Mexican-made heavy equipment is being targeted in the latest Section 232 national security probes. These analyses are required before imposition of new tariffs. The claim is that such manufacturing should be performed in the US.
There’s some merit to argue that for national defense the US should have a vibrant heavy equipment manufacturing sector. If you think wars of the future will be fought with tanks, ships, airplanes, and large landing craft, the US should be able to ramp up production fast in case of a war.
Current wars aren’t fought that way. They are waged with missiles, drones, and portable explosives of many different kinds, delivered with high-tech mechanisms. And the Ukraine war and even Iran have shown that conventional forces can be stymied by the high-tech alternatives.
High-tech mechanisms are well within US manufacturing capabilities. There are plenty of jobs available at good wages, if you get the training.
A second argument for the tariffs is based on jobs for workers. High-paying manufacturing jobs are good for those who have them and like the lifestyle. But increasingly, young people are not choosing those jobs, preferring work settings that give them the ability to define their leisure time as they wish. Conventional heavy manufacturing does not fit that mold.
And in the US we have a declining work force, particularly if we choose not to let in immigrants for whom such jobs would be desirable.
So where are the workers going to come from?
We could be better off by cultivating our relations with Mexico and allow them to do the heavy manufacturing of automobile-like components.
Changes in the Mexican government’s regulations for bills of materials and shipment documentation are poised to take effect January 1, 2023. The changes are substantial, and require much more data collection.
I interviewed Josefina Blanco, Legal and Compliance Lead at Nuvocargo, talking from Mexico City. She’s a lawyer, and an expert on Mexican trade regulations.
Nuvocargo is a full-service digital platform for US-Mexico trade, offering freight forwarding and brokerage services, customs broker services, cargo insurance, and supply chain financing for both shippers and carriers. They specialize in 53-foot truckload transport.
The genesis of the new regulations is the Miscellaneous Tax Resolution, passed in Mexico in June 2021. That act imposes new Bill of Lading requirements on anyone moving cargo within Mexico, as well as into and out of Mexico. The new requirements are captured in documents known as Complemento Carta Porte or CCP. They require more detailed information to accompany each shipment, verifying its origin and ownership. It’s an attempt to reduce contraband, an important problem for Mexican trade.
There are severe penalties for non-compliance, including loss of ability to operate, fines, and felony charges. Originally, the regulations were to have begun with spot checks in 2021, but fines were not to occur till January 1, 2022. The deadline for enforcement has slipped five times. Now authorities insist that January 1, 2023, will begin enforcement with sanctions.
Under the new rules, drivers must carry the CCP documentation with them, and it must be correctly filled in. There could be spot checks of cargo, leading to issues for drivers. In addition, the CCP is an electronic form. Nuvocargo has a lot of information about the CCP supplementary information in a FAQ on its website.
The Mexican authorities, according to Josefina, included design criteria that help make the CCP and bill of lading electronically compatible. However, the present result seems to contain a lot of redundant information in its over 200 fields. That means a computer system to prepare the forms is almost essential for efficiency, though it is legal to fill the CCP in by hand. Josefina Blanco indicated that about 20% of firms in Mexico are building software themselves to comply.
Now you would think that large firms would not oppose this regulation too much, because they would be in a good position to provide correct CCPs. However, the deadline slips were due to objections from larger companies, represented by industry organizations. Josefina says this was due to the considerable difficulty of programming computer systems to gather data and create the CCP documents correctly. System development takes time and cost, and collecting the information could add as much as 15% to the freight bill, according to Josefina. Many smaller carriers and businesses do not have what’s required to meet these new requirements, and have not started yet.
Brokers themselves are not required to file the CCP forms; according to Josefina, shippers and carriers are the ones in the spotlight. But freight brokers like Nuvocargo, who specialize in Mexican and US transport, can provide service which insures compliance for their loads. Nuvocargo, for instance, includes both shippers and carriers in their offering. Carriers they suggest are likely ready to meet the new rules. and Nuvocargo’s digital platform for managing a shipment collects the proper information and provides the proper CCP documentation, paper and electronic.
Josefina indicated that Nuvocargo specializes in international trade crossing the border at Laredo, TX, US/Nuevo Laredo, Tamaulipas, MX. This port of entry is one of the largest in the US. I was surprised to learn how much truck traffic crosses this border every day. Recently, congestion has grown so great that the US government is expanding several smaller border crossings in Texas to handle larger amounts of traffic. They may provide alternatives for avoiding the congestion at Laredo.
Nuvocargo has recently received major injections of new capital, showing that they are meeting a need perceived by investors as growing. One of their investors is Flexport, the San Francisco unicorn of user interface (UI) based freight brokerages. Other top investors include Tiger Global, one of the largest funders of entrepreneurial firms, and YCombinator, the MIT-related incubator of startups. This article from Techcrunch details the recent trajectory of the company from an entrepreneurial perspective.
Nuvocargo has offices in New York City, a major financial center and hotbed of entrepreneurial activity, and in Mexico City, MX.
Supply Chain and Logistics 