UPS talks about logistics issues in Mexico

Agustín Picado- General Director UPS Mexico

Editor’s Interview

Agustin Picado was appointed General Director for UPS Mexico on February 2014 after over 25 years of experience in different marketing and strategy roles within UPS. Following are excerpts of his recent interview with MEXICONOW:

Besides delivering packages and envelops, what other logistics functions does UPS conduct in Mexico?

UPS provides an industry leading portfolio of small package, heavy freight and contract logistics services. Our heavy freight services range from a guaranteed World Wide Express Freight for palletized air freight, to Cross Border Connect, a guaranteed ground service (Full-truck -load and Less-than-truckload) connecting the US and Mexico.
The service can include customs clearance services providing time in transit competitive to air freight. UPS also offers Ocean freight to most major ports in Mexico. UPS also recently opened a new 183,000 square feet Healthcare, High Tech distribution facility just north of Mexico City.
UPS’ team of supply chain experts works to build solutions leveraging our portfolio of transportation and logistics capabilities to reduce our customers’ costs, help grow their revenue and improve their customer service.

How is business for UPS in Mexico and what are the growth prospects?

UPS’ growth in Mexico can be measured by the investments we continue to make year after year. In the last 2 ½ years we’ve opened 20 new UPS Express counters. UPS launched an improved domestic portfolio providing next day delivery service to more than 95% of the population. We opened the above mentioned Healthcare and High Tech distribution facility. We continue to expand our coverage for World Wide Express Freight and Cross Border Connect. In the fourth quarter of 2014 we launched UPS MyChoice and UPS Access Points, two services designed to provide a unique experience for Mexican Online Shoppers.

How far behind is Mexico from the US in terms of 3PL participation in the marketplace?

In a recent study conducted by UPS we estimated that $15.8B (85%) of the $18.8B warehouse and logistics market is still insourced. In another market study conducted by UPS with Healthcare companies globally, they stated that their number one strategy for dealing with the complexities of the healthcare supply chain is to work with trusted third parties. An area that we often find with Mexican customers is the use of many (sometimes dozens) of local transportation and logistics providers to serve their customers.
Management of multiple providers creates an inconsistent customer experience, creates additional administrative costs and creates the compliance risks related to the management of so many different providers with different internal standards.
Below is a table listing 3PL revenue as a percent of company revenues for major economies around the world. As you can see, Mexico (at 6.5%) is below the global average of 7.8%.

What actions are needed to reduce the gap of 3PL participation between Mexico and the US?

Several logistical obstacles exist that contribute to Mexico’s challenges: A lack of quality infrastructure, limited use of technology, high crime rate, export dependence on other countries, and the country’s current regulatory situation. Some actions needed include:

1. Improving infrastructure - Mexico’s economy has grown faster than its road system, resulting in many survey respondents citing a lack of infrastructure as one of their top transportation challenges.
2. Limited use of technology - Currently there is little use of IT by small and medium sized businesses in Mexico. Those businesses that are currently using IT often see it as an expense instead of as an investment in improving business efficiency and effectiveness.
3. Import and Export processes – While Single Window (Ventanilla Unica) was a major first step, more investment is needed to improve import and export processes.
4. Current regulatory situation – Dealing with government entities is still very timely in Mexico and can have negative effects on business outcomes. For example, registering property in Mexico takes a total of 74 days (compared with the 26 days it takes for OECD countries).

What are the main infrastructure logistics constrains in Mexico?

The 2013 World Economic Forum key indicators find Mexico well behind many major global economies. The table below shows that Mexico ranks out of the top 50 in areas like, “overall infrastructure”, “Quality of railroad, port and air transport infrastructure” and “quality of electricity supply” to name a few.

What are the main legal or qualitative logistics limitations in Mexico?

While Ventanilla Unica (Single Window) was a good first step in improving customs processes, more needs to be done. Improvements in reliability of the system are needed to ensure it is able to meet demands during peak import and export windows. In addition, there are manual process that can be improved. Given the availability of electronic shipment data it is possible to begin pre-clearing shipments prior to their arrival at the border. This could improve the reliability of transit times for imports.
In addition, there are some permit requirements impacting domestic transportation. For example vehicle weight and individual package weight restrictions for non-Mexican carriers that increase operating costs.

Have the recent Mexican reforms had any impact on UPS’ business in Mexico, and if so, how?

There has been an increase in interest, by companies in the US and other regions in doing business in Mexico. While this cannot be exclusively attributed to the recent reforms, they likely are a factor. While the number and scope of the reforms is vast, it is important that they get implemented in order to realize the efficiencies they are promised to produce.

What should the federal Mexican government do to generally improve logistics in Mexico?

One important move was the recent passing of the 5th and 7th flying rights. This allows non-Mexican companies to land in Mexico and fly to a third country. This recent change will enable air carriers to provide new options for connecting Mexico with Latin America, North America and APAC. This new regulation combined with the additional capacity that the new Mexico City airport will provide could set the stage where Mexico could evolve as an important transport hub in the region.
In addition, continued improvements to customs systems, expansion of hours of customs operations and expansion of free trade areas in locations away from airports would help Mexican companies to improve their import and export operations.

What is the general current use of IT resources in logistics activities in Mexico and what is the trend for the future?

Near real-time visibility of goods while in inventory or while in transport continues to grow in importance for companies doing business in Mexico. An example is the automotive industry. When suppliers fail to get their components or sub-assemblies to the assembly plant on time, the major automobile manufacturers fine their vendors. Using premium modes of transportation for all shipments is cost prohibitive.
Combining more economical modes of transportation and premium services (only when needed) requires reliable, timely inventory and shipment visibility. This visibility information can be integrated directly between a logistics provider and a company’s ERP (Enterprise Resource Planning) system. This type of integration allows companies to improve forecasting, reduce operating costs and avoid costly penalties.