3PL Perspectives
Roxana Osuna | ILS Company
Mexico is one of the most important markets in Latin America due to its size, development and total demand, with foreign direct investments for Original Equipment Manufacturers (OEM) and other big manufacturing companies arriving every year. In 2016, imports into Mexico from the U.S. accounted for 46 percent of Mexico’s trade while 81 percent of Mexico’s exports were to the U.S.
Uncertainty over the North American Free Trade Agreement (NAFTA) and news reports listing Mexico as one of the most violent countries of 2017 may cause you to reconsider entering the international transportation market at this time. However, despite the unsavory news headlines, trade and commerce with Mexico continues to be a growing untapped market for those in the logistics business. In fact, Mexico Insights’ statistics continue to show that the country’s levels of general crime and violence continue to be lower than those of most large U.S. cities.
Evaluating each carrier prior to entering a business relationship seems like common sense, yet the extent and depth of the evaluation required is usually undermined in exchange for a quick response or a cheap rate.
Manufacturers’ need to keep products in motion is a business opportunity you should not pass on. Having a good market entry strategy, becoming familiar with Mexico’s different geographic markets and their risks can give you an advantage over providers who let themselves be influenced by information that has been blown out of proportion. While most violence in Mexico is currently drug-related, the top incidents affecting the private sector are: virtual extortion, theft, contamination of the supply chain, facilities intrusion, protests and blockades. Understanding each of these risks and taking measures to mitigate their impact is key to providing reliable transportation services while in Mexico.
Just like in the U.S., carriers should exercise precautions in their route selection. It is important to take into consideration the desirability and re-sale value of the freight being transported. Knowing exactly what you are transporting will help you determine the best route, if additional hours should be considered in the transit time to account for daylight travel only, and if security escorts are recommended. Security solutions such as GPS and tracking systems are popular tools to reduce cargo theft, track assets and aid rapid response to threats. Having visibility of the shipment throughout the supply chain is essential.
Carrier insurance coverage is not built into transportation rates in Mexico. Mexican law makes the carrier liable for 15 times the Mexican minimum wage per ton. Considering the current minimum wage is $88.36 Mexican Pesos, the carrier is liable for about $69.75 USD per ton. If you have a total loss on a shipment weighing 40,000 lbs, you can expect a total of $1,385 USD in payment for your loss. Assuming your shipment is worth more than $100 USD and you want it covered, using your global policy to leverage the coverage you need in Mexico is always the cheapest option. If you are entering into an interchange agreement with a Mexican transportation company, it is important that the terms of coverage for both the freight and your assets are explicit in the agreement.
As important as any of the other measures already identified, so is maintaining close partnerships with Mexican carriers and/or transportation companies. Evaluating each carrier prior to entering a business relationship seems like common sense, yet the extent and depth of the evaluation required is usually undermined in exchange for a quick response or a cheap rate. While cost will always play a part, you should rate your partners for their in-route tracking ability, communications technologies, theft prevention and emergency response preparedness and security solutions that rely on IT applications rather than manual labor. Another aspect that is often overlooked is the physical inspection of the facilities where the shipments will stay overnight or will await Customs clearance. Many carriers will hold meetings at their headquarters, impressing partners with the infrastructure in place, while the reality is that the freight will never touch those facilities. While visiting the carrier’s yard at the border, you want to confirm they have processes in place for seal verifications, security guards in place to make sure containers are not removed or altered by external parties, and area lighting is adequate to ensure the effectiveness of CCTV recordings at night and to deter criminal behavior.
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Making certain that the shipper and consignee share your commitment to maintaining a safe and secure supply chain is also essential. The most successful relationships are those where the Client and the Carrier are true partners and their business and security objectives are aligned. Shippers should develop security measures to include employee awareness practices, risk assessment plans, crisis management/business continuity plans and improved security screening in the hiring process. Access controls, personnel training, and CCTV are all measures that can help prevent an event or, in the worst case, assist the authorities during an investigation.
There are many practical reasons for shipping cargo through Mexico. The country’s macroeconomics are in good shape, and there are time and cost advantages to the use of Mexican ports. Companies that address external threats by adopting internal security measures can turn them into opportunities to grow their market share. Making informed decisions and developing a solid entry strategy will increase your success rate as much as selecting the right partners.
The author, Roxana Osuna, is a Compliance Officer with The ILS Company, which has offices in the U.S. and Mexico. The author can be reached at [email protected]
