Strategies, Challenges and Growth Amid Nearshoring Opportunities

Q: What are the main challenges AIT Worldwide Logistics has faced during the past couple of years?    

A: During the pandemic, transportation costs spiked dramatically, becoming 20-30 times their usual rates for all modes of transportation: ocean, air and ground. Simultaneously, large retailers experienced a sharp decline in sales volume, sometimes exceeding 40%. This decrease in demand contributed to reduced transportation expenses. Thus, a competitive landscape emerged, with businesses competing for cost-effective air, ocean and ground transportation solutions. Many retailers still possess surplus inventory in their warehouses, striving to sell off their stock. This complex economic dynamic has led to fierce competition for freight opportunities and sales. Notably, revenue from 2022 to 2023 has decreased by approximately 30% for most freight forwarders, highlighting a significant impact on the industry.

Q: How has port congestion disrupted AIT’s operations and what measures have you taken to minimize delays?

A: Congestion mainly stems from weather-related factors, rail issues and the arrival of larger cargo vessels that demand more attention. However, we have managed to navigate this challenge by collaborating closely with our carriers and clients.

We implemented significant changes to our automotive operations, which constitute 60% of AIT’s business in Mexico and 70% of our ocean freight-based logistics in Mexico. We consolidate shipments from the EU, China and India through well-allocated spaces, leveraging partnerships with terminals like Altamira, Tamaulipas, and Manzanillo, Colima. These partnerships expedite container movement through the port, enhancing efficiency. 

Q: What logistics challenges do companies face when adopting a nearshoring strategy and how can these challenges be effectively managed?

A: Rather than viewing nearshoring as a challenge, we consider it an opportunity. Our strategic response has involved targeted infrastructure investments in Tijuana, Baja California and Ciudad Juarez, Chihuahua, to cater to the ongoing growth of e-commerce. We also provided essential support to our manufacturing clients, giving them additional space or expanded ground capacity for seamless transportation between the US and Mexico.

A significant portion of our investment has been directed toward e-commerce, facilitating duty-free or tax-free movement of products from the US and beyond, particularly for direct-to-consumer shipments. Moreover, several clients strategically relocated their operations to Tijuana, Juarez and even Nuevo Laredo, Tamaulipas, aligning with the changing landscape of cross-border commerce.

Q: How is AIT integrating technology into its solutions and what benefits do these technologies offer to clients?

A: Our technology platform focuses on enhancing operations, offering automated integration with carriers for improved transit visibility and real-time tracking. This platform operates globally and encompasses crucial functions like document management, cost control and timely alerts.

This comprehensive system grants our clients complete visibility into their transportation processes. It automatically generates quotes and rates, providing immediate insights into the cost of goods. Real-time transit updates are readily accessible, as well as on-demand reporting. Our services, accessed through our applications, offer an end-to-end supply chain planning experience. 

Q: How does AIT’s Security Incident Response Plan ensure the safety and security of drivers, shipments and assets along the transportation routes?

A: AIT boasts of an all-encompassing security program reinforced by Customs Trade Partnership Against Terrorism (CTPAT) certifications. We conduct annual on-site evaluations of our carriers, assessing aspects such as drivers, equipment and satellite systems. For the secure transport of high-value cargo, we offer escort services with parameters tailored to the prevailing market conditions, ensuring daytime travel for added safety. These stringent measures are essential since most Mexico-based freight involves high-value goods. Through these proactive measures, we successfully vetted all our carriers, substantially reducing potential issues and vulnerabilities.

Q: AIT has signed the Climate Pledge, while also setting a more aggressive goal to achieve net-zero carbon emissions by 2035. What are the key initiatives being implemented to reach this target?

A: Our system plays a pivotal role in this goal, assessing output based on transportation lanes and modes while ensuring alignment with green parameters among our carriers. In the US, SmartWay stands out as a valuable metric. We encourage practices such as turning off truck engines to minimize idling and optimizing routes across ground, air and ocean transport modes to eliminate unnecessary stops and maximize efficiency. This involves meticulous load planning, ensuring well-maintained equipment and confirming that tires have optimal ratings to minimize fuel consumption. On a global scale, the company has been making progress towards the 2035 goal on a number of fronts including data gathering improvements for scope 3 emissions, calculating emissions for customers at the shipment level, obtaining third-party validation for those calculations, and piloting innovative programs related to sustainable air and marine fuel.

Q: AIT has started to transition to EVs in some markets. What have been the results of this transition and does AIT have plans to use them in Mexico?

A: AIT introduced its first EV in Los Angeles, California, to handle local pickups within the airport and port areas. We are also partnering with our customers to expand EV programs in Asia, Europe, the Northeast U.S., and Atlanta, Georgia. While we are making strides, there is a broader infrastructure challenge that both Mexico and the US face: the need for comprehensive recharging networks. These stations are necessary to promote sustainable transportation solutions.

Q: Currency fluctuations can impact operating costs and rates. How does AIT navigate the effects of a stronger Mexican peso on its pricing strategies and overall operations?

A: Handling currency fluctuations is a complex task. While we invoice customers in dollars, our expenses are in Mexican pesos. The peso has appreciated by 20% since January. This presents a challenge and we had to find ways to manage or document these impacts. Effectively addressing this challenge involves clear communication with clients, working out mitigation strategies and ensuring proper documentation to explain the charges. We continuously engage with clients, making necessary adjustments to accommodate their concerns while navigating the volatile currency.

Q: How do you envision the future of the logistics industry in Mexico and what role does AIT play in shaping that future?

A: Despite challenges like foreign exchange fluctuations and security concerns, Mexico's potential for growth over the next decade is substantial. The country possesses an educated middle class that rivals that of many nations. Mexico's strategic location prompts businesses previously reliant on China to consider Mexico due to its logistical ease, improved inventory management and transit certainty.

Mexico will not replace China. Nonetheless, Mexico is witnessing a significant shift toward final assembly operations, as raw materials are being brought in, assembled and exported. The next five to 10 years hold potential for reshaping Mexico's economic landscape regarding trade and manufacturing.

Q: What are AIT’s growth expectations and key plans for further expansion in Mexico and or Latin America?

A: Our expansion strategy is rooted in enhancing logistics services across key cities, as it involves establishing comprehensive logistics centers that provide an array of services to our clients. This encompasses short-term and long-term warehousing, fulfillment distribution and e-commerce support. The next phase centers on bolstering our border services and improving offerings.

We are investing in infrastructure across major locations. In 2Q24, we will set up facilities in Juarez, El Paso and Tijuana and in 3Q24, in Laredo and Nuevo Laredo, supplementing our existing center in San Diego, California. 

Monterrey, Nuevo Leon, Guadalajara, Jalisco, and Mexico City will also serve as central hubs for our clients. Our focus primarily concerns logistics services tailored to assist manufacturing clients in Mexico. This involves providing supplementary services and integrating their existing infrastructure into our offer to optimize their production processes.