Shannon: Exporting Fasteners Into Mexico, Broker Has Key Role
The biggest issue of doing business in Mexico is the cost, Mark Shannon of Tower Fasteners told the National Fastener Distributors Association.
In 2000, Holtsville, NY-based Tower – with branches in New Jersey, Connecticut and Pennsylvania – was approached by a seven-figure customer saying: “The bad news is that we are moving production from New York to Mexico in four months. The good news is that we want you to come with us.”
That was after the North American Free Trade Agreement created free trade between Mexico, Canada and the U.S. in 1994.
“And we wanted to retain the account,” Shannon noted. The OEM wanted the same service as in New York – local inventory but in Mexico.
Shannon began learning about supplying in Mexico. He quickly found the border crossing is a “black hole,” with Mexican customers brokers taking control. Duties are calculated by Mexican brokers.
There are “perplexing legal and financial systems” in doing business in Mexico, Shannon observed. That includes customs regulations, product standards and labor law changes.
• An early step is selecting a customs broker to legally act on the company’s behalf.
By Mexican law, only Mexican customs brokers can clear products through customs, and the broker takes control once freight crosses the border.
Brokers escort shipment and are “judge and jury” on merchandise classification.
• There can be delays in freight and problems tracking. A third-party import company costs about 5% of shipping value.
“Five percent can go to 12% instantly,” observed Steve Dalaklis, general manager of North Billerica, MA-based Lehigh-Armstrong Inc.
• Costs to consider include duties and taxes, transportation, facilities, labor and transformation, administration and legal costs, “Add 2% to 3% for unforeseen mistakes and pitfalls.”
• Also different from the U.S. is “kidnapping insurance” for executives.
When in Mexico, Shannon doesn’t ride in the back seat of a car.
But U.S. executives can’t just avoid going to Mexico. Shannon advised that domestic company leaders “need to make their presence felt on all levels. Frequent face-to-face in Mexico is imperative.”
Dalaklis told the NFDA he “wished I had a good answer to location and security problems.” One step: Avoid titles on business cards.
He finds it is best for delivery drivers not to carry cash.
For more from the NFDA presentation, FIN Subscribers can CLICK HERE.
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