Logistics companies Latin America trends

By Lisa H. Harrington

Do the advantages of locating production near the point of consumption outweigh the region's drawbacks?

The rising price of oil, driven by dwindling supplY and mounting demand from China and India, will kill globalization as we know it, writes Canadian economist Jeff Rubin in his 2009 book Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization.

If oil is cheap, it doesn't matter how far factories are from showrooms, Rubin observes. Other expenses, such as labor and taxes, determine where companies manufacture products.

If oil is expensive and scarce, however, the equation changes. Rubin believes the world has now reached this inflection point. Reports from the trenches confirm his observation.

Once far-flung supply chains are contracting. U.S. manufacturers are bringing production back—not necessarily all the way back to the United States, but to the Americas. Trade flows that were long distance, East-West oriented for nearly two decades are shifting. They're being replaced, at least in part, by shorter, region-based trade flows—between the United States and Latin America, for example.

The price of oil isn't the only factor driving global supply chain network design, but a major shift in supply chain network strategy is underway. A new model is emerging: a regionalized global supply chain in which goods are produced, sold, and consumed in the same geographic region.

To grasp the significance of this new trend, it helps to take a look back. In 2000, U.S. manufacturers started to move production from maquiladora plants in Mexico to Asia. First, they shifted operations to Japan, then Taiwan, China, Vietnam, Malaysia, and elsewhere. They also relocated manufacturing to Eastern European countries such as Poland and Estonia.

"Most companies decided to move production using one-dimensional reasoning, based on labor costs, which represented 70 to 80 percent of the criteria considered, " says Tom Page, director of customer solutions, international regions, UPS.

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Beyond retail, we also saw increasing traction in larger enterprise class accounts, including an enterprise wide win at a Top 10 U.S. bank, and initial deployments of one of the world's largest logistics companies and a global auto manufacturer.

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