Despite the current uncertainties about the future of the North American Free Trade Agreement, Mexico's place in the global supply chain is secure, says Kenneth Smith Ramos, head of the Mexico's Trade and NAFTA Office in Washington, D.C.
Contributing Editor Toby Gooley is a freelance writer and editor specializing in supply chain, logistics, material handling, and international trade. She previously was Editor at CSCMP's Supply Chain Quarterly. and Senior Editor of SCQ's sister publication, DC VELOCITY. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.
Kenneth Smith Ramos, head of Mexico's Trade and NAFTA office, has his work cut out for him in light of U.S. plans to renegotiate the treaty.
Twenty-three years after the North American Free Trade Agreement (NAFTA) went into effect, the treaty has become a hot topic again as U.S. President Donald J. Trump issues a steady stream of pronouncements about his desire to renegotiate—and possibly even withdraw—from the trilateral agreement among Canada, the United States, and Mexico. That means Kenneth Smith Ramos has his work cut out for him. As head of the Trade and NAFTA Office of Mexico's Ministry of Economy in Washington, D.C., Smith is in charge of promoting the trade relationship between Mexico and the United States and for ensuring proper implementation of NAFTA.
The bilingual Smith comes to the job with strong credentials. He holds a bachelor's degree in international affairs from Georgetown University and a master's degree in international economics from Johns Hopkins University. He's put that educational background to the test in his previous posts, including coordinator general for international affairs at Mexico's Ministry of Agriculture, Livestock, Rural Development, Fisheries, and Food (known by its Spanish acronym, SAGARPA). Prior to that assignment, he was director general of international affairs at the Federal Competition Commission, and director general for assessment and monitoring of negotiations at the Ministry of Economy. Smith has now come full circle: He began his government career working for Mexico's original NAFTA negotiation team.
We spoke with Smith in April about how Mexico views its role in the global supply chain and the country's hopes for the future of NAFTA.
There is a lot of talk about manufacturing returning from Asia to North America. Are you seeing evidence of that in Mexico?
Yes, we are. Since China entered the World Trade Organization [in 2001] China has been strongly competing with Mexico for U.S. business and also for business within Mexico. In fact, some Mexican manufacturing moved to Asia. So we tried to incentivize advanced, higher value-added manufacturing to locate in Mexico through a network of free trade agreements and, for the domestic sector, a program of duty-free inputs for industries such as electronics, steel, and automotive.
This was quite successful. Let's take the example of televisions. We made modifications to the NAFTA rules of origin to allow certain components from abroad to be included, and the finished product could still qualify as a NAFTA product. This created an incentive for new-generation TVs to be made in Mexico for U.S. consumption.
Mexico receives more than US $30 billion of foreign direct investment annually. In the last few years, less than half of it has come from the U.S. The number one sector for foreign direct investment is the automotive industry—and not just from the big U.S. automakers. Companies like BMW, Hyundai, Audi, and Volkswagen are expanding manufacturing and assembly capacity in Mexico.
Manufacturing is becoming highly automated. Is Mexico prepared for this change?
Our workforce is a key "selling point" for bringing more manufacturing back to North America. Mexico has the right demographics—our average age is 26—and we already have a very robust base of skilled labor increasingly shifting from traditional maquiladora assembly plants to more technologically advanced industries.
What industries does Mexico excel in, and where will its future strengths lie?
In addition to agriculture, our current strengths are in aerospace, medical equipment, biotech and health sciences, electronics, and automotive. In addition to manufacturing plants, we're seeing more companies investing in product-design centers in Mexico, including companies like Intel and Honeywell.
I think those industries will continue to be successful and grow. Mexico is also pushing forward with structural, constitutional reforms that have opened the way for private investment in oil, gas, electric power generation, and renewable energy. The energy potential in North America is huge, and it could greatly boost the NAFTA region's competitiveness.
How does Mexico see its position within the global supply chain?
I think that through NAFTA, Mexico has demonstrated that we can be a hub for production and a platform for cross-border supply chain integration. So we have great potential to expand that capability and to be a key player in global supply chains. In addition, Mexico is the world's 15th largest economy, the 10th largest exporter, and the 9th largest importer, and we have free trade agreements with 46 nations. These agreements make Mexico an attractive center for investment and production for the rest of the world.
What is the Mexican government's position on NAFTA modernization and renegotiation?
The Mexican government's position is that NAFTA would benefit from modernization that is based on a fact-based assessment that reflects reality and avoids political rhetoric. The outcome of any renegotiation must be a win for all three countries involved, and it must maintain the integrity of the integrated supply chains that NAFTA created.
We are at a very important crossroads in regard to NAFTA. We can go down the road of building on what we've achieved in the past 23 years and strengthen our cooperation on regulations and infrastructure. Or we can fall prey to the pressures of protectionism, which would raise the cost of doing business within our region and severely hamper our economic growth.
Work has begun on developing a North American version of the "Single Window," where shipment data would be shared by the three NAFTA governments' relevant agencies. Are cooperative initiatives like this at risk if the treaty is renegotiated?
Mexico is very committed to a "21st century border" and to partnerships that support prosperity for all three NAFTA countries. Mexican Customs has a very strong partnership with its U.S. and Canadian counterparts. For example, Mexico changed its laws to allow U.S. Customs and Border Protection (CBP) officers to conduct cargo pre-inspections in Mexican territory. We want these types of pilot programs to become permanent and expand beyond the border.
So far [customs cooperation] has not been brought up directly in conversations about NAFTA modernization. I think the three countries should work to ensure that trade enforcement and facilitation are strengthened. Cooperation among the customs agencies will be essential as we go forward with NAFTA modernization.
J.B. Hunt President and CEO Shelley Simpson answers a question from the audience at the Tuesday afternoon keynote session at CSCMP's EDGE Conference. CSCMP President and CEO Mark Baxa listens attentively to her response.
Most of the time when CEOs present at an industry conference, they like to talk about their companies’ success stories. Not J.B. Hunt’s Shelley Simpson. Speaking today at the Council of Supply Chain Management Professionals’ (CSCMP) annual EDGE Conference, the trucking company’s president and CEO led with a story about a time that the company lost a major customer.
According to Simpson, the company had a customer of their dedicated contract business in 2001 that was consistently making late shipments with no lead time. “We were working like crazy to try to satisfy them, and lost their business,” Simpson said.
When the team at J.B. Hunt later met with the customer’s chief supply chain officer, they related all they had been doing for the company. “We told him that we were literally sitting our drivers and our trucks just for you, just to cover your shipments,” Simpson said. “And he said to us, ‘You never shared everything you were doing for us.’”
Out of that experience, came J.B. Hunt’s Customer Value Delivery framework. This framework, according to Simpson, provides a roadmap for creating value and anticipating customer needs.
Framework for Excellence
J.B. Hunt created the above framework to help them formulate better relationships with customers.
The framework consists of five steps:
Understand customer needs: It all starts, according to Simpson, with building a strong relationship with the customer and then using the information gained from those discussions to build a custom plan for the customer.
Deliver expectations: This step involves delivering on the promises made in that custom plan.
Measure results: J.B. Hunt believes that they are not done when freight makes it to the destination. They also need to measure how successful they were versus what the customer expected from them.
Communicate performance: This step involves a two-way exchange, where J.B. Hunt walks the customer through their performance and gets verbal agreement on whether or not they have met the customer’s needs.
Anticipate new value: Here J.B. Hunt looks at what they are hearing from their customer today and then uses that information to derive what the customer may be looking for in the future.
Simpson said the most important part of the process is the fourth step, communicating performance (perhaps reflecting the piece that went wrong in that initial failed customer relationship).
Not only can this framework be used to drive excellence in a company, but it can also be adapted as a model for driving personal excellence, Simpson said. Instead of understanding the customer needs, the process starts with understanding yourself: what your strengths and interests are. This understanding helps drive a personal development plan and personal goals for the year, which can be measured and assessed. For example, each year, Simpson gives herself a letter grade on each of her personal goals and communicates her assessment back to her boss. She has also found it helpful to anticipate where opportunities lie beyond what she is personally doing.
Confronted with the closed ports, most companies can either route their imports to standard East Coast destinations and wait for the strike to clear, or else re-route those containers to West Coast sites, incurring a three week delay for extra sailing time plus another week required to truck those goods back east, Ron said in an interview at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
However, Uber Freight says its latest platform updates offer a series of mitigation options, including alternative routings, pre-booked allocation and volume during peak season, and providing daily visibility reports on shipments impacted by routings via U.S. east and gulf coast ports. And Ron said the company can also leverage its pool of some 2.3 million truck drivers who have downloaded its smartphone app, targeting them with freight hauling opportunities in the affected regions by pricing those loads “appropriately” through its surge-pricing model.
“If this [strike] continues a month, we will see severe disruptions,” Ron said. “So we can offer them alternatives. We say, if one door is closed, we can open another door? But even with that, there are no magic solutions.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.