How Ecommerce Companies Can Manage Their Own Logistics in Mexico
12.27.18
It’s no surprise to say that ecommerce companies are growing—both in the number of actual companies and their collective size. Ecommerce sales overall continue to grow steadily, increasing by 16% year-on-year.
All this growth also means increased competition among ecommerce brands, which makes controlling your costs even more critical. While many companies use 3PL (third-party logistics) providers to reduce fulfillment and shipping costs, establishing your own packaging, distribution, and fulfillment center in Mexico offers an alternate solution to manage costs.
Pros and Cons of 3PLs
Third-party logistics providers offer package, distribution, and fulfillment services. Just like ecommerce in general, demand for their solutions is growing—their market is projected to reach $1.05 billion by 2024.
The benefits of using 3PL providers are mainly based on cost and convenience. With a 3PL provider, companies typically have access to multiple facilities that are close to their customers, cutting down on supply chain and transportation costs and shipping time. The company can then focus on its core competencies and let the 3PL provider manage its supply chain and fulfillment. It’s a proven strategy (used by 80% of Fortune 500 companies) that usually offers reduced, fixed costs.
However, companies that use 3PL providers have to give up some control over their warehousing and fulfillment processes. If your chosen 3PL provider isn’t reliable, this can negatively impact customer satisfaction when there are issues with fulfillment and shipping. Your customers don’t know or care who your 3PL provider is—if they’re not receiving the right products at the expected time, they’ll expect you to fix it. And you may or may not have the necessary control to do that.
This is why, when faced with the choice between high (and rising) costs to do your own warehousing and fulfillment in the US or using a 3PL provider, we’re seeing more companies turn to Mexico for another option.
Mexico’s Strategic Advantages
Just like in the manufacturing sector, Mexico’s low labor costs is one of the biggest attractions to companies based in the US and other countries. The costs of warehousing and labor in the US may prevent growing companies from scaling. In Mexico, monthly salaries are lower (even with benefits) and the Mexican workweek is 48 hours, so productivity tends to be higher.
Mexico’s border regions are the most popular for ecommerce fulfillment centers because of the relative ease and speed to ship products anywhere in the US. Mexico also maintains trade agreements with 44 countries if you have international customers (or plan to).
Companies that establish fulfillment centers in Mexico can also operate under the IMMEX programs and partner with a shelter provider. The IMMEX, or maquiladora program, offers tax benefits (reduction or elimination of certain import duties). The shelter program allows companies to operate in Mexico with minimal legal exposure (along with other benefits—read more about IMMEX and shelters here).
Section 321: Saving with Tariffs
Since many ecommerce shipments can be categorized as high-volume, low-value, they are prime candidates to take advantage of Section 321 when exporting their good to the US.
What is Section 321?
Section 321 is one of three US shipment types (also known as release options or clearance types). It applies to shipments valued at $800 or less and allows for those goods to enter the US duty-free.
Although Section 321 is a great way to save time and money when shipping goods across the border, it’s important to be aware of the restrictions on it:
- Individuals/companies are limited to one Section 321 shipment per day
- Importers must provide evidence of value
- Shipments must not be one of several lots covered by a single order or contract (with a total value of $800—so you can’t split one large order into several smaller shipments)
- Goods must not require customs inspection or be regulated by the FDA, FSIS, NHTSA, CPSA, or USDA.
- Goods must not be subject to anti-dumping duties
- Shipments must not contain alcoholic beverages, perfumes containing alcohol, cigars, and cigarettes
Goods that are deemed “high risk” for a certain type of merchandise or class may also be denied entry.
Section 321 previously only applied to shipments valued at $200 or less. The US increased this to $800 due to the growth of international ecommerce shipments. Companies that manufacture their goods outside North America can still benefit from Section 321 by establishing a fulfillment center in one of Mexico’s border regions. There are also alternative solutions for US companies that manufacture their goods in Mexico to file for exemptions and avoid additional tariffs.
It’s best to work with an experienced customs and trade compliance partner to ensure compliance with Section 321 (and all other imports and exports). IVEMSA has a dedicated trade compliance team, along with other administrative departments, that works with each of our clients.