It is impressive how much business ties between the U.S. and Mexico have developed over the past fifteen years. Unfortunately, however, it is disappointing to watch how Mexico has squandered its opportunity to fundamentally transform its economy during this current era of supply-chain realignment and near-shoring.
I am an insurance executive who focuses on cross-border commerce. I have seen how Mexico’s exports to the U.S. nearly doubled from $223 billion in 2007 to $439 billion during the first 11 months of 2023. But, overall, violent crime is still holding Mexico back from maximizing its potential.
In September 2008, global financial markets heaved into crisis mode, seriously disrupting Mexico’s economy. That winter, former Mexican President Felipe Calderon took office and immediately declared war on Mexico’s organized crime groups.
Mexico’s economy contracted by 6.3 percent in 2009. At the same time, violence in Mexico exploded as police and soldiers adopted increasingly confrontational tactics against powerful, well-armed organized crime groups. Mexico’s total tally of homicides surged from 14,006 in 2008 to 19,803 in 2009 and 25,757 in 2010.
At the time, it seemed like many multinational companies that were already moving manufacturing from Mexico to China might fully abandon Mexico in favor of more stable and reliable business partners in Asia.
Instead of collapsing, however, Mexico’s manufacturing sector attracted a new wave of investment. Foreign direct investment jumped by 55 percent, from $19.6 billion in 2009 to $30.5 billion in 2010. Mexico’s economy expanded by 5 percent in 2010.
Mexican cities such as Tijuana, Guadalajara, Mexico City, Monterrey and Ciudad Juarez emerged as globally recognized hubs for automotive, aerospace and electronics manufacturing, and consolidated their reputation as plug-and-play nodes within global supply chains.
Over the last decade, violence in Mexico has waned and rebounded in different parts of the country. But overall, homicide totals have remained persistently high. Like many foreign executives learning the intricacies of operating in Mexico, I have seen that organized crime activity affects broad swaths of Mexico’s economy, ranging from agricultural production to mining to logistics.
Criminals kidnapped a Pepsi executive in 2015 and killed a manager at ArcelorMittal in 2017. Armed robbers targeted one of Volkswagen’s employee transport vans in 2022. Even Starbucks has been targeted for violent attacks and robberies in Mexico City.
In 2017, I created an insurance company focused on helping U.S. companies protect their overland shipments within Mexico and across the U.S.-Mexico border. In 2018, I watched Mexico elect a new president, Andres Manuel Lopez Obrador, who promised to reduce violent crime by creating jobs and reducing poverty.
Lopez Obrador signed a revised version of the new USMCA trade agreement governing cross-border commerce between the U.S. and Mexico on December 10, 2019, just before the outbreak another major shock, the 2020 COVID-19 pandemic. Again, Mexico’s economy withstood the storm and even used it as a catalyst for growth. As manufacturers fled China, foreign direct investment in Mexico jumped from $31.5 billion in 2020 to $38.6 billion in 2022. Preliminary data for 2023 point to a new record for investment in Mexico, which continues to benefit from global trends as multinational firms realign their supply chains, either abandoning or supplementing their operations in China.
The new investment helped Mexico’s GDP expand by 3.4 percent in 2023.
Overall, however, Mexico will not likely maximize the benefits of the near-shoring trend because politicians and policymakers in Mexico have broadly failed to improve the country’s security dynamic. The nearshoring boom appears to be developing in spite of Mexico’s problems, not because of its potential.
Lopez Obrador’s administration has already overseen the five most violent years in modern Mexican history. Foreign companies do not operate in isolation from the violent criminal groups operating on the edges of many major cities and on major highways that pass through the rural areas that connect central Mexico to the U.S. border.
Mexico’s failure to ensure a safe pathway for moving goods between manufacturing hubs and the U.S. border is deterring foreign executives who are looking for a reliable business partner.
According to the Reliance Partners Cargo Truck Hijacking Data Portal, Mexico tallied a total of 7,862 violent cargo truck hijackings during 2023, a 3 percent increase over 2022. The biggest hotspots for cargo hijacking in Mexico are Puebla and Estado de Mexico, two manufacturing hubs that abut Mexico City. Together, these two states accounted for 78 percent of all cargo truck hijackings in Mexico in 2023.
In Puebla, the number of truck hijackings increased by 45 percent in 2023.
In early 2024, Mexico’s AMOTAC trucking union is already threatening a nationwide strike, an event which would likely include setting up highway blockades on vital transport routes, unless Mexico’s government takes additional steps to reduce the risk of violent cargo truck robberies.
On Jan. 12, Mexico’s industrial business chamber CONCAMIN warned that highway robberies are costing Mexican businesses over $400 million per year in losses. CONCAMIN calculates that more than 84,000 cargo trucks have been hijacked or robbed over the last five years, an average of 46 incidents per day. Major companies, including Ford, DJI, Danone, and Coca-Cola, have all experienced cargo robberies in Mexico.
Until Mexico figures out how to improve highway security and reduce the risk of violent cargo truck hijackings, it isn’t likely to reach its full potential as a 21st century manufacturing powerhouse.
Mark Vickers is head of International Logistics at Reliance Partners, a leading U.S.-based insurance company.
Copyright 2023 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
