What US companies should know about expanding manufacturing to Mexico

manufacturing in Mexico

As of 2019, Mexico is the largest goods trading partner with the U.S. with over $600 billion in imported and exported goods. This relationship has created 1.2 million jobs as of 2015, according to the latest data available from the U.S. Department of Commerce. It's also been reported, as of February 2019, that U.S. trade with Mexico increased 3.36%, while trade with Canada decreased by 4.12% and with China by 13.52%. This illustrates the direct impact of the current administration's trade war with China in particular, which ultimately has had negative repercussions for the U.S.

Generally speaking, products manufactured in Mexico are high-mix, low-volume, such as automotive and aerospace parts. This level of product is more expensive to move from China to North America when compared to shipping from Mexico. They also require more engineering skills than many products manufactured in China, which trend toward low-mix, high-volume, such as sunglasses or clothing.

As a result of Mexico's cost-effectiveness, global companies with a stake in the North American market, including Nestle and the BMW Group, have increased investments in their Mexican factories in recent months. In 2014, Nestle planned a $1 billion investment over five years to build and expand three of its factories in Mexico. And earlier this year, the BMW Group announced its new automotive plant in San Luis Potosi, Mexico as a boost to their "regional production flexibility in the Americas."

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Borderlands: CBP opens new fastlane at Laredo’s World Trade Bridge

World Trade Bridge

On August 5, U.S. Customs and Border Protection (CBP) held a ribbon-cutting ceremony for the completion of the World Trade Bridge's new Free and Secure Trade (FAST) Lane.

The new $10 million paved lane is for northbound FAST empty tractor-trailers to run directly from the bridge, and will decrease wait times at cargo facilities. The FAST program allows expedited processing of trucks owned by commercial carriers that have completed background checks and fulfill certain eligibility requirements.

"The World Trade Bridge processes on average 16,000 trucks daily, carrying goods valued at more than $300 billion annually," said U.S. Rep. Henry Cuellar (D-Laredo). "The creation of this FAST Lane will streamline trade and promote economic growth in the region."

Around 500 empty trailers will be processed daily and the hours of operation for FAST Lane will be Monday through Friday, 8:00 a.m. to 4:00 p.m.

"These improvements serve as vital assets to not only Laredo, but the entire United States economy," said Laredo Mayor Pete Saenz.
CBP officials estimate they process around 8,000 northbound truckloads daily at the World Trade Bridge facility.

"The ever-growing traffic volumes have far exceeded the limits of the present facilities and we will work hand in glove with our stakeholders at the federal, state and local levels to assist with improvements that will facilitate traffic at the busiest cargo facility in the southwest border," said David P. Higgerson, director of field operations at the CBP Laredo Field Office.

There were 195,918 commercial vehicle crossings at the World Trade Bridge in June, representing a 0.7 percent increase from the same time last year, according to the latest data from the city of Laredo.

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Mexican officials: wait times at Otay Mesa Port of Entry up to five hours

Delay Times at Port of Entry

Truck wait times on the Mexican side of the Otay Mesa port of entry have jumped as the inspection process lengthens, leaving trucks backed up for hours, said officials in Mexico.

"Both Mexican and American customs are spending more time reviewing the trucks – with wait times between four and four and one-half hours," said Salvador Díaz González, president of the Tijuana-based Industrial Association of Otay Mesa (AIMO).
The long lines for the commercial crossing checkpoint in Otay affects not only the companies and transporters, but also the people who [travel] through the area, since the [trucks] massing invade the surrounding roads, Díaz said in an August 14 report in elimparcial.com.

Carrier wait times in the whole Otay Mesa/Tijuana/San Diego market have been trending up since June 1 – up 30 percent to 133 minutes average per load/unload event per month.

The average wait time for commercial trucks in the market is 126 mins over the last year. This information comes from the FreightWaves SONAR platform.

While traffic may be affected in Tijuana, wait times are not affecting the U.S. side of the border. Wait times are hovering around 40 minutes, as of noon August 14, according to U.S. Customs and Border Protection.

With the FreightWaves SONAR Van Inbound Tender Rejection Index (VITRI.SAN) at 1.81 percent and dropping, carriers are still willing to accept loads into the Otay Mesa/San Diego market. SONAR's Van Outbound Tender Rejection Rate (VOTRI.SAN) is also around 1.81 percent, meaning there are no capacity issues in the market.

Díaz said he understands why officials have been stricter with inspections, but the negative effects are causing lower carrier productivity, more air pollution in the Tijuana area and traffic jams that affect others who drive in the area.

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U.S. Senators introduce $287 billion highway bill

$287 billion highway bill

A $287 billion highway bill proposal reauthorizing funding to maintain and repair the country's roads and bridges includes a first-ever title addressing carbon emissions and supporting electric vehicle infrastructure.

The legislation, a five-year reauthorization of the Fixing America's Surface Transportation (FAST) Act to be called America's Transportation Infrastructure Act of 2019, was introduced on July 29 by the Senate Environment and Public Works (EPW) Committee. The proposed funding for federal-aid highway programs is a 27 percent increase from the $226 billion authorized in the current legislation, which expires in October 2020.

"The [EPW proposal] is the most substantial highway infrastructure bill in history," said the committee's chairman, John Barrasso (R-Wyoming). "The bill cuts Washington red tape, so road construction can get done faster, better, cheaper and smarter. It will help create jobs and support our strong, growing and healthy economy. Infrastructure is critical to our country and we should responsibly pay for this legislation."

Tom Carper (D-Delaware), the committee's ranking member, said addressing air pollution in a highway bill will help move the country "toward a safer, more connected, efficient and climate-friendly transportation system" to keep up with the global economy.

"We're just getting started, but I look forward to moving this bill out of committee this week and the work ahead of us to get it across the finish line." The bill must be paired with a version from the U.S. House of Representatives that is not expected to be introduced until the fall of this year, at the earliest.

The Senate legislation increases funding for the Infrastructure for Rebuilding America (INFRA) grant program for freight projects to $5.5. billion, a 22 percent increase from the $4.5 billion authorized in the FAST Act. It increases the minimum amount of INFRA funds to go towards smaller projects from 10 to 15 percent, and sets aside $150 million per year for a pilot program that prioritizes projects offering a higher non-federal match. It would also create new transparency requirements for administering the grants.

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Technology Trends You Can’t Ignore

Logistics Technology

Strategic technology trends have the potential to drive significant disruption and deliver significant opportunity. Enterprise architecture and technology innovation leaders must evaluate these trends to identify opportunities, counter threats, and create competitive advantage, according to a recent Gartner report.

KEY REPORT FINDINGS

Artificial intelligence (AI) opens up a new frontier for digital business. This is because virtually every application, service, and Internet of Things (IoT) object incorporates an intelligent aspect to automate or augment application processes or human activities.

Artificial intelligence (AI) opens up a new frontier for digital business. This is because virtually every application, service, and Internet of Things (IoT) object incorporates an intelligent aspect to automate or augment application processes or human activities.

The way we perceive and interact with technology is undergoing a radical transformation. Conversational platforms, augmented reality, virtual reality, and mixed reality will provide more natural and immersive ambient experiences within the digital world.

Digital representations of things and organizational processes are increasingly used to monitor, analyze, and control real-world environments. These digital twins combined with AI and immersive experiences set the stage for open, connected, and coordinated smart spaces.

Formal mechanisms to identify technology trends and prioritize those with the biggest potential impact on the business create competitive advantage.

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Regional Development Key to a Strong North American Trade Bloc

North American Trade Bloc

For many years now, a concern of mine has been that the purpose of free trade and the agreements that envelop trade between regions has not been properly explained or promoted to communities, especially at the grass roots level.

Recently, Guillermo Malpica, trade commissioner of Mexico and executive director at the American Chamber of Commerce in Monterrey, Mexico, paid San Antonio a visit for a series of roundtables and presentations on the United States-Mexico-Canada Agreement(USMCA). At an energy sector meeting with Malpica, San Antonio energy industry leaders investing in Mexico were expecting to get a sense of direction and clarity regarding Mexico's energy policies.

One roundtable participant asked "what industries are the winners and the losers" in the USMCA. When you ask questions like these, you are basically taking apart a macroeconomic tool and looking at the individual parts. Separate parts don't work unless they are put together like a precision clock.

These types of agreements are not meant to be dissected. Not unlike the cute little frog you dissected in school, the innards don't look pretty. Trade agreements are macroeconomic tools that are designed to benefit economies. Yes, there were industries that were hit very hard once NAFTA came into play, but those industries were not ready.

The signals were clear when Mexico agreed to enter the General Agreement for Trade and Tariffs GATT in 1978 (today the World Trade Organization). My father, the Deputy Director General for the Foreign Trade Institute of Mexico during the 1970s, would have conferences and meetings with Mexican manufacturers, warning them to be ready to compete, up their quality, and export.

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Transportation Secretary Elaine Chao Stresses Benefits of Long-Term Highway Bill

Secretary Elaine Chao

June ended with the country's top transportation officer emphasizing that a multiyear highway policy directive from Washington is more beneficial to state agencies than a series of short-term extensions of federal guidelines.

Secretary Elaine Chao drilled down on this point, admittedly obvious to stakeholders, during an in-depth conversation with Hugo Gurdon, editor of The Washington Examiner, on June 26.

"The general pattern is in fact to just have extensions, not full reauthorization. But clearly, the certainty of having a longer time frame is very important to those who are involved in infrastructure," said the secretary, sitting across from the journalist on stage at the Heritage Foundation. "State and local governments, you know, if they know they're going to have this money for five years rather than six months, they can actually plan for the future. So a longer-term horizon is better."

The conservative think tank is a few blocks from the Senate side of the Capitol, where the surface transportation panel on July 10 ideally will kick off the obvious task of determining a strategy for reauthorizing surface transportation policy. The current highway law expires in less than 15 months.

By now, a consensus has been established inside the Beltway that advancing comprehensive infrastructure policy is unlikely this year. Separate press conferences in May from President Donald Trump and Speaker Nancy Pelosi announcing their failed negotiations on a $2 trillion infrastructure measure cemented the notion that top-level infrastructure talks had collapsed.

Since then, Trump has focused on immigration policy. Pelosi has pressed forward with investigations into Trump's political and business worlds. The Republican leadership in the Senate has not proposed an infrastructure measure during Trump's tenure.

Reacting to Gurdon's suggestion that comprehensive infrastructure policy would not advance in the foreseeable future, Chao exclaimed, "I haven't given up hope yet."

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Mexico first to ratify USMCA trade deal, Trump presses U.S. Congress to do same

USMCA Trade Deal

MEXICO CITY (Reuters) - Mexico on Wednesday became the first country to ratify the United States-Mexico-Canada Agreement (USMCA) agreed late last year to replace the North American Free Trade Agreement (NAFTA) at the behest of U.S. President Donald Trump.

By a vote of 114 in favor to 4 against, Mexico's Senate backed the deal tortuously negotiated between 2017 and 2018 after Trump repeatedly threatened to withdraw from NAFTA if he could not get a better trade agreement for the United States.

Mexican President Andres Manuel Lopez Obrador had already anticipated ratification this week in the Senate, where his leftist National Regeneration Movement (MORENA) and its allies have a comfortable majority in the 128-member chamber.

There has been little parliamentary opposition in Mexico to trying to safeguard market access to United States, by far Mexico's top export destination, and the trade deal was approved with overwhelming cross-party support in the Senate.

Mexico sends around 80% of its exports to the United States, and Trump last month vowed to impose tariffs on all Mexican goods if Lopez Obrador does not reduce the flow of U.S.-bound illegal immigration from Central America.

Lopez Obrador says he wants to avoid conflict with Trump, but noted at the weekend that the tariff dispute showed Mexico needed to become more economically self-sufficient.

Trump congratulated Lopez Obrador on Twitter for Mexico's approval. "Time for Congress to do the same here!" he wrote.

Lopez Obrador, meanwhile, posted a video on Twitter in which he called the Senate's approval "very good news" and said it augured well for Mexico's relations with the United States.

Canada, which has also fought with Trump over trade, is pressing ahead to ratify the deal. The main question mark hanging over its ratification is in the United States, where Democratic lawmakers have threatened to block the process.

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With U.S.-Mexico reaching agreement, trade tensions at southern border lessen

Mexico/ US Border Crossing
Canadian border with the USA. Canadian customs.

By Jeff Berman, Group News Editor • June 10, 2019

With last Friday's news that the United States and Mexico reached a deal that will put off the implementation of tariffs by the United States on Mexico, which it had planned to start today as a countermeasure to what President Trump called an "ongoing illegal immigration crisis" at the Southern border, it is likely cross-border trade stakeholders are breathing a collective sign of relief.

Had the U.S. tariffs come to fruition, it would have begun with the U.S. imposing a 5% tariff on all goods imported from Mexico and then raised to 10% on July 1, 15% on August 1, 2019, to 20% on September 1, 2019 and to 25% on October 1, 2019.

As previously reported, President Trump said in late May that tariffs would permanently remain at the 25% level unless and until Mexico substantially stops the illegal flow of aliens coming through its territory. And he added that if Mexico fails to act, tariffs will remain at a high level, with Mexican-based companies potentially moving back to the U.S. to make their products and goods, and companies that relocate to the U.S. not subject to tariffs or be otherwise impacted. Trump added that aside from immigration being the primary impetus for these planned tariffs that: "[o]ver the years, Mexico has made massive amounts of money in its dealing with the United States, and this includes the tremendous number of jobs leaving the country."

Well, quickly and fortunately, it looks like things are not going to get to that point, according to a joint declaration issued by the U.S. and Mexico that stated Mexico will "take unprecedented steps to increase enforcement to curb irregular migration, to include the deployment of its National Guard throughout Mexico, giving priority to its southern border."

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House Funding Leaders Easily Advance Fiscal 2020 Transportation Bill

Transportation Bill

Legislation that would increase funding for infrastructure grants and the agency overseeing trucking regulations was easily approved by a subcommittee in the U.S. House of Representatives on May 23.

The fiscal 2020 transportation funding bill would provide $1 billion for the Better Utilizing Investments to Leverage Development, or BUILD, grants, a $100 million increase above the 2019 enacted level.

The Federal Motor Carrier Safety Administration, with jurisdiction over trucking and bus operations, would receive $677 million, which would be $10 million above the 2019 enacted level.

The bill advanced by a voice vote to the Appropriations Committee, which is expected to consider the measure in the coming weeks.

Overall, the legislation would provide the U.S. Department of Transportation $86.6 billion, slightly more than President Donald Trump's request and $167 million above the 2019 enacted level.

For the Federal Highway Administration, the measure would provide $48.9 billion, $1.7 billion above the president's request, and $404 million below the 2019 enacted level.

For other agencies, the measure would provide the Federal Transit Administration $13.5 billion, $1.1 billion more than the president's request, and $60 million above the 2019 enacted level. The Federal Railroad Administration would receive $3 billion, which would be $877 million above the president's request, and $96 million more than the 2019 enacted level.

And the National Highway Traffic Safety Administration would receive $1 billion, which would be $81 million above the president's request, and $44 million more than the 2019 enacted level.

The bill also would provide Amtrak $2 billion, highway infrastructure programs would receive $1.75 billion, and the Port Infrastructure Development Program would be provided $225 million.

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