into effect July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). The USMCA contributes significantly to stability in rules and norms, reducing the risk to trading and investing across North America, Haar says. The USMCA allows for a wide variety of duty-free items that can be exchanged among the United States and Mexico, Minarro says. An added benefit: Many manufacturing companies that set up shop in Mexico end up selling a portion of their production into the domestic market of approximately 130 million people, he says. SURGING TRADE “Since the inception of USMCA, trade throughout North America has experienced a surge, accompanied by a substantial uptick in investment within industries capitalizing on this opportunity,” says Rachel Honbarger,
manufacture closer to the market for a company’s products, cutting the distance items have to be transported, she adds. A growing number of U.S. companies are turning to nearshoring, typically in Mexico, for greater visibility, shorter delivery times, and a greater ability to influence the quality of their products, says Jose Minarro, managing director with Sunset Transportation’s Cross- Border Operations. Mexico’s proximity to the United States, its availability of skilled labor, competitive labor costs, favorable trade conditions, and tax exemptions make it attractive for manufacturing, he adds. The shorter transportation times are especially significant for products that are seasonal and/or time sensitive, like fashion items, says Jerry Haar, professor of international business at Florida International University. In addition, by shifting some operations from other parts of the world to Mexico, companies diversify their supply chains, lowering risk, he adds. BOOSTING NEARSHORING BENEFITS Trade agreements between Canada, Mexico, and the United States further boost the benefits of nearshoring and cross-border trade. The most prominent, the United States Mexico- Canada Agreement (USMCA) went
Cross-border trade and nearshoring within North America offers companies based in Canada, Mexico, and the United States greater opportunity for profit and growth. At the same time, companies need to consider potential risks. One is potential changes to trade agreements or policies. Even minor adjustments can profoundly affect the functionality or expenses associated with
operating such a supply chain. An example is recent efforts by
some policymakers to amend aspects of Section 321, which allows many imported items to enter the United States free of duties and taxes, so long as the aggregate retail value of the products imported in one day and exempted from the payment doesn’t top $800. A slight modification to the scope of duty-free exemptions could lead to substantial shipping expenses, making nearshore distribution economically unviable, Honbarger says. In addition, locating manufacturing operations across the border from distribution networks increases transportation expenses due to tariffs, longer travel distances, and a rise in shipment volumes to compensate for extended travel times. PULLING OFF CROSS-BORDER OPERATIONS Executing a cross-border operation requires complex technological integration to ensure seamless oversight and control of the entire supply chain process. Without this, businesses face potential product loss, challenges in restocking distribution centers or meeting customer demands, and expenses stemming from inadequate visibility into operations. Achieving the benefits of cross- border trade and nearshoring within North America—including increased profit and accelerated growth— demands an in-depth knowledge of the relevant regulations and documentation requirements to minimize the risk that shipments are held up by the authorities. Working with a logistics provider with expertise and a commitment to this trade
project manager with Tompkins Solutions, a provider of supply chain solutions.
In 2022, exports of U.S. goods with the USMCA were $680.8 billion, up 16% from 2021 and a 34% jump from 2012, according to the Office of the United States Trade Representative. Imports of goods through the USMCA also grew, rising 20.5% between 2021 and 2022, to total $891.3 billion.
Supply chain solutions provider ANDY is well equipped to manage cross-border shipments, relying on its experience and expertise on the processes and requirements.
70 Inbound Logistics • April 2024
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