Episode 8: Logistics and Shipping Considerations for Manufacturing in Mexico
In this episode, host David McQueen welcomes Leticia Rodriguez of The ILS Company to discuss the logistics and shipping considerations for manufacturing in Mexico.
To begin, Leticia explains what IMMEX is and how it affects shipping in Mexico. The IMMEX certification allows companies to manufacture in Mexico, import raw materials duty free and export their finished product. Companies are left with a tax advantage and the opportunity to take advantage of all the benefits Mexico has to offer. Then, hear how the Mexican trucking industry differs from trucking in the U.S. Leticia recommends you definitely have shipment and cargo insurance, even though it is not required by Mexican law. She is seeing the ports in Mexico become more and more saturated with shipments. Listen as Leticia shares about the best ports for businesses to consider depending on the shipment’s destination. Rail is another very popular mode of transport among industries.
After discussing the physical ways to move merchandise around, the conversation shifts to discussing customs and ports of entry. Looking at truck travel, Leticia outlines the best and most popular custom routes. Carrier rates are likely to be lower when passing through high volume ports, but crossing times are likely to be better when going through lower volume ports. So, what are the best practices for marking sure goods clear customs smoothly? Mexico is known for being very bureaucratic when it comes to incoming shipments. So, before shipping to Mexico, it’s important to have all of your goods inspected to make sure you are in the clear with the customs broker. Overall, you would be expected to prepare the same document for both entry and exiting Mexico. However, each port tends to have their own quirks and rules. By knowing the general process and inspection, you should be fine. Before wrapping up, Leticia sheds light on the most common mistakes she sees made when shipping goods into or out of Mexico. The biggest thing is to always let brokers know that their shipment is on its way. Finally, she urges listeners to always consult with someone who is familiar with the current terms of the business before starting to ship into or out of Mexico. This should ensure everything goes smoothly.
Thank you for joining us on our Manufacturing in Mexico Podcast!
Speaker 1: Welcome to Tetakawi's Manufacturing in Mexico podcast, where we talk to internal and external experts to provide you with news, insights and best practices about doing business in Mexico. Whether you're thinking about expanding into Mexico or already there, this podcast will provide you with the information and advice you need to launch, operate, and thrive.
David McQueen: Hello and welcome to this episode of Tetakawi's Manufacturing in Mexico podcast. I'm David McQueen, and joining me today is Leticia Rodriguez. How are you doing today, Letty?
Leticia Rodriguez: Good. How are you, David?
David McQueen: Great. Thanks for joining us. Our previous podcasts have covered a number of the strategic and operational factors companies need to consider in order to successfully manufacture in Mexico. Today we're going to focus on logistics and shipping. Letty is an expert in logistics from our sister company ILS, and today I'm going to be asking the questions and Letty will be sharing her expertise with us. I guess the past few years have been pretty crazy as far as logistics is concerned. Is that right, Letty?
Leticia Rodriguez: Yes, it definitely has. Since the pandemic, it's port situations are crazy. The driver situation in the U.S. is getting better, but the whole industry was shaken up. But hopefully it'll level off soon. Not anytime very soon though, for sure.
David McQueen: Are things any better than they have been or is it still pretty much the same?
Leticia Rodriguez: Well, the air freight, international air rates have gone down. The port situation isn't as much in delays as it was before, so it is getting better. The trucker situation in the U.S. is also, the demand is going down in the last couple months. Mexico's booming though. There's a lot of freight in Mexico right now. So we're seeing a shift on increase in demand in the Mexico side.
David McQueen: Well, at least there's some encouraging news there. Let's talk specifically about what the companies listening in today need to do, and let's start with IMMEX, since most manufacturers will choose to be an IMMEX company. Can you remind our listeners what IMMEX is and then tell us a bit about how it affects shipping in Mexico.
Leticia Rodriguez: Sure. Well IMMEX is basically a tax preferential treatment that you get to import into Mexico to be able to take your business into Mexico under IMMEX certification. And you can manufacture there, you can import the raw materials under that program, and you can import duty free, and you can export your finished product. And that basically gives you a tax advantage where you can take advantage of the lower labor costs and still be able to keep your reasonable rate on the materials that you manufacture.
David McQueen: And does IMMEX affect by shipments within Mexico as well, or just when I move goods into or out of Mexico?
Leticia Rodriguez: It affects both because you can have transactions which are called virtual transactions between two IMMEX companies within Mexico. So the transaction takes place virtually on paper. The purchase is done from, let's say, one American company to another. So the finished good of one company could be the raw material for another, and once that transaction takes place, the material can ship from the manufacturing facility in Mexico to another one in Mexico without a problem. And, of course, shipping out internationally would be the normal process as an importer export shipment.
David McQueen: So even within Mexico, it helps me avoid taxes. That sounds like that's what I should be doing if I'm going to be in Mexico.
Leticia Rodriguez: Yes, it's been a big trend as more companies are nearshoring or coming from other countries just due to the whole pandemic situation, how it changed the dynamic for a lot of the just in time companies. So they're nearshoring and what we see there is that we're finding suppliers of raw materials that were bought in other countries just there in Mexico.
David McQueen: Great. Okay. Let's talk about how we move goods. And let's start by talking about trucks. Can you tell me how the Mexican trucking industry differs from what our listeners might be accustomed to in the U.S. or other countries?
Leticia Rodriguez: Yeah, so Mexico, it's a lot different. In the U.S., you have technology which is more advanced, so you have more systems to be able to vet your carriers or to make a decision whether your carrier that you're contracting is someone that's reputable, somebody that has hauled how many loads, how many truckers. You can see basic information from their MC number, their mortar carrier number, and you can determine if the carrier could be someone that's good to work with.
And the Mexico side, that doesn't really exist. You have the SCT, but it doesn't have that much detail. And basically the truckers will get the permit for one of their trucks and then they can continue buying more trucks or anymore it's not as regulated. And then there's also, they open a business and they don't have the infrastructure for it, which could be a mom and pop and then they could just disappear the next day. So in Mexico, you have to vet the carriers you use and actually when you're going to onboard them, you find them by Google and all that like you would in the U.S., but then you physically have to visit them and make sure their facility is what you need, that they have the infrastructure, the processes in place in case of urgencies and they have the tracking capabilities. So you have to do your due diligence a little bit more.
David McQueen: So would you recommend that people avoid mom and pop type operators or are some of them worth using if you check them out appropriately?
Leticia Rodriguez: Yeah, some are worth using it. It does carry a risk though, just because many don't have very good cash flow. So you want to make sure that you're using one that you already have a relationship. So if you're just starting out in Mexico, it's best to avoid them until you actually know more about them and can get a better understanding of how they work.
David McQueen: And what about the trucks themselves? Is there anything I should be aware of about the equipment that's used in Mexico that would be different, say, than what I'm used to in the United States?
Leticia Rodriguez: Yes. In Mexico, the road infrastructure is not as developed as in the U.S. So they tend to be, the trailers that are used and tractors used in Mexico tend to be older models, typically. Not all are, but the average age in U.S. versus Mexico is a lot lower in the U.S. So you do have to make sure that you inspect. Part of the visit to the carrier when you decide that you want to work with them is seeing, making sure that the trailers are in good condition. Just because they're older doesn't mean that they don't work. It's just that they have to make sure they have a repair process in place so that they have no holes and make sure that your material is kept in good standing.
David McQueen: So back to that same issue of checking things out carefully before you engage with somebody.
Leticia Rodriguez: Exactly, yeah. The process for carrier onboarding in Mexico is more manual, I guess you could say. You don't have as much technology to rely on.
David McQueen: And how can I make sure that my load is going to be secure and it's not going to get hijacked or stolen?
Leticia Rodriguez: There's many logistics companies that do things differently. Personally, I find that we have a person that's dedicated to security and is able to find what routes or is able to keep updated with the authorities of Mexico of what routes are higher risk, which ones are lower risk. It's always good to tell our carriers to stay on the toll roads, but some toll roads are even also not very safe at night.
So having someone that knows Mexico and knows how the current state is in each state and city, what we do is we tweak the process on our operational side and if it can't transit through that area at night, we hold the driver, tell him to stay there, and then the next morning at five, six in the morning, he can resume his route. So that just keeps the material safe and our drivers as well.
David McQueen: It sounds like something I need to take some care with, but is it likely to happen? Is it very common for any of the loads that you are responsible for to be hijacked or stolen?
Leticia Rodriguez: It depends on the commodity. If the commodity that you're moving, and being that this is mainly IMMEX companies, there's going to be in the manufacturing industry, we find that more in consumer goods, although it's not exempt that a trailer with auto products is a high risk because they might have copper wiring or whatever. Maybe that can be stolen. But typically it's stuff that they can sell out on the road. If it's a trailer of chips, I've seen that once that they ended up just stealing the contents, they open the trailer, take as much as they can or stuff like razors that they use. So just consumer goods or electronics, that stuff that's easy to sell on the street.
David McQueen: I've heard that's a significant risk, actually, in Canada and the U.S. as well. Cigarettes apparently are one that's commonly hijacked.
Leticia Rodriguez: Wow. Yeah. Yeah.
David McQueen: All right. What kind of insurance do I need? Is that different than I would have elsewhere?
Leticia Rodriguez: Yes, I definitely recommend that you have this insured. There's different types of coverages just depending on what insurance company you work for, what logistics company. Some logistics companies don't offer the insurance with Mexico shipments. In Mexico itself, it's not required by law to carry cargo insurance. They do, but what it covers is just pennies on the dollar. So it's not really worth, it won't pay you anything.
So you do need to insure, and in the U.S., it's the opposite. You have to have at least $100,000 coverage for cargo insurance. So being that in Mexico, it is not required by law. If you're transporting in Mexico and you're not insuring your goods and you're definitely at risk of something happening and just not getting your money back. So it's good to choose just depending on the commodity, what it is that you're moving, quote it with your insurance agent or get it also with the logistics company or carrier that you're working with, which there's some that if you have certain volumes already set up and consistent freight, you can get a pretty decent quote for that.
David McQueen: Okay. Well what about if I move goods by ocean? How does ocean shipping work in Mexico?
Leticia Rodriguez: All right, ocean shipping. The port situation that we're seeing right now in Mexico in Manzanillo is getting very similar to how it is in Long Beach, as far as the port saturation. So if you're coming from Asia, you typically, that's the go-to port, that's one of the main ports. And the process, it's a little bit lengthier. If you're used to shipping ocean via U.S., you can account for a couple more days when you're going through a Mexico port because the customs process is different, where everything is inspected physically by a customs broker. So it takes a little bit longer. So that needs to happen before you set an appointment to pick up a container. But you're talking one or two days once the container is offloaded. So one or two days more than you would in the U.S.
David McQueen: And what are the best ports for me to look at right now on both the Atlantic and Pacific side?
Leticia Rodriguez: Pacific side? It will depend on the final destination in Mexico. So if you're going further south, you may evaluate Manzanillo and if you're going further north, evaluate Ensenada. Although Ensenada started to see a little bit more port saturation than before just because of the Manzanillo situation right now. So that's something that really fluctuates month over month. When you're getting ready to ship, just contact your logistics company, whoever you want to ship with and make sure that they take a look at the current port situation. On the Gulf side, those are not too bad right now. Either El Camino or Veracruz, they're the most popular.
David McQueen: And if I want to bring goods, say, I don't know, to a U.S. port and then have them transshipped, am I able to do that? To bring goods into the U.S. and then bring those goods by land into Mexico?
Leticia Rodriguez: Yes. That's actually still a very common option for the northern area of Mexico. Just because let's say you're going to [foreign language 00:12:14], you can go through Long Beach and import it through the states as an inbound shipment, which eliminates any duties. Just goes through in transit. And in Nogales is where it would clear Mexican customs. And we would deliver to [foreign language 00:12:29]. The timing is very similar as Ensenada and you would bypass duties in the U.S. by moving it inbound. And in Houston, same thing if you're shipping to the San Diego area, Chihuahua area up, in the northern areas.
David McQueen: And what about the other way? I assume it works the other way too. I can ship my goods out of Mexico to a U.S. port and then have them loaded on a container and chipped somewhere else?
Leticia Rodriguez: You can, but it's interesting because that hasn't really gained traction too much. It was mainly used for railroad shipping. It's called Intransito, which is an inbound shipping in Mexico. What that does is that is the inbound equivalence. You can bring it in through, let's say, the Ensenada port and open the Intransito, which is a special [inaudible 00:13:20] type. And then you export and you don't pay duties. You just pay the fees for the brokerage. But that's really, from the ports, it has never really been very popular just because they would just come in through the U.S. port just because it's easier if you're chipping into the U.S. But we've seen that trend in the last year or so, a year and a half, that we're getting some Ensenada traffic going bonded, which is called Intransito, and delivering in the LA area or California or Arizona. So, yes, it's possible.
David McQueen: Okay. And you mentioned railroads. What's the rail network like in Mexico and are there any particular things about rail shipping that I should know?
Leticia Rodriguez: Well, rail is very popular. It's been also congested, as far as going northbound out of Mexico. There's a lot of industries that use that mode of transport, a lot in the automotive and in the coal and mining. There's definitely a lot of industry industries that take advantage of that. However northbound right now, the container availability for intermodal is very scarce. So you do have to plan way ahead in advance. And when you compare it with the weight and also the cost, it might be just easier to ship over the road on a regular truck. And it might be very similar in cost. But if you're going southbound from, let's say, the Midwest area down into Mexico City, [foreign language 00:14:47], the main cities, it's a really good option right now. Actually, the rate's really low.
David McQueen: Yeah, I assume that's one of the issues just generally is, depending on which direction you're going, one mode or another might be a little easier to use because of the amount of traffic going the other way.
Leticia Rodriguez: Correct. Correct. And then when it's on the train, the difficult part is if you wait two weeks to get an opening to get on to a train and then once it's on the train, you can't do much. You just have to wait until it gets to its destination. So if you have anything urgent or anything that could get urgent, it's best to just truck it.
David McQueen: Okay. So we've talked about how we physically move our stuff around. Let's talk about customs and ports of entry. What are the best ports of entry for Mexico for truck traffic, if I'm looking at truck travel.
Leticia Rodriguez: Well, best. I would start out by saying most popular. The one that has the most traffic is Laredo, then it's Tijuana, then Nogales and El Paso, which those are the most popular. Now, best, if you're talking about, let's say you want to cross through Texas and oh, I'm sorry. And there's [foreign language 00:15:55] in Pharr, Texas, as well. For example, using comparing Laredo and Pharr, Texas, which are geographically really close, it's only a couple hours from each other, Laredo has the bulk of the traffic, therefore there's more carriers there. Everybody wants to go there to get loads and deliver loads, so typically you don't pay extra mileage for them running empty anywhere, versus if you're going to be crossing through, let's say, Brownsville or if you're north, through Pharr, then there's not as many carriers so the rates tend to go up a little more. However, it's quicker to cross because they don't have as much traffic. You're talking maybe about an extra four to five hours, or it could be a day more, just depending on the broker process.
David McQueen: And how long would it take to cross at Laredo? Am I looking at six hours or eight hours or?
Leticia Rodriguez: It depends because there's seasonality involved. When there's produce season in Mexico, when there's certain avocado season or when there's more exports, when there's more tomato, avocado, things that are flowers as well, they tend to be a little bit busier. So it could be four, six, maybe even eight hours. I've had that. But when it's not as busy, it could be two or three. So it just depends. Well, you don't see as much fluctuation on the Pharr side, on the Pharr, Texas, or Brownsville.
David McQueen: So my carrier rates are likely to be a little lower if I use one of the high volume ports, but my crossing time's likely to be better if I go to one of the lower volume ports. Is that correct? Is that sort of what you'd say?
Leticia Rodriguez: Correct. Yeah, that's correct.
David McQueen: Now I understand that my trailer can go straight through to the U.S., but that my tractor can't. It needs to be changed. How does that work?
Leticia Rodriguez: Yeah, so typically on a door-to-door shipment, so let's say from Canada down to Mexico City, so you would have the material loaded in Canada and then when it gets to the U.S. border, they drop and hook, so basically unhook that trailer, they unhook a driver that only does the border crossing. They're called the Draymen. They dray it to the Mexico side. And then from the Mexico side, you have the third driver that attaches and delivers to Mexico City. That would have three drivers for one same truck.
David McQueen: And I guess there's a system in place to do that at the border. And would my freight forwarder look after that or do I have to arrange it myself or?
Leticia Rodriguez: Well, if a freight forwarder's providing the service, that's part of the basic questions because sometimes the Mexican customs broker does do the crossing themselves.
David McQueen: Okay.
Leticia Rodriguez: Many times they don't. They just provide the whole service. It's easier to coordinate. But if you're going directly with a carrier, you want to make sure that they do provide the drayman service because not all of them do. So then if they don't, you would have to find one with, usually it's the Mexican customs broker.
David McQueen: Okay. Now what sorts of things should I be doing to make sure that my goods clear customs smoothly? Are there best practices you recommend for people?
Leticia Rodriguez: Yes. Mexico's known for being very bureaucratic when they import, on the import side. So when you're actually going to ship there, you want to make sure that you have all your materials been either reinspected or pre-looked at or with pictures or somehow with the customs broker because that's usually the delays what we see is that a shipment arrives and the broker didn't know and nobody's coordinated and they offloaded and they're starting from scratch to figure out what it is that you're trying to ship.
So by letting them know ahead of time, they'll ask you the questions they need pertaining to your particular shipment. And that way they can get ready so when it arrives, it's a faster inspection process and the paperwork's pretty much already predone. And that could be done the same day versus I've seen somebody ship a truckload of fasteners and different things, items that need to be inspected one by one and they can be 2, 3, 4 days, that process can take. So the best thing is preparation.
David McQueen: Okay, how much does it cost to clear goods into Mexico versus say what it costs me to go the other way into the U.S.?
Leticia Rodriguez: It's kind of a tough one. Eliminating duties, because duties can vary so much, it is a costlier process. I would say maybe about 50 to 60% more in Mexico just because, especially on the initial shipments, because they actually have to do a thorough inspection of everything and that takes time. So depending on how much time it takes them, that would be how much you would get billed initially. But once you've developed the relationship with the customs broker, they get familiar with your product and the inspection's faster, so it's cheaper. It's kind of hard to say an actual number because it does vary by case because of the physical process.
David McQueen: But it's definitely a little bit more than it would cost to go the other way.
Leticia Rodriguez: It is. Initially, it is. And once it's set up and you don't have 100% inspections, it gets a lot more reasonable.
David McQueen: Now what about other parts of entry? Are there differences in the way that I clear, say, for ocean or at an airport rail? How do those work?
Leticia Rodriguez: Overall, the process is the same. You prepare the same document, the [foreign language 00:21:07] to import or export from Mexico. So overall, the document looks the same. However, each port has their own little, they're a little bit finicky, more about certain things than others. And it depends. And the port directors change from time to time at different ports, so some of them have a little bit more specific rules. But in general, by knowing the general document that you need and the process is the inspection, in general terms, it's the same. With the exception of the ocean, which is physically in an ocean and you're working with a terminal versus a land port, you're just working directly with customs, not via a terminal.
David McQueen: Okay. Now I also know a lot of people use couriers as part of their logistics chains. And I know the major couriers all operate in Mexico, but are there things about using couriers in Mexico that I should be aware of?
Leticia Rodriguez: You're talking about going into airports?
David McQueen: Yeah, like FedEx or if I'm using FedEx or UPS or somebody like that, is there anything I should be aware of there that is somewhat different than I might experience in the U.S. or in Canada?
Leticia Rodriguez: Yeah, so there's one. If you're importing under IMMEX in Mexico, it's very important that if you're importing raw materials that you're importing under the companies [inaudible 00:22:27]. Typically a courier imports in a global [inaudible 00:22:31], which just creates one customs document for everything that they're carrying in that shipment. And they pay the duties right then and there. And so, physically, the importer of record ends up being the courier for that material and they just pay the duties on that.
However, if you're IMMEX and you want to import a raw material, you need to use it and eventually you're going to declare it on your bill of material as an export. So you need to have that entry into your book. So when you're working with the courier, you need to make sure that they know that you are IMMEX and that you would need to document that as a BSO, or broker select option, for them to create a separate entry into Mexico under the [foreign language 00:23:14]. And that way, you don't have inventory issues later.
David McQueen: That sounds pretty important. You've given us a lot of information, Letty. Can you share with us some of the most common mistakes that you see people make when they're shipping goods either into or out of Mexico?
Leticia Rodriguez: Yes. Well, the main thing is not letting anybody know that your shipment's on the way. Not letting the brokers know, getting the brokers involved. There's a lot of moving parts. So there's the carrier. That could be the freight forwarder, the broker, customs broker, which would be U.S. or Mexico. And then there's the receiver, which typically if you're going into the Mexico, the receiver is the importer of record, typically.
So all these pieces need to be aligned so that everything is cleared as fast as possible. So I've seen that many times where they decide that they're going to send some containers from China, they buy these parts and they just say, "Okay." The shipper, the provider says, "I'm going to put them at the port of Manzanilla for you, and you clear it there." And then yes, and then all of a sudden, these containers arrive and it's like, "Oh yeah, these arrived."
Like, "Oh, yeah, yeah, they sent those to me. Here you go." And it just doesn't work because nobody's prepared and nobody's done the inspection. So that takes away of the free time for the container that you have, which most of the time that that happens, we end up in damages. So the biggest thing is just let getting everybody involved when you're going to ship and not ship until they give you the okay or whoever it is that you're working with.
David McQueen: Okay. Anything else you want to add to help our listeners who are thinking of shipping from Mexico before we wind things up here?
Leticia Rodriguez: Things are changing, especially right now in different ports. So it's always... Make sure you consult with someone that knows the business before starting anything, and that where we align you according to how the market situation is and route your shipment the most efficient way possible for that time.
David McQueen: I think that's good advice. It ties in with what we've said a number of times in our podcast, so talk to somebody who knows what's going on and give you reliable advice and help, makes things go a lot more smoothly in Mexico, so I agree with that. Thanks for joining us today, Letty. You've given us a lot of valuable information and a good understanding of the best ways to move goods into and out of Mexico.
Thank you to all of our listeners for tuning in. If you haven't already listened to our previous podcast, please consider doing so. We cover a lot of different aspects of manufacturing in Mexico and our series of podcasts can help you build a more complete understanding of the challenges and the opportunities for companies who want to operate there. If you have already listened to the full series, please stay tuned for our next episode, where we will talk in more detail about customs and duties. Thanks again and I hope you all have a great day.
Speaker 1: We appreciate you joining us for this session of the Manufacturing in Mexico Podcast. For more information and resources about how to succeed in Mexico, be sure to visit our website, tetakawi.com.