How two decades of change are reshaping Mexico’s transportation network and future
Destination: International trade and logistics hub
Some 400 years ago, Mexico was the crossroads of the world. Galleons laden with porcelain, silk, ivory and spices traveled from the Far East through Mexico to Europe. Today, four centuries later, Mexico is once again regaining its status as a global trade and logistics hub. To understand what’s fueling the renaissance, it helps to look at the trends that have reshaped the country’s history and transportation infrastructure over the last 20 years.
The resurgence began in earnest with trade liberalization initiatives signed in the early 1990s. Chief among them is NAFTA, the country’s first and most impactful Free Trade Agreement. Since then, Mexico’s transportation and logistics operations have continued to evolve in response to market forces, subsequent trade agreements and 10 key types of trends.
Transportation systems & networks: critical links in the value chain
Transportation systems and networks transport goods and materials from origin to destination by road, air, rail and water. As a result, they’re global trade enablers and essential supply chain links for any company looking to compete on a global playing field. Transportation service is measured and purchased based on a key set of performance metrics – total cost, reliability (safety and quality), speed, availability and capabilities.
Do you know the 10 types of trends shaping transportation service in Mexico?
Want to do business in Mexico? These 10 trends impact transportation service directly or indirectly.
1. Global trade trends
A key trend to consider? What’s happening in global trade. Currently, the biggest is a growing focus on export-oriented development strategies and trade expansion. Economic blocs like NAFTA, the European Union and Asia are working together to lower costs and standardize logistics processes.
2. Multimodal trends
This trend speaks to developments impacting multi-modal transport (moving cargo using different modes of transport via different providers under one contract. The key development is the increasing number of ocean containers being trans-loaded to multi-modal containers. This growth, which is driving improvements in intermodal service offerings, can be attributed to several factors: industrial activity, economic reforms, GDP growth and expanded access to alternate transportation modes (rail, ocean and road).
3. Production/consumption trends
Here, the key trend is the growing role multinational companies are playing in trade. For example, because Mexico offers flexible production systems (land, labor and capital), it’s attractive to multi-nationals looking to locate production/distribution facilities there. As demand grows, the market (e.g. Mexico) must develop transportation services to keep up. This means improving service in terms of geographic coverage, delivery time, transportation mode, shipping size (LTL, FTL, parcel) and cargo type (unitized vs. bulk).
4. Logistics capacity trends
Capacity trends reflect developments in the areas of transportation and logistics availability. As manufacturing volumes grow and demand outstrips capacity, terminals, seaports, airports, land ports at border zones, roads and railways must be upgraded to accommodate current and future demand.
5. Energy and environmental trends
Energy and environmental factors can have significant impacts on trade. For example, fuel supply and cost volatility, together with the emergence of abundant and affordable natural gas reserves in North America, affect transportation technologies, costs and decisions. So do increasingly stringent environmental regulations and government and corporate sustainability programs. To reduce transportation costs and environmental impacts, more companies are near-shoring in Mexico, rather than off-shoring in Asia.
6. Technology trends
Developments in the technology sphere can impact transportation service. For example, the Internet has transformed the way companies manage transportation and distribution networks, enabling custom solutions, automation, Web- and Cloud-based applications and end-to-end visibility. It also enables transportation management systems to integrate with other applications (warehouse management systems, yard management systems, enterprise resource planning systems, global positioning systems, mobile devices, routing, scheduling, tracking, labeling, business intelligence applications and more.)
7. Service integration trends
As more transportation and logistics providers enter the marketplace, many are integrating with stakeholders across the supply chain, enabling greater collaboration and access to multiple services and solutions. As a result, the pressure is on to decrease transportation costs and increase efficiency and reliability via Lean Six Sigma and continuous improvement initiatives.
8. Cargo security trends
Whenever cargo crosses borders, safety and security come into play. While the benefits of sourcing in Mexico are significant, keeping cargo safe remains a challenge. Cross-border crime can take many shapes, from cargo theft and hijacking to smuggling and acts of terrorism. As a result, there’s a growing focus on tighter security measures and inspections, government programs, certifications and investments in tracking and screening technologies. Companies and countries are investing in GPS systems, security escort services, toll roads and programs to protect transportation facilities. These investments typically result in higher transportation and logistics costs.
9. Legal trends
Legal and regulatory requirements also impact transportation and logistics operations. While progress has been slow in NAFTA nations relative to transportation, commercial leasing and customs clearance, recent initiatives signal change. After satisfying rigorous safety inspection requirements, the FMCSA recently granted the first permit to a Mexican trucking firm for international long-haul cargo services. The implications of this decision are far-reaching and may eliminate the need for inefficient border transfers. Source: Phased U.S.-Mexico Cross-Border Long Haul Trucking Proposal, January 6, 2011, www.fmcsa.dot.gov
10. Capabilities trends
A key trend impacting the decision to do business in Mexico is access to the right transportation and logistics capabilities. As demand grows, third-party providers must offer a wider choice of logistics services. Examples include transportation management, dedicated transportation, commercial leasing, carrier management, Control Tower capabilities, delivery confirmation, freight bill audit and payment services, performance measurement, cross docking, consolidation centers and value-added services.
The benefits of doing business in Mexico are undeniable: global competitiveness, a strong and growing economy, access to a large pool of skilled workers, low labor costs, a growing infrastructure, and proximity to the U.S. However, before you relocate to Mexico, make sure you understand the market forces and trends impacting trade there at any given time.
Need help navigating the trends and challenges? Contact Ryder here.
