the required content for automobiles manufactured in North America to receive tax free treatment will likely continue to be major sticking point for negotiators.