At a recent supply chain conference, Bradley S. Jacobs heard a “financially compelling” case for investing and doing business in his country from former Mexican President Felipe Calderón.
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Speaking at the annual conference of the Council for Supply Chain Management Professionals in Denver, Calderón “made the case that the cost of labor will be cheaper a few years from now in Mexico than in China,” Jacobs said. “They’re investing billions of dollars in infrastructure, English is taught as a second language now in elementary schools and near-shoring is on a long-term uptick.”
“Mexico is positioning to chip into China’s status as one of our major trading partners,” said the chairman and CEO of XPO Logistics.
Calderón’s speech was a factor in Jacobs’ decision to purchase Pacer International, the largest provider of cross-border intermodal rail services between the U.S. and Mexico, this month for a total cost of $335 million. “We bought Pacer primarily because of its leading position in intermodal and in Mexico,” Jacobs said.
"A large number of analysts believe Mexico is the next China, in terms of U.S. trading partners."
XPO’s latest acquisition couldn’t have been better timed. Trade among the three North American Free Trade Agreement partners rose above $100 billion a month for the first time in October, when the Department of Transportation reported trade between the U.S. and Canada and Mexico was valued at $103.1 billion, a 4.5 percent increase from October 2012.
Truck and rail trade ranked by revenue also reached monthly records — $61.4 billion and $15.9 billion, respectively. U.S. trade with Mexico rose 2.5 percent for all modes, 5.6 percent for truck and 10.9 percent for rail, including intermodal traffic. Imports from Mexico by rail rose 15.5 percent.
Intermodal operators such as Pacer, and now logistics firms such as XPO with strong intermodal arms, stand to benefit from the growth of Mexican manufacturing, particularly in auto and white good production.
“We believe improving cross-border rail trade, driven by near-sourcing, is significant for Pacer International, as approximately 40 percent of the company's revenue (up from about 33 percent a year ago) comes from the automobile industry, particularly out of Mexico,” BB&T Capital Markets said in a report issued before Pacer’s acquisition by XPO.
Others are benefiting as well. Union Pacific Railroad recently launched intermodal servivce between Laredo, Texas, and Memphis, Tenn. Kansas City Southern Railway has consistently increased its cross-border intermodal volume and revenue.
Mexico’s share of U.S. automotive imports rose from 15.1 percent in 2006 to 23.5 percent by August 2013, according to the U.S. International Trade Commission.
Both Mexico and China increased their share of U.S. imports from 2006 through mid-2013, with Mexico’s share rising from 10.7 in 2006 to 12.4 percent by August 2013 and China’s share over the same period climbing from 14.6 percent to 18.7 percent, ITC data show.