Mexican manufacturing keeps growing
By: Phil Sneed
For the past several decades, it's been common for U.S. companies to shift manufacturing to China and other Asian countries that offered cheaper labor. This offshoring of American manufacturing has continued to the present day, but many of those jobs are ending up closer to home. Mexican manufacturing has grown steadily in recent years, and the country's close proximity to the U.S. makes it an ideal partner for companies that want to sell their goods to American consumers.
There are many reasons for Mexico's rise, and the North American country's manufacturing sector is likely to continue growing for some time. That will put increased pressure on companies that supply trucking logistics in Texas, as a huge amount of freight comes from south of the border. The shift toward Mexican manufacturing has major implications for American companies and consumers. Logistics organizations and manufacturers will need to work together to capitalize on the advantages provided by this change.
A shift in costs
Companies are moving to Mexico for a simple reason: cost. While labor costs in Asian countries used to be much cheaper than in the West, expenses have been creeping up, which makes Asian manufacturing less appealing. This is particularly true in China, which formed the backbone of American manufacturing operations for years. Today, the average wage in China is on the rise, which makes it difficult for Western companies to adequately predict the cost of manufacturing.
"The trend in China, in particular, has been for wage rates to increase by 15 to 20 percent each year," said Michael Zinser, a partner at Boston Consulting Group, according to Inbound Logistics. That has exacerbated issues related to Chinese manufacturing and removed the key benefit. Manufacturing.net noted that Chinese labor costs could gain parity with the U.S. in 2015 or soon after. For U.S. companies looking to contain costs, high labor expenses and the additional outlay needed to transport goods back to the U.S. for sale make Chinese manufacturing significantly less appealing.
A booming market
Since 2010, U.S. trade with Mexico has grown by 30 percent, according to The New York Times. This accounts for $507 billion annually, and U.S. companies invested $35 billion in Mexico during 2013. Labor costs have been stable in Mexico, and the North American Free Trade Agreement allows for the easy transport of goods across national lines, according to Business Insider. As China and other Asian countries lose their claim to low-priced labor, companies that move production to Mexico can reap the rewards.
What's more, growth in the Mexican market is much more beneficial to the U.S. economy overall. While it's true that the loss of manufacturing jobs to another country may be problematic, Mexico's proximity to the U.S. ensures continued engagement with a range of suppliers and transportation companies that support the burgeoning manufacturing industry. The Times noted reports indicate Mexican manufacturers source 40 percent of their parts from U.S. suppliers, while just 4 percent of the components in Chinese-made goods come from the U.S. on average.
Implications for shipping
Mexican manufacturing is appealing because it offers shorter supply chains between suppliers, manufacturers and the U.S. market. Less time with goods in transit decreases risk for manufacturers, and the resurgent U.S. economy provides an excellent market for many types of goods. This means the Mexican manufacturing sector could expand even more in the next few years. Already, manufacturers from a range of countries have moved operations into Mexico in an effort to shorten supply chains for U.S.-sold goods, according to Inbound Logistics. A further expansion of this strategy will bring more activity to Mexico and the transportation services that supply this enormous market.