Supply chain crisis causes economic boom on US-Mexico border

Nestled on the south bank of the Rio Grande, the desert city of Juárez has experienced its own economic boom over the years.

But perhaps none like the one that is being produced today.

There seem to be excavators and bulldozers everywhere, making tall piles of dirt and leaving everything – and everyone – covered in a layer of wind-blown dust. The space they are excavating in the desert floor will house a long list of new factories that were commissioned by eager CEOs from around the world when the pandemic disrupted global supply routes.

Ambu A/S, a Danish manufacturer of medical devices, is building a factory on the outskirts of the city. Several miles away Keeson Technology Corp., a Chinese furniture manufacturer, is building a second plant just a few months after opening the first.

Boyd Corp., a California-based conglomerate, recently opened a factory and plans to build three more. Y ENTERTAINMENT, a California-based toy maker, began manufacturing Little Tikes Cozy Coupes at his plant last month, even before construction crews had cleared piles of debris or paved the parking lot.

What is MGA’s rush to do?

The company has 750 containers of toys stuck in supply chain hell in the ports of Los Angeles. Made in China, those items were supposed to be on America’s store shelves this holiday season. That won’t happen, he says Isaac Larian, executive director of MGA.

But the Juarez plant is shipping two truckloads of toys to the United States each day and that number will soon rise to 10. Additionally, Larian plans to begin construction of a second factory in Mexico next year and will begin moving some of the Chinese production. from MGA. to these plants.

“We have great ambitions and great plans for Mexico”, dice.

In corporate executive lingo, this is called offshoring, one of the biggest economic transformations brought about by the pandemic – reducing the length of the supply chain to keep production closer to its final destination and reducing the risk of downside. spoil things along the way.

A shorter chain is a stronger chain, it is said now, and there is a growing sense that this new approach will remain in vogue in managers’ offices long after COVID wears off.

For multinationals doing business in the hot American economy, offshoring often means northern Mexico, where labor costs are cheap, the land is plentiful and the border is on the side. El Paso, Texas, is less than 10 miles north of most of the new Juarez plants.

Other border cities, such as Tijuana, on the west coast, and Reynosa, Matamoros, and Piedras Negras, to the east, are experiencing a similar industrial boom, providing a much-needed boost to a Mexican economy that has been slow to recover from last year’s collapse.

For more than half a century, factories in these cities have been a key cog in America’s supply chain. Known in the industry as maquiladoras, they take imported parts, assemble them into industrial and consumer products, and then ship them north.

When NAFTA, the free trade agreement between the United States, Mexico, and Canada, came into effect in 1994, multinationals installed maquiladoras at a frenzied pace. Only in Juárez are there plants owned by General Electric, Honeywell International, Bosch, Foxconn Technology, Siemens Y Electrolux, among others.

Years later, the region began to stagnate when China joined the World Trade Organization. Many companies withdrew from Mexico and settled in China, where labor costs were even lower. Outbreaks of drug violence along the border only added to the exodus.

China continued to steal US market share from Mexico until Donald Trump took office in Washington. When it began imposing tariffs on products made in China, Mexico again seemed quite attractive to executives. Then came the pandemic and accelerated change.

KeesonThe furniture maker is an example of this: It first made plans to open a factory in Juarez shortly after Trump launched his trade war against Beijing, and brought them forward by a full year when COVID struck.

“Manufacturing is sure to make a comeback”, dice Jason Tolliver, a managing director who helps oversee logistics and industrial services in the Americas for the real estate firm Cushman y Wakefield PLC. The conversations he’s having with corporate leaders, he says, indicate that this wave of investment along the border is just beginning. “It is structural and long term”.

The boom is so intense in Juárez that industrial real estate began to be scarce: 98% of the existing space is already rented, and the price has increased more than 20% in the last year, to around US $ 5.25 per square foot. , according Jesse Meléndez, director of the industrial real estate company Intermex.

Intermex is quick to profit. It currently rents 5 million more square feet of industrial space in the city than it did a year ago, and is building another four factories. They will be tightly packed together in what is now just a barren field of land on the southwestern edge of the city.

As excited as Meléndez is about the boom, he’s already mentally preparing for the downfall that often follows. “In my career, I have typically seen valleys and peaks seven to ten years apart.yes, ”he says. He estimates that the slowdown will begin in 2024.

As Melendez drove through town on a recent weekday afternoon, that seemed like a distant thought. Around him there were posters of “Is hired”On the facades of factories, on buses and in shop windows.

This is what attracted Efraín González to Juárez from his native Veracruz in the south.

People associate Mexican migrants with the US job market, but the truth is that many of them, like González, end their journey a few kilometers south of the border, especially when the maquiladoras are operating at full steam like now.

Factory jobs offer a salary that, although a fraction of the typical salary in the United States, is significantly higher than what migrants can earn at home, in the impoverished south of Mexico. And they don’t have to worry about being deported.

Gonzalez, 49, earns just over $ 80 a week, plus benefits like free lunch, at the Keeson plant, which produces the company’s Ergomotion adjustable beds. He said he knew he would find work as soon as he set foot in Juárez a few months ago. The view of all the new factories being built made that clear. “There is a lot of work here”.