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Logistics Challenges in Mexico

As companies shift manufacturing back from Asia to the western hemisphere, they are increasingly looking at Mexico as an alternative for low-cost production. Matt Hamson, chief executive officer of Coronado Logistics Inc., outlines the country's pros and cons.

The biggest logistics challenge for companies doing or contemplating business in Mexico “is the gap between expectations about how things should work and execution on the Mexico side,” Hamson says. When it comes to managing logistics, Mexico is similar to the U.S. in many ways. But there are key differences in the areas of transportation insurance and security.

The majority of trucking in Mexico is dominated by smaller companies. Some 75 percent of equipment in that country is owned by businesses with 100 trucks or fewer, Hamson says, “and they struggle to expand rapidly.” In addition, there is an imbalance of goods favoring southbound traffic, so it can be difficult to find equipment moving in the other direction. Hamson tells of one large refrigerated company in Mexico that was turning down 30 loads per day due to a lack of equipment to service those would-be accounts.

The problem was created in large part by the trend of U.S. companies that had been manufacturing in Asia to near-shore their operations in the western hemisphere, at a pace faster than equipment purchases by Mexican trucking companies. The relatively small size of those entities has made it difficult for them to acquire the necessary assets.

Equipment quality is, for the most part, not an issue in Mexico today. Many vehicles are equipped with GPS tracking devices, even though a number of carriers have yet to implement modern-day transportation-management systems that would allow for the timely communication of data. They have tended to paper over the efficiency shortfall with people, Hamson says.

Another major difference between trucking in the U.S. and Mexico is a lack of adequate insurance in the latter. In Mexico, it’s up to the owner of the goods to obtain insurance, and all coverage is not the same. Risk insurance, for example, might exempt damage caused during regulatory inspections of goods crossing the border. Shippers need to make sure they have obtained the necessary level of supplementary insurance to cover any potential losses.

When it comes to violence and personal safety, Mexico is much safer for business than is generally assumed, Hamson says, adding that most of the violence involves drug gangs moving illegal narcotics, not hijacking commercial trucks.

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