Our cover story this month highlights Brazil as the Latin America country Canadian supply professionals can expect to figure increasingly in their companies’ sourcing and sales plans. Veteran correspondent Ken Mark spent a couple of weeks in Brazil touring the logistics infrastructure of the world’s sixth largest economy. As he notes, the size of Brazil’s economy, population and land mass make it impossible to ignore. It is certain to become an important part of our international supply chains.
Yet, I think it wise to keep an eye on the dark horse in this race of developing Latin American nations: Mexico.
I’m just back from a few days in that country visiting with the executive team from Daimler, who see considerable growth potential for Mexico. Gerhard Gross, president and CEO of Daimler Trucks Mexico, believes there is no reason the Mexican truck market can’t grow to the size of the Canadian market within a few years.
Daimler is not alone in its optimistic view of Mexico. Nissan has created a village-size factory where, starting next year, it will begin churning out thousands of taxis for New York City. The $2 billion factory, together with an existing factory, will allow Nissan to pump out a car nearly every 30 seconds. Mazda and Honda are also busy building factories and Audi is constructing a $1.3 billion plant. This year, Mexico will produce about three million vehicles, making it the world’s fourth largest auto producer. When all the factories mentioned are on line, its capacity will rise to four million.
A few years ago, at CITT's recent annual conference, I hosted a panel of global supply chain experts who delivered their insights on the pros and cons of near-shoring. John O'Reilly, director of customs and traffic at Toshiba of Canada, was part of the panel and explained why after looking at a number of Key Performance Indicators, Toshiba decided to move production of some its products out of China and into Mexico. "Production in Mexico makes sense for Toshiba, logistically, economically, politically and environmentally," he summarized. Today, Mexico is the world’s biggest exporter of flat-screen TVs – not to mention Blackberrys and fridge-freezers.
After years of underachievement, Latin America’s second largest economy is poised for resurgence and this could have important ramifications for Canadian supply chains. In fact, this perennial underachiever grew faster than Brazil last year and is forecasted to repeat that performance this year. By the end of the decade, Mexico will probably be among the world’s 10 biggest economies, according to a special report in a recent issue of The Economist. HSBC projects that within six years the US will become more dependent on imports from Mexico than any other country, surpassing Canada and current leader China.
What is driving the resurgence? Mexico is working hard to shed its reputation as a country of tariffs and trade controls. Joining the North American Free Trade Agreement was the start of a journey that has so far seen Mexico sign free trade deals with 44 countries, more than any other nation. A bit more than a year ago, for example, Canada and Mexico reached an expanded air transport agreement to facilitate increased trade between the two countries. The expanded agreement provides a completely open framework for direct flights between Canada and Mexico.
And in what will force a rethink for Canadian importers who embraced China as a prime source of supply in recent years, Mexico over the past few years has repeatedly been identified as the number one location for lowest landed-costs. In 2000, it cost just US $0.32 an hour to employ a Chinese manufacturing worker compared to US $1.51 for a Mexican one. By 2012, the Chinese worker’s wage had grown to $1.63 whereas the Mexican’s had risen to only $2.10. As The Economist noted in its report, the minimum wage in Shanghai and Qingdao is now higher than in Mexico City and Monterrey.
Mexico is also investing in its infrastructure, with 1,500 km of new railroad lines added since 2006. Combined with the much lower fuel costs and shorter delivery times, it should come as no surprise if “Made in China” gives way to “Hecho en Mexico.”