Category Archives: Mexico

Let The Mexicans Have Our Trucking Jobs

Because, in the end, we’ll still be at least 100,000 drivers short in the long run!

What am I talking about?

Last week, CNN ran an article that noted that the program to allow Mexican trucks on U.S. roads [is] off to a slow start, which really shouldn’t be a surprise, considering the onerous, and costly, restrictions that were placed on the pilot program.

A pilot program that is a little ridiculous when you think about it. As summarized by this recent article on on NAFTA and Those Unsafe Mexican Trucks: Fact or Fiction,

  • All Mexican drivers hold a Federal License from the Republic of Mexico, the equivalent of a U.S. CDL. The validity of this license as been recognized in a MOU between the United States and Mexican governments, and this has been upheld by the The United States Supreme Court.
  • As a result of their license, drivers must present proof of identification, residency, and a current medical certification upon request.
  • If they receive authority to operate in the US, they must comply with the Federal Motor Carrier Safety regulations. This means that they must pass a safety audit and be subject to random audits like U.S. drivers.
  • Most do short-haul drayage shipments within the 100 mile radius of the commercial border zone, where the shipments are handed off. Reporting requirements for short-haul are not substantial, and these logs are easily maintained.
  • Unlike many U.S. carriers, major Mexican carriers that wish to do cross-border trucking into the US conduct socio-economic studies and criminal background checks and only hire drivers with at least two (2) years experience.
  • There is a lot of similarity between the U.S. and Mexican regulatory schemes. Some of the similarities are highlighted in this HighBeam Industry Report on Trucking, Except Local
  • Mexicans are a proud people and the author of the aforementioned article is not embellishing when he says that the job of a truck driver is viewed as one of importance, responsibility, and trust as well as being a highly desirable, better-paying, job for someone with limited education or white-collar skills. I think it’s important here to point out that the U.S. is #2 in vehicles per capita, at 81% penetration, and that Mexico is #56, at 28% per capita. It’s also important to point out that, per capita, domestic freight by road is roughly 1/3 that of US, as per this study by Matt Drake et. al at Duquesne University*.

When you add all up all of the pre-assessment, assessment, registration, and certification costs associated with the pilot program, it’s a lot of effort for little reward. Especially when you consider that all of the arguments against letting Mexican drivers on US roads, which led to their restriction and this pilot program, are ludicrous when placed under scrutiny. The biggest arguments are national security, safety, and American job loss. From a security perspective, this is no different then letting Canadian truckers on the road. U.S. security legislations, including C-PTAT and 10+2, apply to anyone crossing the border, so there are no additional security concerns once the drivers have been certified. As for safety, Mexican regulations are almost as strict as U.S. and the law clearly states that Mexican drivers and trucks will not be allowed on U.S. roads unless they comply with U.S. regulations, and any carrier that wants to be on U.S. roads will happily comply. This just leaves fear of American job loss, which must be the real reason, but a close examination of the issue should demonstrate that there should be little concern on this front.

First of all, the Mexican trucking industry is near, or at capacity. Then you have the fact that Mexico, like the rest of North America, is facing a driver shortage at least as severe as the US, as per this article on the truck driver shortage. And when you consider the driver shortage in the US is going to exceed 110,000 within 2 years, as per the aforementioned HighBeam article (and a post on SI five years ago advising you to Roll On!), even assuming Mexico could add drivers to its ranks faster than the US, when you consider the relative populations, and relative trucking capacities, it is exceedingly unlikely that Mexicans could fill even 10% of the current driver shortage in the U.S.

So I say we forget the political buffoonery and the non-existent issue of American job loss, drop the pilot program, and let any driver who can meet the requirements on American roads. After all, the only thing the pilot program is doing is driving good drivers away, who have been burned by these programs in the past. The real issue is how we are going to continue to move our freight, and given the serious driver shortages across North America, we have to work together.

* The study is a little dated, but the most detailed I could find.

Will 2012 Be The Year Manufacturing Returns to Mexico?

Alix Partners recently released their 2011 U.S. Manufacutring-Outsourcing Index and it had a few surprises. First of all, not only is Mexico now the country with the lowest-landed costs for U.S. customers (which SI has been predicting would be the case for some time now), but the four other major outsourcing destinations analyzed — Romania, Russia, India, and Vietnam — all had lower landed costs than China as well.

Alix Partner’s projected landed costs from China for the next four years based on the three assumptions of:

  • 30% annual increase in wage rates, consistent with Chinese wage inflation over the last several years,
  • 5% annual increase in the strength of the yuan, consistent with the widely accepted estimate of the undervaluation of the yuan by 20% to 25% relative to the US dollar, and
  • 5% annual increase in freight rates, consistent with increasing fuel prices.

If these assumptions hold true, then the landed cost of manufacturing in China will equal the cost of manufacturing in the U.S. by 2015! (And if only one of the predictions come true, the savings from outsourcing for an average organization will only be 10% in the best case!) In other words, at this point very little is needed to erode not only some, but all of China’s cost saving potential in manufacturing outsourcing.

It would seem that for companies looking to outsource manufacturing, the writing is already on the wall: unless you already have a Best-In-Class operation in China, the chances of realizing any value (given the initial start-up costs associated with outsourcing and streamlining such an operation) are quickly approaching zero as time goes on.

Near-shoring: Advantage Mexico

As per this recent article in Logistics Management on Near-Shoring/Right-Shoring Strategies, a recent poll of 80 C-level executives across more than 15 industries by AlixPartners found that 63% of senior executives chose Mexico as the most attractive locale for re-sourcing manufacturing closer to the U.S. market. With its geographical proximity and recent improvements in transportation services between the borders, Mexico is regaining its attractiveness. If 33% of senior executives are going to re-shore within the next three years, Mexico could be on track to regain its former glory. Especially since its attractiveness ranking by these executives was more than seven times that of Central America and Brazil.

Why is Mexico more attractive than the BRIC? In addition to near-shoring, lower freight costs, and improved speed-to-market times, as cited in the article, it’s also lower cost. Costs in the BRIC are rising aggressively. Manufacturing is getting more expensive by the day in China. Services are getting more expensive by the day in India. Raw Material costs are rising in Russia. And inflation in Brazil is over 6%.

Plus, there are the time-zone advantages, cultural alignment with the rest of North America, workforce passion, and free trade zones. Security is still a concern, but the number one cause of death for foreigners in Mexico is still car accidents, not crime. Crime has doubled since the economic crisis of 1994, but most of the crime is non-violent. Unfortunately, “organized crime” (gangs and cartels) is still very violent and a real concern, especially in the northern border region. However, near-shoring to other regions of Mexico is, on average, not much more of a security concern than Home-Shoring in the more dangerous US cities, and a viable alternative.

Logistics Improves on Both Sides of the Atlantic

West of the Atlantic, there are two big logistics bottlenecks. One is the US border with Canada (where documentary requirements make in-transit goods a cumbersome process). The other is the US border with Mexico, where there have been long standing conflicts over cross-border trucking. East of the Atlantic, you have EU security programs that are not compatible with US programs, and also make for bottlenecks.

In the last few weeks, progress has been made on two of the three big bottlenecks as the US reaches agreement with Mexico on cross-border trucking and agrees to mutual supply chain recognition with the EU.

As per the article in Logistics Management, on Wednesday, July 6, U.S. Transportation Secretary Ray LaHood and Mexico’s Secretaría de Comunicaciones y Transportes Dionisio Arturo Pèrez-Jàcome Friscione signed documents to resolve the long standing conflicts between the trucking industries of the two countries that resulted from the elimination of the pilot program for cross-border trucking in 2009 as part of the Omnibus Appropriations Act. (In response to the act, the Mexican government stated it would place tariffs on roughly 90 American agricultural and manufactured exports as payback. The tariffs amounted to $2.4 Billion of American goods.)

The agreement, focussed on a safety-first program, will lift these tariffs and provide opportunities to increase Mexico-bound US exports and create job opportunities. Furthermore, Mexico will provide recriprocal authority for US carriers to engage in cross-border long-haul operations in that country.

In addition, as per this article in JOC Sailings, the US and EU plan to implement mutual recognition of their supply chain security programs by the end of October. Specifically, mutual recognition between CBP’s C-TPAT and EU’s AEO program will occur, as per the joint statement between the European Commission and the US Department of Homeland Security. Once this is achieved, cargo will flow more smoothly between the US and the EU.

Cultural Intelligence IX: Mexico

This series is edited by Dick Locke, SI’s resident expert on International Trade, author of Global Supply Management — A Guide to International Procurement (which was the definitive guide for almost a decade), and President of the Global Procurement Group which regularly gives seminars on International Trade and working with International Cultures.

As highlighted in last year’s post on Overcoming Cultural Differences in International Trade with Mexico, while Mexico is part of North America, there are significant differences in doing business in Mexico when compared to Canada or the United States. For example, as appropriately summed up in Richard D. Lewis’ When Cultures Collide, while the Mexican gives freely to his guest, conducting business and obtaining many social services incur a cost which is normally obviated in U.S. and Northern European societies. Mexican civil servants, officials, and police are paid very little and usually seek to augment their meager salaries by accepting what Americans call bribes to facilitate the granting of permits and other services.

With respect to Locke‘s seven key cultural differences (first outlined as six in his classic text on Global Supply Management), power distance is very high with severe power distances between those at the top and those at the bottom. While the modern factory may work on the clock, Mexico is an authoritarian polychronic culture and punctuality is nowhere to be found on their list of priorities. You’ll have a higher rank than the seller if your money “talks” with respect, as long as you don’t bring a lot of uncertainty to the table (as they don’t like too much uncertainty, though some is okay). While harmony doesn’t have the importance it has in other countries, honor, obedience to authority, and group loyalty is very important. On the other hand, due to their exceptionally high emphasis on personal dignity, they need to save face at all costs. Despite their rankings on Hofstede’s individualism scale, they are actually quite individualistic and very personal.

With respect to verbal communication, Mexicans are generally very direct, but like Korea, “no” can be indirect. The volume is usually moderate as their style is toned down, warm, and gracious, but as in India, you can get louder if you are passionate about what you are saying.

With respect to non-verbal communication, facial expressions are common, as they are a passionate people, gestures are normal (but, as always, avoid the US ‘OK’ sign), touching is common (and they commonly hug and backslap each other) and essential between friends and colleagues, and body position is relaxed (just don’t put your hands on your hips or in your pockets). They tend to stand close, make eye contact (and if they don’t, it’s a sign of respect), and show their emotions.

Meetings are generally social, and business is often discussed over lunch. However, business lunches are not power-business sessions. Ideas, concepts and possibilities are discussed, not specifics. The only exception is if the detail has been pre-negotiated and agreed to beforehand, in which case it’s time to seal the deal over a meal. Negotiations are slow, involve lots of haggling, but only after they get to know you. It’s important to always keep your hands visible at a meal.

It’s also important to remember that while it is perfectly acceptable to discuss business over lunch, it is not acceptable to discuss business over dinner (except in very exceptional circumstances, and only if initiated by the host). Mexican people make friendships first (business comes later), and they often do this over dinner.

Finally, people from the United States need to remember the historic “difficulties” between Mexico and the United States. What US Marines call ‘The halls of Montezuma’ is a national monument to the revered Ninos Heroes. Every Mexican schoolchild learns that these six young cadets committed suicide rather than surrender to the invading US military. And the last time the US military invaded Mexico they were chasing Pancho Villa. He went on to become President of Mexico and there’s a street named after him in nearly every Mexican city.

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