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Mexico enhances play as regional supply chain gateway
American Shipper
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MEXICO CITY — The economies of Mexico and the United States are among the most integrated in the world, with 80 percent of Mexican exports moving north to US companies and consumers. The US is Mexico’s largest trading partner, and at points this year Mexico outstripped China to be the largest US trading partner.

But conflict with Washington over trade deficits and immigration is accelerating changes in how Mexico trades with the world and transports goods, both within and across its borders. Uncertainty over the future of the United States Mexico Canada Agreement (USMCA), which Democrats in Congress want changed, can only provide impetus to those changes.

“The US will be the backbone of international trade activity in the country, but we’re seeing different dynamics emerge,” Patricia Perez Salazar, general manager for Mexico at Sealand, said at the JOC Mexico Trade Conference Tuesday. Mexico, she pointed out, has signed free trade agreements with 45 countries, ing up the potential for new relationships.

“These positive trs continue even in 2019,” when the Mexican and US economies are slowing, she said.

“The pace of the Mexican economy has slowed substantially from 2018, growth has almost been halved,” said Paul Bingham, director of transportation consulting in the Economics and Country Risk division of IHS Markit. “There’s weakness that is building.” JOC is a unit of IHS Markit.

That hasn’t slowed cross-border trade yet. The value of cross-border US-Mexican trade by all transportation modes rose 4.6 percent to $54.5 billion in May, the latest month for which data is available from the US Bureau of Transportation Statistics.

“Mexico is kind of the factory for the United States,” said Reto Malfatti, managing director for Mexico at Kuehne + Nagel.

Increasingly, Mexico is a gateway to the US for businesses from other nations, Malfatti said. Much foreign direct investment is aimed at gaining access to US markets, as well as Mexican markets.

“Requests from customers are changing,” he said. “They’re looking at complete supply chains, not just shipping into Mexico. They’re looking for options to ship into the United States.”

Investment in infrastructure is crucial

But international businesses are also looking south of Mexico, as the country becomes an industrial base for Central America, as well. “Customers are looking differently at supply chains, at the whole industrial production path that goes to the US and more and more to Latin America also,” Malfatti said. “That is where we can come in, not just going point-to-point but -to-.”

The result will be increased pressure on Mexican ports and inland transportation infrastructure, both rail and highway, and new growth opportunities, Malfatti said. “We can see increased demand for container shipping from Mexico to the United States,” he said. “As long as the US economy is growing and near-shoring is increasing, that results in more investment in Mexico.”

“We will always be a gateway into the United States,” Perez Salazar said. But to keep that gateway , better connections to the Mexican “hinterland” are needed, she said, as well as better means of moving goods across the US border. Currently, about 70 percent of Mexican exports, by value, enter the US by truck at one of 20 truck border crossing points.

“At the of the day, you need long-term investment in infrastructure,” Malfatti said.

That doesn’t just mean laying down concrete, but “digitalization” of underlying processes that support trades, at sea and land ports, she said.

“We need to reform customs inspections, standardizing processes across the country at ports and between exporters and importers,” added Perez Salazar.

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