Management of Global Supply Chains - Logistics Challenges and Opportunities (Mexican Perspective) - PDF

Management of Global Supply Chains: Logistics Challenges and Opportunities (Mexican perspective) SGM3 Global Supply Chains November 2024 Dr. Eric Porras Agenda ❑ Importance of logistics as the backbone for global trade ❑ Mexico’s logistics interna...

Management of Global Supply Chains: Logistics Challenges and Opportunities (Mexican perspective) SGM3 Global Supply Chains November 2024 Dr. Eric Porras Agenda ❑ Importance of logistics as the backbone for global trade ❑ Mexico’s logistics international performance ❑ Mexico’s logistics infrastructure for domestic and international trade ❑ Nearshoring and competitive landscape of supply chains in Mexico Why logistics matter? Logistics and supply chain management form the backbone of international trade… Spur economic growth Lower export/import costs through intermodal transport and logistics clusters Improve customer service Sustain global and domestic supply chains Increase competitiveness of countries (by fostering foreign investments) Logistics challenges in global trade Intermodal transportation provides an efficient and safe global network for international trade Logistics clusters Intermodal transportation network container container terminal terminal trucking rail yard rail shipping Due to disruptions in the pandemic years global port congestion led to significant supply chain delays and higher logistics costs Source: Drewry Supply Chain Advisors https://www.morethanshipping.com/rece nt-congestion-in-asian-ports-affecting- Source: VesselsValue Report: 2021 Port Congestion shipping/ Possible causes of port congestions and global shortages Container imbalances in international logistics flows are a constant challenge for supply chains! → around 40% of ships around the globe travel empty… → around 40% of ships around the globe travel empty… which impacts shipping costs: commodities trade are especially affected 33% shipping cost How a global disruption can infect global supply chains China is the world’s largest exporter of intermediate manufactured products About 20% of global imports of those products came from China in 2015 For Asian supply chains, the exposure is bigger -- about 40% Extended supply chains depend heavily in intermediate products from China (see chart) Source: BC-How-the-Coronavirus-Can-Infect-Global-Supply-Chains , Maeva Cousin (Economist) Bloomberg News. January, 2020. Reshaping of global supply chains Low labor cost is no longer an advantage to produce in China (increased in 170% in the last 10 years) From global production networks to regional supply chains From global JIT / minimized inventory strategies to optimized inventories across regions / DCs The “China + 1” sourcing strategy linked to multinational firms FDI decisions International merchandise flows: more is traded within regions than across regions… Mexico’s Logistics Performance The World Bank’s Logistics Performance Index (LPI) Economy Rank LPI Score Singapore 1 4.3 Finland 2 4.2 Denmark 3 4.1 Germany 3 4.1 The 3 4.1 Netherlands Japan 5 3.9 France 5 3.9 US 6 3.8 China 7 3.7 Brazil 12 3.2 Mexico 15 2.9 Source: Connecting to compete. World Bank. 2023 International landscape: Logistics costs as a percentage of GDP Americas Middle East / Asia 8.2 9.0 12.0 11.6 10.0 13.0 14.5 8.5 Europe Southeast Asia / Australia 9.5 8.3 9.7 8.8 8.5 8.6 Mexico’s Logistics Infrastructure Mexico Logistics Infrastructure: Railway network Mexican Railway System Mexico has 23,380 kms of railway lines… compare to 12,500 km in Turkey; 29,213 km in France; or +200,000 km in the US! Mexico Logistics Infrastructure: Sea Ports Network System highlights: ▪ 11,000 kms of coastline Mexican Ports ▪ 13th biggest worldwide and highest in LATAM! ▪ Access to 2 oceans ▪ 117 sea ports Main Mexican Ports Port TEUs (2019) Manzanillo 2.4 M Veracruz 1.2 M Lázaro Cárdenas 1.3 M Altamira 0.5 M Ensenada 0.3 M Total: 5.7 M Veracruz Port Foreland of Veracruz port Mexico’s Highway network 171,348 km Toll 10,560 km highways Free 160,788 km highways Mexico’s Airport System New AIFA Airport close to Mexico City Domestic airports International airports Connecting the dots: Mexico’s logistics corridors San Diego Calexico El Paso Mexico – US Border: +3.000 kms in length Eagle Pass Laredo Origin Destination KMS Transit Time Mc Allen CDMX MTY 900 12 hr Brownsville CDMX GDL 530 8 hrs CDMX TIJUANA 2800 1.5 days CDMX Eagle pass 1255 15 hrs MERIDA Eagle pass 2600 1.5 days MERIDA TIJUANA 4200 2.5 days Nuevo Laredo – Laredo: Main US-Mexico trade crossing In 2023: 3 truck bridges 1 railway bridge 2.9 M truck crossings to the US 40% of total US-MEX trade: 196 billion USD – export 123 billion USD – import 1st US international trade port Surpassing Chicago’s O’Hare Int. Airport and LA sea port Mexico can become the logistics HUB of the Americas… MEXICO’S TRANSISTMIC CORRIDOR NEW YORK HOUSTON, TEXAS Shipments from Asia Shipments +5 shipping days from Asia via Panama canal +10 shipping days via Panama canal FEATURES: Estimated investment = USD 6 billion Rail distance Salina Cruz 4 railway lines (under construction) port - Coatzacoalcos 1 8-lane highway port = 310 kms 2 Industrial Parks Por expansion (1.4 million TEUs per year) 1 natural gas pipeline  Mexico’s Competitive Supply Chains and Sectors Mexico became in 2023 the top US trading partner… but not only because we increase our exports… Total = 798 bilion USD 475 billion USD exports 323 billion USD imports Source: US Census Bureau, 2023  Automotive (4% of GDP) High potential sectors Aerospace (leading sector in DFI) under the new USMCA Electronics (major LATAM cluster in GDL) Agribusiness (biggest exporter to US)  Mexican agribusiness sector 8.5% of GDP 7.5 M people employed 2.5% annual growth 34 billion USD in exports Global leader exporter: 1st in avocados, tomatos, chilis, beer and tequila 2nd in lemons 3rd in strawberries and raspberries 5th in poultry and eggs 6th in beef meat Mexico’s Automotive Industry by the Numbers Domestic perspective 3% 32% 18% 1.9 M of GDP of total exports of manufacturing employees production (2nd largest sector) International perspective 7th 5th 4th largest global largest largest global producer producer of exporter of of autoparts light vehicles light vehicles Automotive landscape of Mexico KIA Case: Relocation of 100 tier 1 suppliers to Mexico Mexico’s high potential sectors: Aerospace ❖ 350+ aerospace companies in Mexico (2020) ❖ 14th largest aerospace supplier globally ❖ $8 billion annual aerospace exports (2022) Mexico’s Challenges and Advantages for Nearshoring Mexico’s international competitiveness Mexico became in 2023 the top US trading partner… but not only because we increase our exports… Total = 798 bilion USD 475 billion USD exports 323 billion USD imports Source: US Census Bureau, 2023 US-China Trade War impacts https://www.piie.com/blogs/realtime-economics/four-years-trade-war-are- us-and-china-decoupling Mexico’s potential to become a manufacturing hub… Nearshoring and Foreing Investment in Mexico Demand for industrial land in Mexico 2013-2023 Source: CBRE Research 2014 Mexico´s nearshoring potential Source: Inter-American Development Bank, 2022 Automotive supply chains are highly interconnected in Mexico and US… Firstronic, based in Grand Rapids, Michigan, buys the capacitor from a Centennial (Colorado) supplier called Arrow Electronics Inc., which imports the components from multiple suppliers in Asia. Firstronics The capacitor is shipped to Ciudad Juárez, Mexico, where it is inserted into a circuit board. Then it heads to a U.S. warehouse just across the border in El Paso, Texas. Because the parts had been sent “in bond,” or temporarily imported into Mexico, they must return to the U.S. to avoid taxes. The component then returns to Mexico, hauled to a Kongsberg Automotive factory in Matamoros. Kongsberg, a Norwegian company, assembles the circuit board into a seat actuator – a mechanical device that folds the seat with the press of a button. Once the circuit board has been installed in the actuator, the control unit ships to a Lear Corp. seat-manufacturing plant in Arlington, Texas, and a Magna Inc. seat plant in Mississauga, Ontario. Now traveling inside the finished seat, the capacitor is shipped a short distance to an auto assembly plant. It is installed in the Ford Flex SUV at its factory in the Toronto suburb of Oakville and GM’s Escalades, Suburbans, Tahoes and Yukons in Arlington, Texas. Mexico’s advantages for nearshoring Demographics – 127M with median age of 29.3 years Labor force and talent – 130,000 engineers graduated per year Tariffs and FDI incentives Low freight and shipping costs for export to US Low total landed costs for global supply chains Time zone advantage and proximity Trade agreements with +40 countries – USMCA, CPTPP Strong manufacturing base ICT industry potential Challenges and opportunities for Mexico in the post- pandemic era Better logistics are needed to make the most out of nearshoring processes (e.g. increase efficiencies, transportation safety and reduce transit times) Higher manufacturing costs are expected in some industries due to USMCA (e.g. automotive) This might increase competition due to imports from low-cost countries Grasp opportunites to diversify exports to other countries outside North America (e.g. LATAM, China, Europe) Adopt better resilience practices at the national and company level Increase adoption of new technologies (e.g. automation, track&trace capabilities, advanced analytics) Increase renewable energy sources Renewable energy in Mexico Puerto Peñasco, Sonora: Largest solar park in Latam Total wind energy capacity in Mexico 2011-2021 Power capacity of 100,000 megawatts when completed Wind park in General Bravo, Nuevo León Source: https://es.statista.com/estadisticas/1237295/capaci dad-instalada-energia-eolica-mexico/  US sees Mexico as a sister manufacturing hub seeking low cost labor for Reshoring, Nearshoring low-tech products and Friendshoring Anything that can be automated will moved eventually to US They consider we have good infraestructure and supplier base but still a (US perspective) far cry from US or even Chinese standards Security in Mexico is a major concern for relocating manufacturing plants  Thanks! 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