Exporting to Mexico
Continuing our series of reports on emerging markets, we now focus our attention on Mexico as the first member of the MINT group of countries whom many believe offer the strongest growth prospects and opportunities for U.S. exporters in the years to come.
Bolstered by the existence of the North American Free Trade Agreement (NAFTA), U.S. exports to Mexico reached $226 billion in 2013 making it the 2nd largest export market for U.S. goods. The leading products exported from the United States to Mexico included electrical machinery, vehicles and plastics. However, significant trade opportunities exist in sectors such as agricultural products, professional services and mineral oils and fuels.
Mexico also serves as an excellent source of imports for U.S. businesses as the country has a very strong and developing industrial base. These capabilities, combined with Mexico’s proximity to the United States have allowed it to become the country’s 3rd biggest supplier in 2013. In this respect Mexico is unique as a country that offers large export sales and import sourcing potential. Only China is similarly positioned as a vital source of two way trade with the United States.
One of the biggest beneficiaries of this two way trade is the country’s logistics and transportation infrastructure. Trucking, in particular, accounts for the largest share of U.S.-Mexico trade and as a result the country offers excellent options for overland shipping to and from the United States. Due to the substantial volume of traffic between both countries, the Mexican market can even provide very creative logistical solutions such as consolidated shipping across various industry segments resulting in a more favorable logistics cost structure.
Despite the well-developed logistics capabilities that Mexico has, there are some parts of the cross-border shipping process which can cause problems for U.S. exporters. For example, when cargo crosses the border by truck, there may be multiple intermediaries (transporters, customs brokers, etc.) who are involved in the clearance and handling of your cargo. As a result, it can be difficult at times to obtain proper tracking & tracing information on cargo entering Mexico. Working with a logistics service provide that not only has the tracking tools in place, but also maintains a system of careful oversight can help mitigate this problem considerably.
An additional source of trouble for U.S. exporters can arise in working with Mexican customs. Mexican customs brokers face significant regulatory compliance standards and the entries they submit are subject to scrutiny long after a shipment has cleared the border. In fact, Mexican customs can request data on shipments going back up to 5 years. This is significant because any mistakes in classification of cargo or improper filing of a customs entry can result in future shipments being held at the border due to past non-compliance. The upside to this is that a high quality, reputable Mexican customs broker is absolutely invaluable and U.S. companies who are required to arrange customs clearance should ensure that they hire the right parties or work with a logistics provider who has collaboration with a strong Mexican broker. Proper attention to this detail will ensure long term success in terms of export sales and profitability in the Mexican market.
Shippers of small lots of cargo will continue to find the Mexican marketplace to be challenging. While large, full truckload (FTL) shipments are easy to coordinate cross border, or even within Mexico, the market for less-than-truckload (LTL) is considerably underdeveloped and as a result service levels are spotty at best. In order to offset some of the risks posed to your freight by this dearth of service options, U.S. companies should consider working with specialists in the Mexican market who often have larger volume and can combine loads into a dedicated full truck. This practice is used by some of the largest companies doing business in Mexico and it allows multiple companies to access the safety and reliability of a full truck while also offsetting the hidden costs of wasted space and underutilized capacity.
Insurance liability is another key attribute of the export process to Mexico that can pose significant challenges. Mexican insurance regulations are extremely favorable to the transporter of goods, and as a result, relying solely on a carrier’s coverage is not likely to offer sufficient protection to a U.S. company in the event of loss or damage of goods. Additionally, collecting insurance compensation within Mexico is not an easy process and is often unsuccessful. Companies who currently have a global insurance coverage in place are advised to utilize it for their trade with Mexico. Smaller companies who may not have a global policy should consult with an insurance broker to make sure that their exports to Mexico are properly covered for loss, theft or damage.
Mexico offers excellent opportunities for U.S. exports and imports due to its proximity to the United States, its strong manufacturing and transportation sectors and a good labor and consumer market. Companies should consider this market as a source of growth opportunity in years to come and prepare for the challenges and rewards that it offers accordingly.