Why Consider Mexico Shelter Manufacturing11.29.21
It’s no secret there’s been an influx of challenges in recent years in the world of manufacturing. Between the U.S. trade war with China and the global Covid-19 pandemic, there are extreme factors affecting the security of what’s needed to do business effectively and efficiently.
Though manufacturers have relied on China for decades as a solution for cost-effective production, these recent challenges remain in effect and aren’t forecasted to change anytime soon. Therefore, companies planning for the long-term seek alternative solutions, as the idea of continuing an exclusive trade relationship with China doesn’t seem like the most promising.
Here are additional hurdles manufacturers currently face and why a Mexico shelter company might be the most optimal solution.
Lengthy Port Delays
Though most businesses have adapted and are becoming fully operable following the shutdowns of 2020, the supply chain is still playing catch up. As of October 2021, 77% of the world’s ports were experiencing prolonged wait times, up to several weeks, as ships off the coast of the U.S. and China waited for space to dock.
Meanwhile, once the goods finally make it to the dock, having enough workers to distribute them is causing major disruption in the supply chain as well. Due to the labor shortage in America, it’s been reported there’s a lack of 80,000 truck drivers nationwide. And until both sides balance out, there seems to be no immediate relief on the horizon.
Expensive Logistics and Costs
It’s not only dock delays that are causing companies to consider Mexico shelter manufacturing. Freight costs have reached record highs, skyrocketing for some to over 300% year-over-year as of August 2021. This has led some exporters to hold on shipping their goods until these costs begin to normalize and/or until port space opens up.
Costs of manufacturing in China already well exceed the cost of manufacturing in Mexico. A shipment from China can take up to three weeks to arrive and cost approximately $10,000 for a 40-foot container. Whereas, a similar-sized shipment costs an estimated $2,800 when exported from Mexico and can arrive in the U.S. within 24 hours if leaving from a border city facility.
Lack of Diversification
Another challenge manufacturers currently face when doing business in China is the lack of supplier diversification. The pandemic revealed how much a sole reliance on China can be detrimental to business as supply chains were indefinitely shut down or delayed. Essentially manufacturers saw the risk of “putting all their eggs in one basket” and have since begun strategizing how to expand their options.
To provide better support for the future, U.S. companies are either moving their operations closer to home in Mexico or at least diversifying their supply portfolio to avoid the same kind of disruptions from occurring again.
Value of Mexico Shelter Manufacturing
Nearshoring to Mexico is a solution that helps to offset many of these challenges and gives manufacturers a greater sense of security moving forward. Three of the main value propositions of Mexico shelter manufacturing include:
A foreign manufacturer that sets up operations under a Mexico shelter company assures minimized risk since technically, the manufacturer won’t have a legal presence in Mexico. The shelter is responsible for maintaining all necessary permits and certifications required for legal, tax, and customs compliance purposes.
From freight to labor and taxes to timelines, it is far more cost-effective to operate in Mexico than manufacture in China. One of the most beneficial parts of Mexico shelter manufacturing is the IMMEX program. This certification allows exemption from the 16% VAT on all temporarily imported goods, materials, and equipment needed for manufacturing. Under a shelter, this tax advantage is implemented from day one.
Additionally, by partnering with a shelter company, manufacturers also have the advantage of a quick start-up time. Due to decades of experience and expertise, new foreign operations are up and running within three to four months versus the seven to eight months it takes to set up without the help of a shelter. These reduced timelines add to the cost advantages and allow companies to get their products to market faster.
The ability to adapt to unforeseen has always been part of the manufacturing process. To learn how Mexico shelter manufacturing could be a viable solution for you, contact IVEMSA today.