02 Mei 2016

[020516.EN.BIZ] Long Beach CEO Sees Near-shoring in Mexico Next Big Economic Trend

IT is Latin America's turn to be the workshop of the world now the title has been lost by China given its rising wages, says Jon Slangerup, chief executive of the Port of Long Beach.

"Today, in a couple of different segments, China's hourly labour cost structure is higher than Mexico by double digits," he told the Long Beach Business Journal.

"In some cases, Mexico is half the cost in certain types of traditional Asian commodities or products. So shifts will occur."

It's a pattern that has occurred in Japan, then Korea, and now China, he said.

"They develop their industrial manufacturing capacity, they build their workforces around that, they begin becoming extremely dominant in a particular series of markets or products, and then their wages start to rise . . . and [become] more comparable to other manufacturing environments worldwide," he said.

"And guess what happens? The costs go up and then they're no longer attractive."

China's exports have decreased by three per cent in the past year, which, considering the country's immense manufacturing sector, translates to a lot of volume, Mr Slangerup said.

"When you look at who's picking up the slack, it's Vietnam, Thailand, Indonesia, Malaysia. And even South Korea remains in double-digit growth," he said.

More relevant to the US, Mr Slangerup expects more manufacturing to shift to Mexico and other Latin American countries.

Ford Motor Company recently announced it would be moving major American manufacturing operations to Mexico, and last year Apple moved the manufacturing of its iPhone to Brazil, he noted.

Building up rail capacity may be one method to create better supply chain efficiencies while at the same time cutting back on emissions.

While building capacity at the ports and developing short-haul rail to inland counties wasn't always attractive to rail lines, a decrease in their bread and butter coal shipments has led them to focus more on cargo movement, Mr Slangerup said.

Burlington Northern Santa Fe (BNSF) Railway was ready to make such an investment with its Southern California International Gateway intermodal facility, a project that had been planned adjacent to West Long Beach.

But a judge recently ruled the project's environmental impact report was faulty after the City of Long Beach and other entities brought suit.

Said Mr Slangerup: "The reality is that, in our view, technically it was an important project for both ports."

He added that he would have preferred that the project had been handled differently so legal troubles wouldn't have occurred.

The BNSF Southern California International Gateway project may now be scrapped.

"This decision sends a clear signal that business isn't welcome, regardless of how green it will be or how it will support the regional and state economy," said BNSF vice president Steve Bob.

"It sets a chilling precedent for not only the rail industry, but the entire goods movement sector, which employs more than a million Californians," he said.

Said Mr Slangerman: "I'm hoping BNSF gets to the other side of this with a plan that drives the kind of velocity and intermodal integration that is needed to increase their efficiency and reduce pollution," he said.

Source : HKSG.

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