All Signs Point to Mexico Playing a Greater Role in Supply Chains

What do you think about Mexico?

It’s one of the most common questions I get these days from third-party logistics providers (3PLs), especially this time of the year as they’re finalizing their strategies for 2015 and beyond.

My short answer: What do your customers think about Mexico?

For most 3PLs, their customers — across a variety of industries — are growing their presence in Mexico, either manufacturing there or growing their supplier base there, so 3PLs need to align their services and capabilities accordingly to the changing supply chain networks of their customers.

The recently-published 2015 Third Party Logistics Study includes a special section on Mexico, and 40 percent of the study respondents said “they have already moved some of their operations to Mexico, citing reduced freight transportation time and closer proximity to sources as the most important factors as the primary drivers of the change.” The study highlights the opportunity for 3PLs this way:

The growth of logistics services plays a crucial role in rendering Mexico’s businesses cost competitive as compared with similar ventures globally. For years, shippers have been reporting significant logistics cost reductions from moving operations to Mexico. As early as 2012, shippers reported an average logistics cost reduction of 21% compared with other parts of the world. They also saw inventory cost reductions of 12% compared to 9% globally and order fill rates move to 77% from 68%.

Not surprising, many logistics service providers are ramping up their investments in Mexico. Earlier this year, for example, FedEx opened a new distribution center in the State of Mexico, stating that it sees “the potential that Mexico offers for our business and has invested nearly $160 million since 2011.” And back in back in May, Transplace (a Talking Logistics sponsor) announced that “Celtic International has expanded its cross-border and intra-Mexico intermodal capabilities, [providing both companies] with a more comprehensive U.S.-Mexico service offering, and will allow their customers to better utilize intermodal services in and out of Mexico.”

Last week, the Bureau of Transportation Statistics (BTS) released its July 2014 North American Freight report, and year-to-year, “the value of rail freight rose 12.0 percent, the largest percentage increase of any U.S.-Mexico mode…Freight moved by pipeline increased 11.4 percent and truck by 8.8 percent…Trucks carried 66.9 percent of the $45.9 billion of freight to and from Mexico, followed by rail at 14.2 percent, vessel at 12.6 percent, air at 2.7 percent and pipeline at 0.9 percent.”

What do I think about Mexico? All signs point to Mexico playing a greater role in supply chains moving forward, and as a result, a greater role in the strategic plans of 3PLs.

What do you think about Mexico? Take our quick poll below and post a comment and let us know! Also, see the following posts for related commentary:

 

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