Southern Border Shutdown: Supply Chain Concerns for Ohio 3PL Firms
Our third-party logistics supply chain partners in Cleveland are adept at helping clients navigate all challenges impacting the timely flow of goods to their final destination. Sometimes, the issue is a faraway natural disaster or social unrest. Other times, it’s homegrown regulation or infrastructure challenges.
Right now, there’s swelling concern over recent promises by President Donald Trump to shutdown the U.S.-Mexican border if neither Congress nor the Mexican government takes what he deems decisive action to stem the tide of illicit drugs and illegal immigration into the U.S. Ohio 3PL partners at On Time Delivery & Warehousing are watching the situation closely, and have begun mapping supply chain contingency plans.
The likelihood of an actual border shutdown isn’t clear. While some of the president’s allies in Washington D.C. have stated a total border closure would be “catastrophic” to U.S. supply chains, the president isn’t exactly known for always toeing the party line. He’s said that secure borders take priority over trade. He has floated a potential compromise: A border closure solely permitting the back-and-forth flow of commercial trucks. Whether that would be enough to blunt the biggest supply chain impacts isn’t certain.
Meanwhile, trucks at the Mexican border have reported long delays this month, after U.S. Customs and Border Protection officers were abruptly reassigned from import regulation to immigration processing, according to Bloomberg.
For us, this is not about choosing political sides. Our role as an Ohio 3PL partner is to be prepared for all scenarios with the goal of minimizing the product and financial losses for our clients – and that’s what we intend to do.
Border Closure’s Biggest Impact Would be To Those Employing Just-in-Time Delivery Strategy
The daily value of cross-border goods and services between the U.S. and Mexico totals an estimated $1.85 billion, according to the U.S. Department of Commerce. The senior vice president for international policy at the agency opined in the event of a total border shutdown, actual losses could be 10 times that.
Part of the reason, as Northeast Ohio 3PL providers can explain, is that many manufacturers/suppliers have long kept costs in check by employing “just-in-time delivery” (JIT) logistics strategies. This assumed the place of the previously more common “just-in-case” (JIC) logistics models.
With JIC logistics, everything a manufacturer might need was kept onsite, “just-in-case” it was necessary. But this isn’t efficient for most companies, especially where market fluctuations are routine. Precious space is consumed by storage instead of production., and all items have to be purchased well in advance of use.
JIT logistics allows materials to be kept off-site and delivered as needed, when needed – typically with the help of a nearby 3PL. JIT delivery strategies have unequivocally proven to significantly lower supplier costs for labor and storage. In a situation with border inhibitions or delays, however, the effects could be amplified.
Let’s say a JIT trucker is hauling millions of dollars worth of inventory and is suddenly blocked from the cross-border deliver. Perishable goods may need to be written off as total losses (particularly produce). It could also force shutdowns of entire assembly lines/manufacturing facilities.
The auto industry may be hit especially hard in the event of a U.S.-Mexico border shutdown. The industry accounts for one-quarter of all Mexico’s U.S. imports. The average U.S.-made vehicle requires some 30,000 parts, and Mexico is the No. 1 supplier of foreign components. As Fortune Magazine reports, failed delivery of even a few key parts could spark widespread U.S. auto industry shutdowns.
Would Possible Border Pass for Trucks Offset Losses?
A proposal for a soft border closure allowing only trucks to pass is certainly preferable to a hard closure where nothing goes in or out. Still, it’s not clear even then to what extent companies will still take a hit. If our Ohio 3PL partners have learned anything in our years of experience, it’s that trade is often about more than just trucks and trains traversing miles. It’s about people. A partial border shutdown, depending on its length and scope, could still potentially damage interpersonal business relationships.
As noted by the U.S Chamber, some 500,000 individuals cross the southern border daily. Many of those are employees, tourists, shoppers and students. Businesses in a wide range of sectors rely heavily on these individuals for services and/or revenue. If there aren’t people to provide the service, make the goods or buy the products, it’s safe to say business will suffer.
Ohio 3PL takes seriously the responsibility to help clients find alternatives and blunt the impact of a border however possible. One strategy that may prove effective for some is transloading. That means transferring a shipment of goods from one kind of transport to another (train-to-truck, truck-to-boat, boat-to-plane, etc). Normally, clients are hesitant to transload because, let’s face it: The more your goods change hands, the greater potential for them to be damaged or delayed. However, if your load is pretty standard, transloading can be an effective way to drive down costs and ensure capacity in the event of bottlenecks on land border checkpoints. Depending on parameters set by the U.S. government, there could be alternative routes to get your goods where they need to be.
Ohio 3PL partners at On Time Delivery and Warehouse have helped companies of all kinds navigate logistical mazes driven by all sorts of unexpected roadblocks – whether a world away or in our own backyard. Having an extensive network of partners is essential to ensuring minimal supply chain disruption in any scenario. It’s what makes third-party logistics centers the key to moving forward with cross-border operations in this and so many other supply chain disruption scenarios.
Freight coalition warns White House on border shutdown, April 5, 2019, By John Gallagher, FreightWaves.com
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Dedicated Northeast Ohio 3PL Can Drive Down Your Trucking Liability Risks, March 21, 2019, Northeast Ohio 3PL Company Blog