Shifting production to Latin America sounds like a can't-miss for companies looking to boost speed to market. Unfortunately, it's not as simple as it sounds.
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP?s Supply Chain Quarterly and a staff writer for DC Velocity.
Companies that engage in "near shoring"—manufacturing in countries that are close to target markets—may think they have it made. After all, they've cut transit times, reduced transportation costs, and improved their products' speed to market. But those that shift production from Asia to Latin America will find there's more to the story. While the distances may be less daunting, they're likely to confront a whole new set of transportation challenges.
For starters, there's infrastructure. Few Central and South American countries boast the kind of transportation infrastructure found in the United States. That means that with some exceptions (like Mexico or Colombia, where manufacturing sometimes takes place in the country's interior), a company looking to locate a plant in Latin America will likely find its options limited to sites near an airport or seaport.
Another potential complication is access to suppliers. While companies that offshore operations to China have little difficulty finding domestic sources of parts and materials, that's not the case in most of Latin America. In order to run an assembly operation in that part of the world, a company will most likely have to bring in parts and components via ocean.
Despite these obstacles, Latin American countries continue to generate interest from companies interested in pursuing the near-shoring option. Four nations in particular are drawing attention these days: Mexico, Costa Rica, Honduras, and Brazil. What follows is a capsule look at the transportation climate in each of these countries.
Mexico. If it weren't for the country's ongoing drug war, Mexico would be the site of choice for virtually every company contemplating near shoring. There are a number of reasons for that. To begin with, there's proximity. Because Mexico borders the United States, it offers the shortest transit times of any Latin American country. Plus, exporters have the option of using trucks, rather than steamship lines, for U.S.-bound shipments. In addition, Mexico offers a trained work force, with skills acquired during decades of maquiladora manufacturing. On top of that, the North American Free Trade Agreement (NAFTA) has virtually eliminated trade barriers.
As for inbound transportation options, companies bringing materials into Mexico from Asia typically use the Port of Lázaro Cárdenas. Located on the country's Pacific coast, Lázaro Cárdenas can accommodate large containerships. With inbound shipments from Europe, companies typically use Veracruz, Mexico's oldest and largest port.
Export shipments, by contrast, typically move north by truck (the one exception being shipments of cars, which generally are moved via rail). For the most part, Mexican truckers are still mom and pop enterprises, although many have formed relationships with major U.S. motor carriers and third-party logistics service companies.
Companies looking to hire truckers in Mexico should be aware that practices differ south of the border, says Paul M. Karon, president of The Entrada Group, which helps clients set up manufacturing operations in Mexico. For example, he says, they can't assume the carrier will provide insurance coverage for their cargo. "None of the [Mexican] trucking companies carry insurance," he says. "You have to make sure that the shipment is insured door to door."
At the moment, Mexican truckers haul cargo only as far as the U.S. border, where they interchange trailers with U.S. carriers for delivery to destinations in the United States. That's because Mexican motor carriers are prohibited from operating in the United States beyond a 25-mile commercial zone along the border. A tentative deal announced by President Barack Obama and Mexican President Felipe Calderón in March would change all that, allowing Mexican truckers to operate deeper into U.S. commerce. But most experts believe that even if the ban is lifted, the practice of swapping trailers at the border will continue for the foreseeable future. "We're not banking on overcoming that restriction anytime soon," says Chad Spence, a director in the enterprise improvement practice at the consulting firm AlixPartners LLP.
Costa Rica. Costa Rica's highly educated work force has proved a powerful draw for makers of electronics and medical devices, prompting a number of manufacturers to shift operations from Puerto Rico to this Central American nation.
As for transportation options, the country has a major port, Puerto Limón, on the Atlantic Coast as well as a smaller port, Puerto Caldera, on the Pacific side.
Karon says that companies manufacturing in Costa Rica generally set up shop within 10 miles of the airport in San José, the country's capital. That's because most of them are makers of high-value products, which typically ship their goods via air freight rather than ocean, as is common in other Central American countries.
Honduras. Low labor costs have attracted a number of apparel makers to Honduras. And easy access by water has only added to this nation's appeal. The country boasts the only deep-water harbor in Central America, the Port of Puerto Cortés. "The logistics are good in Honduras, if you can live with moving your product by boat," says Karon.
Most of the manufacturers that do business in Honduras set up plants near Puerto Cortés and truck their finished goods to the port. In many cases, they don't even have to go out and find their own truckers. Typically, major steamship lines have relationships with trucking companies to handle the freight movement to the port, explains Guillermo Coindet, a lecturer in logistics at UNITEC (Universidad Tecnológica Centroamericana), a university in the Honduran capital of Tegucigalpa.
Brazil. Because of the country's protectionist laws, most of the foreign-owned plants in Brazil produce goods strictly for domestic consumption. Still, Brazil has considerable promise for near shoring. For one thing, unlike other Latin American nations, it offers an abundance of domestic sources of raw materials and parts. For another, Brazil is much closer to the United States by ocean than, say, China. "From Brazil, it's 8,000 miles to the United States [by sea] versus 12,000 miles from China," says Harry Moser, founder of the Reshoring Initiative, a non-profit group that promotes near shoring.
Brazil's railroads are used mostly to haul commodities, minerals, and agricultural products, making trucking the default choice for companies looking to move goods to one of the seaports on Brazil's Atlantic coast.
But trucking in Brazil presents some challenges, says Carlos Thome, a vice president with AlixPartners. Individual states within Brazil tax truckers at different rates, and the government imposes onerous insurance regulations on cargo shipments, he says. Plus, some truckers will refuse to move shipments at night for fear of hijacking.
On the plus side, shippers don't have worry about sudden rate hikes due to a spike in fuel prices. "Petrobras [the government-owned energy monopoly] controls the price of diesel, so you don't see fluctuations or fuel surcharges like in Europe or the United States," Thome says. (For more on Brazil, see "The rocky road to Rio: What shippers need to know about doing business in Brazil.")
The challenges don't necessarily end once a shipment reaches a port. It's not uncommon for shippers to encounter transit delays due to port congestion, a byproduct of Brazil's thriving export trade. "These ports are saturated in terms of capacity because export movements have doubled," says Thome.
Time to market
In the end, of course, transportation is just one of many factors companies consider when weighing the near-shoring decision. Taxes, wage rates, labor availability, tariffs, and duties all play a role as well.
Nonetheless, the prospect of slashing time to market and reducing the amount of overall inventory in the supply chain pipeline holds undeniable appeal for corporate decision makers. "Companies are looking at near shoring because of speed to market," says Karon. "Being closer to the U.S. market is the number one reason to be in Latin America as opposed to Asia."
States across the Southeast woke up today to find that the immediate weather impacts from Hurricane Helene are done, but the impacts to people, businesses, and the supply chain continue to be a major headache, according to Everstream Analytics.
The primary problem is the collection of massive power outages caused by the storm’s punishing winds and rainfall, now affecting some 2 million customers across the Southeast region of the U.S.
One organization working to rush help to affected regions since the storm hit Florida’s western coast on Thursday night is the American Logistics Aid Network (ALAN). As it does after most serious storms, the group continues to marshal donated resources from supply chain service providers in order to store, stage, and deliver help where it’s needed.
Support for recovery efforts is coming from a massive injection of federal aid, since the White House declared states of emergency last week for Alabama, Florida, Georgia, North Carolina, and South Carolina. Affected states are also supporting the rush of materials to needed zones by suspending transportation requirement such as certain licensing agreements, fuel taxes, weight restrictions, and hours of service caps, ALAN said.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.