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Chinese Branded Railway Cars Appearing in Major U.S. Cities- The Momentum Has Increased

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In October of 2014 we alerted Supply Chain Matters readers to what we thought was a noteworthy milestone development, namely Chinese designed and branded railway cars appearing in a U.S. subway system.

The headline back then was that the State of Massachusetts Department of Transportation selected China’s state-owned CNR Corp. for the replacement and delivery of 284 modern subway cars for the Massachusetts Bay Transportation Authority (MBTA), also locally known as the ’T’. This was the first Chinese manufacturer to win a U.S. based major transit system equipment replacement contract.Boston CRRC subway cars sized Chinese Branded Railway Cars Appearing in Major U.S. Cities  The Momentum Has Increased The further significance of this development was twofold. First, the awarded contract cost, namely $566 million, was a rather affordable sum for this amount of modern rail equipment. A further significance was that the contract called for the railcars to be assembled at a new final assembly manufacturing facility at a former closed Westinghouse factory site located in Springfield, a central city in Massachusetts. Assembly operations would therefore be U.S. based, with the expectation that other U.S. equipment supply contracts could follow.

Subsequently, China’s government facilitated the merger of China’s two major state-owned rail manufacturers which included CNR. The combined China Railroad Rolling Stock Corp. (CRRC Corp. Ltd.) then created a local U.S. subsidiary to administer contract delivery needs involving the U.S.

The state-owned China U.S. subsidiary has since landed a major equipment replacement deal with the Chicago Transit Authority, described as a monumental overhaul of the transit authority rail car equipment, amounting to a $1.3 billion contract to replace 846 rail cars, about half of the existing subway car fleet — the biggest car purchase in that agency’s history. The described new generation of railcars also called for localized final assembly to be performed at a new final assembly manufacturing facility to be located on the Southeast Side of Chicago.

The State of Massachusetts has since opted for adding more subway cars to its original contract agreement, again calling for local assembly with fabricated steel and carriage equipment sourced in China and domestic sourcing of other equipment.

On March 16, CRRC Corp. held a groundbreaking ceremony and began work on the Chicago manufacturing facility. According to a published report by the Caixen News Agency, the 45-acre facility, located in the Hegewisch neighborhood of Chicago is expected to cost $100 million with assembly lines producing 168 rail cars annually starting in November 2018. This facility will similarly assemble subway cars from major fabricated steel components imported from China, combined with domestically sourced U.S. component content, and will employ only 168 people in Chicago.

Yesterday, this same new agency, citing knowledgeable sources, reported that CRRC Corp. Ltd. has now won contracts to supply subway cars to both Philadelphia and Los Angeles transit agencies. According to this report, the Los Angeles deal will see CRRC supply 64 rail cars for the red and purple lines on the city’s subway system with delivery set for either 2020 or 2021. The Philadelphia deal reportedly calls for CRRC to deliver 45 subway cars to the U.S. east coast city for a total price of about $137.5 million. Neither of these deals have been officially announced yet by the respective transit agencies.

This Caixen report further indicates that like the deals in Boston and Chicago, the new agreements for Philadelphia and Los Angeles will require CRRC to set up local manufacturing facilities and buy more than half of components for rail cars domestically.

Further reported, and somewhat even more interesting, is that a consortium led by CRRC and Canada’s Bombardier Rail Unit is currently the lead candidate to supply subway cars to New York City in a deal that could soon be announced.

Thus, in a matter of three years, it appears that China’s state-owned railway equipment manufacturer has been gaining momentum as a provider of modern, technology-laden subway and rail passenger cars with somewhat attractive pricing.

Beyond all the political dimensions of the above, there are now the geopolitical dimensions to consider as well.

If the new Trump Administration in the United States follows through with campaign promises to significantly step-up spending on U.S. transportation infrastructure, would U.S. Congressional leaders be open to a Chinese state-owned company as a qualified supplier of competitive equipment to other U.S. rail networks?

If the Administration further influences the U.S. Congress to pass major corporate tax reform legislation that includes an import tax, or perhaps higher duties for equipment manufactured or fabricated in global manufacturing regions such as China, how would such legislation impact the economics of these recent U.S. transit equipment deals?

These are interesting forces at-play, forces that may have major U.S. cities possibly advocating for open access to global markets like China to modernize long overdue urban and inner city transit at a more affordable cost, while balancing the supply chain with imported as well as localized supply chain content.

Obviously, this is an area that will provide interesting developments in the weeks and months to come.

Stay tuned.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


A Persistent Theme- Be Prepared for a Year of Continual Supply Chain Analysis

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If our readers have had the opportunity to review all of our 2017 Predictions for Industry and Global Supply Chains, you probably picked-up on a dominant theme, that being the election of Donald Trump as President of the United States, and what that could imply for U.S. global trade policies and consequent industry supply chain impacts.

We presume that some readers might ask why raise such concerns so early, after all, legislative actions take time, especially when a change involves a lot of special interests. Industry supply chains have established global value chain links and in theory, should be able to respond to many forms of external-driven changes. However, we continue to submit that the changes being contemplated for U.S. trade and tax policies are far more potentially impactful to industry supply chains, from both an inbound supply and outbound product demand lens. We reiterate that sales and operations planning teams need to be prepared for the various implications that may come along sooner than one would expect.

We pen this posting at roughly two months into the Trump presidency, and already, the dizzying pace of news, speculation and editorial regarding the potential effects of a U.S. anti-trade policy are enough to motivate many a supply chain practitioner to have a drink or two at a local pub. Mr. Trump’s personal attacks on traditional and social media based news outlets adds more fuel to polarization of viewpoints and constituencies, and his actions to utilize Twitter as a personal attack medium against the media, legislators, or specific corporations has everyone on-edge, ready to pounce on the offense.

In the United States, the atmosphere smacks of confrontational politics. The opposition political party is of the belief that the Trump Administration agenda leans far to the right on trade, tax policy, immigration, and climate change, ignoring the realities of a globally based economy, the forces of globally dependent markets and the stark signs of climate abnormalities. Political discourse now focuses on floated proposals regarding double-digit import tariffs or a border adjustment tax.  Recently, Warren Buffett termed such an approach as a “sales tax” on U.S. imports with consequent impacts for increased retail prices of imported goods.

Meanwhile, with major elections pending across Europe this year, right leaning candidates are now emboldened for change and attacking the status-quo of global trade, immigration, and economic growth.

If there is a benefit to the existing U.S. environment, it is that of broadened education on global supply chain flows and potential impacts.  In a prior blog posting, we shared highlights from a briefing with the American Apparel and Footwear Association who provided us data on that industry’s supply chain flows. A published New York Times report indicates how ‘America First” policies could harm the U.S. aerospace sector citing data indicating that “more than 13,000 U.S. companies’ make-up the Boeing supply chain nerve center”, and are dependent on Boeing’s revenue growth. Boeing represents the single largest U.S. exporter in dollar value. China and Mexico combined account for $21.5 billion in U.S. aircraft related exports, while aerospace related imports from Mexico alone account for $2.4 billion. Our news desk has featured other published reports citing supply chain U.S. import data related to retail and automotive supply chains as well.  The most pertinent data, however, is that related to various geographic sourced component costs contrasted to landed and customer cost to serve costs. In the end, supply chains need to best serve individual customers while meeting specific business or product margin goals.

The halls of the U.S. Congress are now congested with industry lobbyists. More than 25 major corporations have formed the Made in America Coalition which include pharmaceutical, chemical, and major equipment manufacturers. On the other hand, firms highly dependent on product imports such as major retailers and certain specific manufacturing companies are rallying to oppose forms of an import tax. Thus, there are industries currently pitted against other industries in a lobbying effort to educate lawmakers as to the real consequences of an American First trade and tax policy.

Once again, we reiterate that Supply Chain Matters is not a political focused blog.

Our role as a supply chain education blog compels us to alert industry supply chain teams to be prepared for continual analysis of potential supply chain impacts or revised product sourcing to better educate senior management on the cost and/or revenue impacts of different scenarios.

We are reiterating these messages because there may be some do nothing tendencies to let the political debates run their course, then, one can respond and act.

We would argue that such a strategy is ill-timed, essentially for two reasons. First, how up to date is your supply chain data related to component and landed costs? Do you have the capability to run multiple planning scenarios related to supply chain sourcing with the ability to update important data when needed? Hint- we are not referencing multiple spreadsheets passed along at various intervals. Do you have the trained people with the skills to perform such analysis on a continual basis, while multi-tasking on other job responsibilities as-well?

The other essential motivator is that an industry competitor or disruptor, who has amassed accurate data, and has completed and educated management as to all the analysis of different scenarios, already will have the head start on evaluating existing of new sources of qualified suppliers and supply chain services that can meet cost objectives, perhaps eliminating supply options from your organization’s consideration.

In today’s hyper competitive markets, one must be always prepared with the most accurate and insightful information relative to important decision-making. Preparedness and speed are the new table stakes.

If you have not already, be prepared for a year of constant supply chain network analysis and scenario-based planning.

The stakes are very high.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


2017 Industry Specific Predictions- Pharmaceutical and Drug Supply Chains

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Thus far, we have posted deep-dives on the first nine of our 2017 Predictions for Industry and Global Supply Chains.  The one prediction remaining is our final Prediction Ten, which for each year, dives into what we foresee as unique industry-specific supply chain challenges or environments for the coming year.

As Editor, I have also decided for the purposes of brevity and reader interest, to present each industry in a separate Supply Chain Matters blog posting. We will be also posting these industry-specific predictions in a faster cadence.

In prior industry-specific predictions posting, we dived into Automotive Supply Chain Residing Across North America.

We then dived into Commercial Aerospace Manufacturing Supply Chains.

Next came B2C, B2B-to-C and Traditional Retail Focused Supply Chains.

We then moved to Apparel and Footwear Producers and Respective Supply Chains.

Next-up:

Pharmaceutical and Drug Supply Chains DSC0083 300x245 2017 Industry Specific Predictions  Pharmaceutical and Drug Supply Chains

For the first time, we are including pharmaceutical and drug supply chains in our industry-specific predictions for 2017. The principal reasons are twofold and somewhat inter-related. The increasingly global reach of the industry’s various supply chains is adding continued possibilities for risk and disruption. Second, within the U.S. especially, there remains an enormous groundswell of political and social backlash directed at what is perceived as artificially high and inflated pricing stemming from conflicting buyer self-interests across the industry’s extended supply chain.

Global Sourcing

Today’s manufacturing and drug capacity profiles among proprietary or generic drug brands span countries such as Ireland, India, Israel, China, Singapore, and the United States. Some produce drugs for their immediate regions, while many export globally. Of late, there has been a shift of manufacturing away from the U.S. to take advantage of lower manufacturing cost and tax savings. The bulk of active pharmaceutical ingredients, the primary raw material compounds related to other drugs, are sourced in China and India.

According to the U.S. Department of Commerce, the United States is now the biggest importer of pharmaceuticals from other countries. Incidents of counterfeit drugs and medicines have been a constant challenge and lately, conformance to generally accepted production practices have become troublesome from production facilities across India, where many generic drug production facilities are located. The government of India recently cited 200 India based drug manufacturers for high risk in compliance standards.

Ongoing Business Challenges

In 2011, the industry reeled from an average of over 250 shortages of critical drugs as monitored by the U.S. Federal Drug Administration.  Much has been accomplished to alleviate drug shortages since that time but continued work remains. As of the end of January 2017, the FDA was reporting 57 drug shortages, the bulk of which were included in categories such as Pediatric Medicine (26), Oncology (6), Gastroenterology (9), Endocrinology (6), among others.

For years, the industry has danced around or delayed responses to mandates for implementing item-level traceability and tracking of life-saving drugs and medicines. By November 2017, pharmaceutical companies will be required to mark their products with a National Drug Code (NDC), serial number, lot number and expiration date in both machine-readable and human-readable format according to the Drug Supply Chain Security Act (DSCSA) of 2013. A diverse group of 44 companies, from manufacturers to wholesalers to solution providers, have further come together to develop updated GS1 guidelines on the use of GS1’s Electronic Product Code Information Services (EPCIS) for lot-level management and item-level traceability of pharmaceuticals. DSCSA is planned to be implemented over the next 10 years in three different phases while companies are transitioning their systems and preparing for the various requirements. Ten years is a considerable amount of time and some on the customer and patient side continue with frustrations as to the industry’s overall progress.

This is an industry that continues to demonstrate a general lack of common goal collaboration across an extended supply chain with conflicting stakeholder interests. Thus, the challenge of business transformation or faster momentum can continue to be bogged down.

A recent wave of high-profile, large global-scale mergers and acquisitions have further disrupted individual supply chains in areas of assimilating business and supply chain processes, procurement software systems technology and talent.

Geopolitical Forces

The new Trump Administration and the U.S. Congress have cited the pharmaceutical and drug industry in the context for both new healthcare care reform, excessive drug pricing and in current sourcing practices of drugs globally. In late January 2017, President Trump, at a meeting in the White House with a group of high-lever pharmaceutical drug company executives, indicated that he wanted more manufacturing to occur in the United States.

As noted in our other industry-specific predictions, if the U.S. Congress were to adopt business tax reform legislation that could impose a multi-industry import tax, pharmaceutical and drug companies importing raw compounds and medicines could be financially impacted. We therefore predict the need for a lot of product sourcing scenario planning and analysis in the coming months.

For all the above, we include pharmaceutical and drug supply chains in our 2017 Industry Unique prediction category.

 

This concludes our Supply Chain Matters series of ten 2017 Predictions for Industry and Global Supply Chains, predicting a year that promises to be:

  • Consumed by global uncertainty
  • Somewhat challenged in terms of supporting business top-line growth
  • Sure to place supply chain sourcing teams in constant scenario analysis and business advisor roles to senior management
  • Noticeably higher in the supply chain risk potential

Again, our goal is to provide clients and blog readers insights and helpful information in setting agendas and initiatives for the existing year. Throughout 2017, Supply Chain Matters will be publishing periodic updates related to each of our predictions.

Our full 44-page Research Advisor Report is now available for complimentary downloading in our Research Center. We do ask that you provide basic contact information as well as a valid email address and phone number. As a reminder, we do not sell or offer reader and contact information to any third-party.

If we can be of any assistance to your organization in the coming year, give us a call or email us at: info <at> supply-chain-matters <dot> com .

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


2017 Industry Specific Predictions- Automotive Supply Chains Residing in North America

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Thus far, we have posted deep-dives on the first nine of our 2017 Predictions for Industry and Global Supply Chains. We trust that our Supply Chain Matters readers are garnering insights from these prediction sand they have been helpful for setting objectives and work agendas in the coming year.

We have one prediction remaining which for this year is our final Prediction Ten, which for each year, dives into what we foresee as unique industry-specific supply chain challenges or environments for the coming year. This year’s industry-specific challenges were especially challenging in that we contemplated adding a lot of industries, more so than prior years. In the end, we will hone in on those industries that merit additional monitoring and updates in the coming months.

As Editor, I has also decided for the purposes of brevity and reader interest, to present each industry in a separate Supply Chain Matters blog posting. We will be posting these industry-specific predictions in a faster cadence.

We begin, to perhaps no one’s surprise, with the North America based Automotive sector.

 

Automotive Supply Chains Residing Across North America Ford F150 450 300x214 2017 Industry Specific Predictions  Automotive Supply Chains Residing in North America

We cite unique challenges for automotive supply chains residing across North America for two specific reasons. One relates to the ongoing industry dynamics related to accommodating product demand mix with inventory and capacity levels. The other with the potential impact of the new Trump Administration policies related to both North America and global trade that has certain automakers in the cross-hairs of direct Presidential criticism, and of U.S. Congressional efforts directed at U.S. corporate tax reform policies.

Sales Trending

Record low gasoline prices in the first-half of the year boosted U.S. light vehicle auto sales to hit a record high of 17.6 million vehicles in 2016. That number was only slightly larger than the 17.5 million vehicles sold in 2015. Strong sales momentum in December reflecting 1.7 million vehicles sold during the last month had pushed the seasonally adjusted annual selling pace momentum to 18.4 million vehicles.

Of the total vehicles sold in the U.S. during 2016, 60 percent were classified as higher-margin light trucks. Promotional discounts heavily influenced sales of sedans and compacts, with the growth in demand for pricier pick-up trucks and SUV’s generally boosting auto maker profit margins.  That helped to fund innovation efforts directed at autonomous vehicle technologies and efforts to meet stricter emission standards in future years. At the end of the year, the industry-wide average of new vehicle unsold inventories was the equivalent of three months, while the average of U.S. big-three automakers averaged upwards of 100 days of unsold inventories.

Looking to 2017, some auto dealers were uncertain if the sales momentum would last, given the current length post-recession sales cycle and the growing credit burden of U.S. and North American consumers in outstanding auto loans. Finished goods inventory levels for certain auto and truck models trended higher in the final quarter and some U.S. based OEM’s elected to curtail factory output levels and lower inventories in late December and January. Factory headcount cutbacks were further being exercised.

The challenge for automotive product management, supply chain management, sales and operations planning teams in 2017 will therefore be effectively managing model and volume mix sales and production output and overall inventory levels while maintaining or exceeding line-of-business goals related to product margins and profitability. To cite just one-example, the traditionally largest selling sedan in the U.S. market has been the Toyota Camry. As we publish this prediction in early February, Toyota reported a 25 percent decline in Camry demand while the smaller RAV 4 SUV outsold the Camry in January.

A singular planning framework can sometimes be a daunting challenge for automotive producers with independent product business groups. The problem can come-down to unaligned business processes and a lack of consistent data and information standards. In October, we featured a Supply Chain Matters commentary reporting on how Ford Motor was addressing such challenges in an effort towards a singular, global S&OP planning framework.

From the longer-term perspective, consumer affinity towards ride-sharing services, higher tech electronics and autonomous vehicle capabilities and IoT enabled vehicle services weighs heavy on future model product planning. The open question is how long will most North American consumers favor trucks and all forms of SUV’s vs more fuel-efficient smaller cars and traditional sedans. It usually comes down to the average cost of gasoline and on the continuation of promotional buying incentives. It’s a constant back and forth among product management and supply chain teams shepherded by longer-term goal setting from sales and operations planning teams.

Tesla the Disruptor

There remains the presence of industry disruptor Tesla Motors, which has successfully captured consumer brand loyalty through leveraged advanced technology in alternative energy powered vehicle models. Tesla has broken the mold in the notions of a vertically integrated supply chain, and is now, with the acquisition of Solar City, rebranding the company to be one of alternative energy. Thus, far has the bulk of its supply chain strategy anchored in the U.S. but that may have to change to accommodate two evident challenges. In order to support required broader annual global sales growth and especially for the over 300,000 booked orders for the Model 3, production volumes need to expand significantly the strategy to source and construct the huge lithium-ion gigafactory in the U.S. may well turn out to be a brilliant decision in the light of increased U.S. protectionism forces. If the U.S. Congress adopts corporate tax reform that exempts exports and taxes imports, Tesla may well find itself in a strategic advantage with other alternative energy powered vehicles who sell in the United States and globally.

Global Sourcing Dynamics

Automotive executives, both global and domestic, with U.S. and North America production and supply chain presence had their primary attention focused on incoming U.S. President Trump and his vow to stop job losses at U.S. automotive factories in favor of job gains within other countries. In January, The Wall Street Journal observed: “Few industries have spent as much time in Mr. trump’s crosshairs as the U.S. auto sector.” Trump stunningly defeated his rival by winning key U.S. Midwest states whose populations have a high dependency on automotive industry and services focused employment.

Mr. Trump’s statements on trade, border or import taxes have rattled auto executives. The President has signaled intent to re-negotiate trade policies within the existing North America Free Trade Agreement (NAFTA) and to impose added tariffs or a border tax on automotive imports from Canada, China, Mexico, and other countries.  Mr. Trump specifically targeted Ford, General Motors, and Toyota for prior decisions to source new auto production manufacturing in Mexico. Auto executives have been packaging strategy announcements to invest more in U.S. based manufacturing.

The strategic stakes are high in that the entire industry has become globally integrated in production and supply chain component and finished goods flow. Mexico was especially being positioned as a North American product hub for lower margin vehicles and as a lower cost manufacturing hub for thousands of automotive component parts.

The larger concerns rest with the imposition of a border or import tax in conjunction with overall corporate tax reform. Such added costs may well tip the balance in landed costs significantly impacting existing margins and overall profitability. Imposing anywhere from a 20 percent to as much as a 40 percent tax on imports to the U.S. could force consumers to pay thousands more for new vehicles and similarly double-digit increases for auto component and aftermarket parts. Each could have a profound impact on future product demand and as we all know, it is quite difficult to predict the outcome of a political process.

As we pen our industry-specific predictions, such proposals remain a matter of speculation and a focus on intense lobbying efforts directed at the U.S. Congress. Where such efforts lead to will ebb and flow during the year, but a certainty is that automotive supply chains will have their teams quite involved in all levels of supply chain sourcing analysis and in supplier contingency planning. Supply chains that have a high product value-added profile dependency for importing component and finished goods parts into the U.S. will especially be challenged.

Further, there is the reality that automotive supply chains must continue to be globally focused to remain competitive and thus countries such as Mexico will continue to play a pivotal role in supply chain strategy. Bottom-line, the environment will be dynamic, and automotive supply chain teams will have little option but to serve as strategic advisors and counselors to line-of-business and product management teams.

This concludes our 2017 prediction related specially to automotive. In our next posting, related to Prediction Ten, we will dive into Commercial Aerospace manufacturers and respective supply chains.

Readers are reminded to review all our prior 2017 predictions postings.  And a final reminder, all ten of our 2017 predictions will be available in a full research report which we expect to be available for downloading by February 10th.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Overt Signs of Trump’s Agenda for Confrontation on Global Sourcing and Trade Policy

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What is fast becoming a new norm for business risk is that of a direct public attack via a Twittertweet” from U.S. President Elect Donald Trump. Before formally taking office on January 20th, Mr. Trump has already attacked corporations such as United Technologies for presumably outsourcing U.S. jobs to Mexico. Other public confrontations have involved  Boeing and Northup Grumman for perceived excessive development costs related to new U.S. government aircraft.

Today, this Presidential social media campaign took on direct industry supply chain implications.

In a series of Twitter postings, the President Elect took direct aim at General Motors regarding the Chevrolet Cruze model. Mr. Trump accused GM of importing this vehicle from Mexico to U.S. dealers without having to pay U.S. import duties. GM quickly responded that the bulk of the Cruze was produced in a plant in Lordstown, Ohio.

Trump’s other automotive industry target has been Ford Motor, who had previously announced plans last February to build and staff a new manufacturing facility in Mexico to produce smaller vehicles. An editorial at the time published by The Wall Street Journal reflected that Ford’s strategic sourcing moves were indicators of a strategy to offset the signing of a new labor agreement among its U.S. unionized work force, which raised direct labor costs to nearly $30 per hour in the coming years. Mexico’s direct labor rates were indicated as being one-fifth that of unionized workers in the U.S.

Today, Ford suddenly scrapped its plans to build the previously announced $1.6 billion small car factory in Mexico in favor of a modified plan that would share production among existing plants in the U.S. and Mexico. Ford’s CEO Mark Fields took to the business airwaves to declare a new meeting of the minds regarding the incoming POTUS to include a planned $700 million incremental investment in the Flat Rock Michigan assembly plant.

We call reader attention to a CNBC business network report which we believe provides far more insight as to what is really at-stake in this developing direct public confrontation of U.S. auto manufacturers. That insight involves the current automotive value-chain of parts and component sourcing.

The CNBC report notes that under the existing North America Free Trade Agreement (NAFTA) the parts components that make-up a finished automobile and truck are increasingly sourced in Mexico. In 2015 alone, 60 percent of the $5 billion in direct foreign investment associated with Mexico’s automotive industry sector was associated with parts and component manufacturing. As we have previously noted on this blog, Mexico’s direct labor costs averaging in some cases $2.50 per hour are a compelling attraction for parts producers, especially when various global OEM producers demand that a contiguous component supply chain be developed to support both Mexican and other North American production needs.

In 2014, we called Supply Chain Matters reader attention to the then prevalent trend that for the automotive industry, Mexico was fast becoming a North America production and global export production hub. We echoed that global automotive brands BMW, Honda, Kia, Mazda, Nissan, Volkswagen, Nissan, and others had announced strategic Mexican production sourcing decisions that amounted to billions of dollars of investment. This was beyond U.S. automotive branded companies, reflecting that Mexico would soon become an alternative global automotive manufacturing hub for smaller, lower-margin vehicle line-ups.

The CNBC report cites U.S. trade data for the first 10 months of 2016 indicating that “parts imports from Mexico totaled $89.6 billion, dwarfing the next biggest import nations, Canada with $54 billion and Japan, at $44 billion. While vehicles were the main imports from Canada and Japan, more than half- $46.8 billion of the automotive-related imports from Mexico- were vehicle parts in that 10-month period. U.S. government data show that car parts imports into the U.S. nearly doubled in the past five years.”

It would appear to this blog, that Mr. Trump has gathered advisors who appear very knowledgeable of automotive supply chain sourcing strategies particularly as it relates to current NAFTA agreements. The Trump campaign promises to thwart the exodus of U.S. jobs has obviously already begun, and the stakes are threatened import tariffs involving imported auto parts originating from Mexico and Canada. Thus far, it would appear that Ford has been willing to meet the incoming Administration halfway with new concessions. Perhaps, GM and others will follow in a meeting of minds or the Republican dominated Congress will act on Trump’s threatened NAFTA agenda.

With the first direct skirmishes involving public confrontation underway and other U.S. based industry supply chains should be prepared for an environment of changing assumptions related to the landed cost of component sourcing.

Where all of this give, and take ultimately lands is very much uncertain especially in the new tendencies toward direct confrontation.  The sheer facts of dramatically different direct labor costs among Mexico and the U.S. workers remains. Worker productivity and automation are the new variants in global sourcing coupled with threatened new import tariffs or open market retaliation.

Preparation and timely detailed knowledge of component sourcing and production costs coupled with backup contingency sourcing plans are fast becoming a required capability in this evolving new era of populism and anti-global trade.

Bob Ferrari

© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


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