Can Manufacturing in Mexico Solve Top Logistics Challenges?

Challenges with global logistics have pushed many manufacturers to reevaluate everything from their factory locations to their supply chain partners. In a Dec. 2022 survey, CNBC found that more than half of the logistics managers serving large organizations and trade groups didn’t expect the supply chain to return to normal until 2024 or later. More than a quarter (29%) said it will be after 2025 — if ever — before manufacturers can expect a return to a normal operating supply chain. 

This uncertainty is the reason that forward-thinking manufacturers are taking action now to simplify their logistics. By manufacturing in Mexico, organizations are finding they can better position themselves to address many of today’s top logistics challenges.

What is logistics in manufacturing?

Many manufacturers are turning to Mexico primarily because of the logistics advantages it offers. There are three key areas where a facility in Mexico can help organizations shorten the time it takes to get goods to customers. They are:

• Procurement logistics:  Mexico has rich natural resources and continues to expand options to support manufacturing. For example, it’s home to a $20 billion plastics industry that is expanding to include advanced plastics materials. Mexico’s proximity to the U.S. border — in combination with the IMMEX program’s allowance to temporarily import goods free of general import tax, VAT, or some countervailing duties — makes it easy to source raw materials and parts from nearby markets. Finally, its Atlantic and Pacific ports and numerous free trade agreements simplify the process and reduce the cost of getting more specific materials from locations around the globe. 
• Production logistics: There are sophisticated Class A Industrial Parks in Mexico that make it easy to manage materials in the production environment. From there, many manufacturers opt to work with logistics providers and Customs partners who can manage the process of and regulations around shipping goods.
• Sales logistics: The growth in e-commerce has led to increased demand for strategic warehousing to ensure just-in-time delivery for customers. That, in turn, has led to an explosion in warehouse construction along the U.S. border in cities including Laredo, Texas; El Paso, San Diego, and Tucson, Ariz. Logistics providers are positioning these facilities to support the increase in manufacturing in Mexico.

Top logistics challenges facing manufacturers today

The uncertainty around global sourcing and shipping may be encouraging manufacturers to relocate and simplify their logistics, but the process of doing so is anything but simple. As organizations consider new approaches to getting goods to market, they’re evaluating a number of recent challenges.

1. Port congestion: It has taken years to work through the congestion problems ports faced as a result of backlogged post-pandemic shipments. The solution has been a combination of expanded capacity at ports across the U.S. and new logistics strategies for manufacturers working to get products out on time. Rather than risk this challenge in the future, many manufacturers are evaluating less busy ports. Others are locating new factories at sites that offer a greater range of transportation options. 
2. Labor issues: From ports to warehouses to trucking, labor shortages are making it difficult to get goods from point A to point B. The CNBC logistics in manufacturing survey found 65% of respondents were facing a shortage of logistics employees with the right skill sets, while 75% of respondents faced challenges in hiring to address that gap. 
3. Rising warehouse costs: While warehouse construction is amping up to meet growing e-commerce demand, that demand is also leading to higher costs. CNBC found survey respondents were seeing as much as a 400 percent increase in warehouse pricing as inventories soar and space becomes more limited.
4. The need to build new supply chains: As companies reevaluate their locations, many are making tough decisions about their supply chains. This includes a growing focus on local or regional suppliers as a strategy for ensuring shipping resilience.

Logistics advantages of manufacturing in Mexico

One of Mexico’s leading strengths as a manufacturing base has always been its proximity to the United States, the world’s largest consumer market. Manufacturers once firmly based in China or Southeast Asia have recognized that a location in Mexico offers similarly cost-effective labor but can significantly reduce the cost and time to get goods to market. With Atlantic and Pacific ports, robust rail infrastructure, and a highway system that runs as far as Canada, a location in Mexico provides redundancy in shipping options.

Of course, the influx of manufacturers into Mexico means the country has faced constraints in industrial real estate and warehousing, much like being seen in the U.S. Even so, rental rates remain far more competitive in Mexico. For example, triple net rates for industrial real estate in Phoenix, Ariz., may average $0.92 per month compared to $0.56 in Mexico. And the easy connection afforded by transportation infrastructure has allowed manufacturers to explore new locations in Mexico, where real estate and labor are more readily available.

This ability to get materials quickly and cost-effectively into the country and finished goods out is only part of the advantage that manufacturers find in Mexico. The other part is the proximity to leading OEMs and industrial clusters covering a range of manufacturing sectors. As companies are reevaluating their supply chains, companies of all sizes have an opportunity to position themselves as a stable partner poised for growth. A location in Mexico provides customers in the Americas with certainty that goods will be able to reach them in a timely manner. With its stable demographics and skilled workforce, manufacturers have the ability to ramp up production to meet growing demands.

For more details about Mexico's logistics environment, listen to our podcast below:

Simplify logistics with manufacturing partners in Mexico

Perhaps the biggest advantage that manufacturers have in locating in Mexico is that they can do so quickly, cost-effectively, and with minimal risk. By operating under the umbrella of a shelter service provider, companies can focus on setting up manufacturing excellence while their shelter service partner provides startup, HR, and logistics support. Tetakawi has helped companies launch in Mexico in as little as 30 days.

Learn more about Tetakawi’s Import Export Services for Manufacturing in Mexico, and reach out with questions about how a location in Mexico can help position you as a dependable supply chain partner.