Community Perspective: Global Supply Chain Crisis: Successes and Opportunities for Texas and Mexico

By: Abraham K. Weller Lara, CEO Global Exports Veracruz / Twitter @AbrahamWellerJr.

Globalization has created a strong interconnection between most countries worldwide. Today it is difficult to imagine a life without the comforts of goods, products and commodities from international trade.

In other words, we depend on certain materials and inputs originating in foreign markets to move the economy, industry, produce and trade. It is common to walk through a supermarket and find the shelves full of products from different parts of the world, or buy a TV, a phone or even a car composed of parts from Mexico, the United States and Canada, that is, a final product not only made in a single country but made in the North American region.

Behind the scenes of all this system in plain sight, there is a complex logistics network called the global supply chain. In essence, the global supply chain refers to all the links required to move a good from one country to another; means of transport, logistics coordination, storage and service providers involved in this process.

Crisis in the global supply chain

At the end of 2021, this complex logistics network began to receive strong impacts derived from the dynamics in the world economy. It is worth highlighting some causes of the crisis:

1. Imbalance between supply and demand
2. Rapid post-pandemic  restructuring of seaports  in Asia
3. Partial or medium-capacity opening of seaports in North America and Europe
4. Increased e-commerce and product demand in the U.S.

In addition to all this, the epicenter of the global crisis in the supply chain is mainly located in the busiest maritime route in the world: the route between the ports of Asia (Shanghai, Shenzhen – Hong Kong) and the West Coast of the United States with the port of Los Angeles / Long Beach as the main one. gateway for the import of goods throughout the Americas.

The consequences of this crisis are of great proportions, and have generated a notable increase in the costs of sea freight, quoting at the beginning of 2021 around $ 3000 dollars per container to overcome the barrier of $ 12,000 dollars per container, and even reaching higher prices. In addition, the shortage of *TEUS (standard 20-foot container) makes it very difficult to find equipment to ship goods, creating delays, cost overruns and bottlenecks in major seaports.

Opportunities for Texas and Mexico

The critical moment in the global supply chain poses great challenges, but at the same time opens new opportunities for regions and countries focused on finding the advantages within the current situation. Mexico is the main trading partner of the United States and almost 80% of Mexican exports have that market as their final destination. For its part, within the US economy, the state of Texas is a giant with vast energy reserves, a dynamic trade and open to foreign investment, in addition to a population of around 30 million inhabitants.

Relocation of investments to the Texas – Mexico Macro Region

Texas represents Mexico’s main trading partner within the U.S. market and both economies are very intertwined from the commercial aspect to the workforce necessary to become a macro region of high global competitiveness. Northern Mexican states such as Nuevo León, Chihuahua, Tamaulipas and Coahuila border Texas, and are also leaders in export manufactures destined for the Texas market.

A first opportunity comes in the form of relocation or “reshoring“ to attract new industries and investments to this region. Multinational companies on the Asian continent are now looking to mitigate the severe effects of supply chain crises and move closer to their final market in the United States.  In that sense, the relocation of these companies in Asia to the Texas-Mexico macro region is a very viable option.

Diversification of seaports

Likewise, the so-called global container crisis has its massive congestion and mainly on the West Coast of the United States, specifically the port of Los Angeles / Long Beach has been the most affected due to the traffic jam of ships that can take several weeks to unload their goods. Another possible strategy is to diversify cargoes to less congested ports, and there both Texas and Mexico turn out to be quite competitive.

Texas has deep seaports such as Houston, Corpus Christi or the port of Brownsville itself. For its part, the east coast of Mexico has the ports of Altamira and Veracruz ready to complement and link to other markets.

North America is destined to become the most competitive region in the world and for those purposes the role in the supply chain of Mexico and Texas will be decisive.