EL PASO, Texas — The U.S. and Mexico must boost their ability to manufacturer products together by speeding up the movement of goods at the border, and the latter must increase certain manufacturing capabilities.
“U.S. and Mexico are natural partners through the assembly industry, but we believe we must move from the simple relationship to a strategic partnership with a new vision of industrialization,” Luis Aguirre, president of the National Council of Maquiladora and Export Manufacturing Industry, said on Wednesday.
Both countries, particularly the U.S., need to increase Customs staffing and border infrastructure so that shippers can continue to better tap the just-in-time advantage Mexican sourcing provides shippers, Nelson Balido, president of the Border Trade Alliance, told attendees of a MexicoNow conference in El Paso. The idea of allowing public-private partnerships has been gaining momentum in Washington as legislators realize Customs and Border Protection doesn’t have the funding needed to process growing trade quickly without sacrificing security.
The first and only public-private partnership aimed at speeding cargo clearance at the border began last year at the port of entry between El Paso and Ciudad Juarez. Through GPS used in the pilot project, trusted truck drivers are monitored from Mexican plants over the Zaragoza Bridge and to warehouses and distribution centers in El Paso.
The project — implemented by SecureOrigins, a technology and consulting firm, the city of El Paso and CBP — has reduced average truck waits time from more than 70 minutes to 20 to 25 minutes, said SecureOrigins President Toby Spoon. He cited a Department of Commerce study that found that every minute of delay at the five busiest U.S.-Mexico border crossings costs the U.S. economy about $116 million. The pilot program expedites border crossings for 275 to 300 trucks daily that are in the Customs-Trade Partnership Against Terrorism program.
But faster cargo clearance is only part of the answer. To further boost Mexican auto production, the country needs increased capacity in machining, plastics injection, die casting, stamping, and forging, said Eduardo Solis, president of the Mexican Automotive Industry Association.
Booming cross-border trade is largely a result of increased regionalization of manufacturing, redefining the global manufacturing footprint, said MexicoNow Editor Sergio Ornelas at Mexico’s Manufacturing Supply Chain Summit. Trade between the two countries has expanded an average of 24 percent annually between 2009 and 2012, and value of trade shipped via rail and truck between the two countries in 2012 jumped 10 percent year-over-year to $387.8 billion, according to the Bureau of Transportation Statistics.
As Chinese labor costs rise, shippers are sourcing more from Mexico because of cheaper transportation costs and faster access to the American consumption market. Bank of America’s chief economist released a report earlier this month suggesting Mexican labor costs are 19.6 percent lower than in China, according to the Associated Press.
Japanese automakers, such as Honda, Mazda and Nissan, have shifted production to Mexico to avoid the strong yen, Ornelas said. Shippers producing in Mexico for the U.S. market are also somewhat insulated from supply chain disruptions caused by natural disasters and enjoy shortened reverse logistics supply chains. The Toyota brake recall in 2009 and the Asian tsunami in the same year helped spur Japanese shippers to shift operations to Mexico. In the last eight months, 50 Tier I and Tier II Japanese auto part makers have moved production to Mexico, Solis said.
He expects Mexico to produce 4 million light vehicles by 2017, as export and export demand grows. The country produced a record of nearly 2.9 million light vehicles last year, a roughly 100,000 unit increase from 2011. The auto manufacturing boom is good for the U.S., considering roughly 40 percent of the content within the average finished product imported to the U.S. from Mexico is of U.S. origin, according to a National Bureau of Economic Research report.
The auto production boom has fueled Mexico’s economic growth of 4.6 percent in 2012, outpacing U.S. economic expansion by 2.4 percentage points. Mexican GDP, partly because of a strong banking system, will grow 3.5 percent this year and 4 percent in 2014, said Roberto Coronado, a regional economist and vice president at charge at the Federal Reserve Bank of Dallas. Mexican auto manufacturing has expanded at double the pace of the general economy, contributing more than tourism, remittances and oil exports, Solis said.
Eighty-two percent of light vehicles produced in Mexico head overseas, helping make the country the sixth-largest global auto exporter and fifth-largest export of auto parts, Solis said. Mexico usurped Canada as the second-largest foreign auto supplier to the U.S. last year, and he expects the country eventually to overtake Japan for the top spot.
Nissan, the largest light vehicle maker in Mexico, built 671,600 vehicles south of the border last year and expects to build 707,600 vehicles this year, said Jorge Vallejo, Nissan Mexicana's director of foreign affairs and government relations. He expects the company to reach an annual production of 1 million units in the coming years. Nissan manufacuturers more cars in North America than it does in its home country, Japan.
“It is amazing. We never thought we would be build more vehicles here," Vallejo said.
Mexico’s manufacturing goes beyond the auto industry, with aerospace and white goods makers shifting production to south of the U.S. border. Elextrolux, Foxconn and Beechcraft are just a few of the shippers that produce for the U.S. market in Mexico.
The country’s position as a global exporter is also helped by its aggressiveness in striking free trade pacts. Mexico, a member of the North American Free Trade Agreement, has more free trade pacts (about 40) than any other country in the world, positioning it well for exports. The country is also involved in Trans-Pacific Partnership talks and is part of the Pacific Alliance, which includes Chile, Colombia and Peru. That about 20 percent of Mexican exports go to developing countries has helped it weather the global recession and positions it for further growth, Coronado said.