June 2012 | Commentary | 3PL Line

Nearsourcing to Mexico Improves Operational Efficiency

Tags: Mexico

Troy Ryley is Managing Director, Transplace Mexico, 956-722-3878

For years, Asia was the location of choice for low-priced manufacturing. The Asian shipping market was hit hard by the global recession in late 2008 and 2009, however, and the region became less appealing as a manufacturing site when labor costs began rising.

Then, as the global economy improved, demand for product quickly outpaced supply and led to a sharp increase in shipping rates, up in mid-2011 by a whopping 183 percent over the previous year, according to Drewry Shipping Consultants. Businesses struggled to find space on ships, and were forced to transport by air, quickly diminishing the appeal of Asia's low-priced production.

"Nearsourcing" to Mexico allows companies to address these issues. In addition to meeting the challenges posed by manufacturing in and shipping from Asia, Mexico has evolved into a business-friendly environment.

The government is aggressively working to streamline and simplify the process of doing business in its country by pursuing free trade agreements and simplifying bureaucracy.

Mexico produces high-quality products with a skilled workforce, while additionally decreasing time-to-market with its close proximity to the United States. As a result, goods turn faster, and factories are required to hold less inventory, speeding cash-to-cash cycles.

Furthermore, Mexico offers manufacturing and distribution centers that can receive raw materials and tariff-free goods, streamlining regulations for re-exportation. This ability has led to an 8.7-percent increase on year-to-date imports through Mexico.

Taming Fuel Costs

Location is also a key differentiator in offering valuable business benefits to transportation companies looking to lower fuel costs. The shortened travel time from Mexico to the United States drastically decreases fuel expenses. The reduced distance is also conducive for products that require quick speed to market, making it easier to forecast long-term supply and demand.

With so many challenges looming, intermodal transportation offers an opportunity for companies to further develop their business in other locations. Nearsourcing to Mexico provides companies access to rail, ground, and air shipments, as well as proximity to ports.

In contrast, the majority of Asia is landlocked, with a decentralized manufacturing landscape. Mexico's geography is more favorable to intermodal transportation, with a centralized com­munity and better accessibility, facilitating improved customer service.

Nearsourcing for Success

Offshoring to Asia has been the choice of manufacturers for many years, but with inflated prices and capacity concerns, the challenges of manufacturing in Asia far outweigh the rewards. Companies learning about the benefits of nearsourcing to Mexico can easily leverage its geography and resources to decrease spending, improve customer service, and prepare for the future.

Nearsourcing is becoming more popular among manufacturers and buyers, and Mexico's reduced transit times and lower logistics costs make it a preferred location.