There has been a huge spike recently in companies moving their logistics needs into Mexico to reduce transport costs and shipping times. Due to the continuously rising cost of manufacturing in China, delays to transportation-related shipping routes, and the customs delays at United States western seaports, a lot of manufacturers are seeking a closer location for their fulfillment needs.
Plenty of companies have chosen Mexico, which is known to be the United States third largest trading partner, as the most cost-effective alternative.
So why Mexico you might ask?
There are a lot of reasons and benefits to why you should consider using a Mexican third-party logistics and fulfillment company.
The main reason a lot of companies moved their operations over to Mexico is due to it being a lot more cost-effective.
In Mexico, running distribution, warehousing, and labeling services under one supplier can cost a company up to 15% and 18% less compared to the USA.
That’ll save you a good amount of money in the long term, mainly if you are sourcing thousands of items every day.
In fact, according to a 2014 report by Capgemini Consulting, 40% of 3PL executives stated that their company had moved some operations to Mexico, mainly from the United States, China, and Canada.
Take note that the report was generated in 2014, the number of companies have gone up in recent years.
Chinese Tariffs is an ongoing issue.
Recent Chinese tariffs have been quite a pain for companies to deal with, especially those who are trying to send their goods to the United States. Getting around this can be quite difficult for most as they rely on selling their products to the United States to make a profit. Even so, by sourcing a 3PL based in Mexico, getting your goods past both Chinese and U.S. Tariffs will be quite simple to pull off.
Besides the short amount of time it would take for the goods to get into the United States, current laws state that they allow up to $800 or fewer goods to come into the U.S. without needing to pay extra duties.
Yes, that’s a new law that kicked in recently, and it’s been a pain for companies that source overseas from China.
Let’s talk about “Nearshoring.”
Most of us probably aren’t familiar with the term nearshoring. To keep it simple, Nearshoring is the outsourcing of business processes, especially information technology processes, to companies in a nearby country, often sharing a border with the target country.
There’s a lot of benefits to this, but the main benefits include the following:
No time zone problems
Culture fit (unlike China and other Asian countries)
Economic friendliness
Faster shipping times due to the countries being closer
More flexible trade regulations
In addition to that, having your goods be closer to the U.S. market by nearshoring in Mexico provides companies with quite the substantial benefits.
For example, shippers will be capable of moving freight from Mexico towards the U.S. by the ocean in less than 48 hours or trucked into the country within a few days or less. Compared that to shipping it from Asia to the U.S. where it could take up to six weeks to deliver the goods.
Usually just to receive a sample product from a manufacturer in China could take weeks. That’s a big obstacle that’s slowing down your business. I’m sure we all want to avoid that!
Another thing to consider when shipping between the two countries is the time zones both are in as mentioned above. They share the same time zone, meaning opportunities will be open for further collaboration between U.S. companies and their Mexican counterparts, making shipping much more seamless.
Want some quick stats?
Over 1.37 million trucks were documented on crossing the U.S./ Mexican border during the first quarter of 2015, which was a 5 percent increase from the year before. Shippers also have a much more reliable and seamless system in place for service options between the U.S. and Mexico, which offers a 15% to 20% cost advantage over trucks.
No More language barriers!
Communications is the key to success in any business. English is one of the most spoken languages in the world at the current moment. While Mexico may not be a primary speaker for the English language, that doesn’t mean they don’t have an abundance of people who can speak and read it at competent levels.
Due to their interaction with places like the United States, knowing how to understand English correctly can significantly benefit both parties involved, making it more seamless to ship the goods.
Matter of fact, most working professionals and business owners in Mexico can speak English fluently. In addition to that, they also travel frequently to the USA for business trips.
This will save you time in communicating with the logistic companies on what is needed. They’re already familiar with how companies work in the USA, and that is a huge bonus.
In short, you want the 3PL company you’ve chosen to be able to communicate with the clients and help with custom regulation compliance which can vary from country to country. Any seasoned 3PL will be capable of navigating these rules, avoiding unnecessary delays and costs, or violations and penalties.
Here are some tips that will help when you are choosing a 3PL in Mexico:
- Understand the complexities of the exchange rate between U.S. dollar and Mexican Peso.
- Knowledgeable about local customs, imports and export regulation
- Experienced with handling specific laws to take products during the proper time at the lowest possible cost.
All those need to be taken into careful consideration to ensure a good long term partnership.
Labor cost
We definitely can’t put together a guide without talking about one of the most significant benefits, which is the labor cost of operations in Mexico.
Mexico didn’t “always” have low labor cost. Unlike a decade ago when Mexican labor costs were reported to be around 60% higher than those of China, in today’s world, they are much lower than most. Mexican firms have also transitioned from simple assemblers of products to some of the most sophisticated manufacturers around.
With an immense amount of labor at their disposal, lower wages, low energy costs, and simplified truck and rail transport, which includes intermodal operations, Mexico has become quite the hottest alternative choice for overseas manufacturing.
By utilizing the services of a company that provides 3PL services in Mexico allows you to take on the flexibility and scalability that only 3PLs are capable of providing in the area or labor. Due to the variable workflow and production volumes, 3PLs can quickly staff up or down to meet the specific needs of their clients as circumstances demand.
Who doesn’t want to save money?
Trade agreements
Turn on CNN, and you might notice a daily headline and discussing around all the trade wars that are happening right now between China and USA. Who knows when a new law will be in effect that will put business owners in a disadvantage.
NAFTA has been one of the hottest topics among logistic companies based in all three countries affected by it, those being Canada, Mexico, and the United States. As of recently, the three nations have finally reached a decision, and NAFTA or UMSCA as it’s now being called has concluded.
Along with this new trade deal, the Trump administration has signed “side letters’ which allow the two nations to dodge Trump’s auto tariffs mostly. Mexico will still be capable of sending their vehicle and parts across the border free of charge, regardless of whether auto tariffs go into effect down the line. Meaning manufacturing companies that dabble in creating components for automobiles will be capable of easily passing by, even more, cost with the help of Mexico.
What a relief…
Fulfillment and shipping
Third-party order fulfillment services are capable of warehousing products, pick, and packaging products as orders pour in, and ship a merchant’s products to the consumer on the merchant’s behalf. While all of these services do come at a cost, there are benefits of using third-party fulfillment companies that can help an e-commerce business bloom.
Utilizing a fulfillment service will allow for lower shipping costs and improve delivery times, improve operating efficiency, and free up loads of time. Furthermore, these improvements will lead to an e-commerce business to blossom.
It is less costly to ship orders from customers living close to the business warehouse. What’s more, it’ll take less time for shipments to arrive at the consumer’s location when said location is quite close by.
While some of these critical details may seem obvious, they tend to be overlooked by a percentage of e-commerce retailers, and they represent one of the biggest critical successes of using a third-party fulfillment company to warehouse products and ship orders. Especially if said business is overseas and you’re shipping them to the US or other parts near it. Which is where the usage of a Mexican fulfillment company comes in.
While every business owner situation will be different from one another, using a service company that specializes in warehousing and fulfillment could take a massive load of e-commerce business and reduce their operating expenses. Here are some examples of what a third-party fulfillment company can do for you:
- Reduce the cost of leasing a warehouse or storage unit
- Reduce the labor cost and taxes associated with order fulfillment
- Lessen packing material costs, since fulfillment firms tend to have better prices
- Pack and ship much quicker, allowing for a more cost-effective shipping service to be sued.
- Cut shipping costs due to the volume and warehouse location
The amount of cash saved can be invested in other areas of the business, such as marketing, leading to growth for the company.
Regardless on the situation, don’t tackle this task alone! Let us help. Feel free to reach out to Sourcify anytime and we’ll be more than happy to guide you in the right direction when looking for a good logistic company in Mexico.