SCRLC NEWSLETTER, Q3 ‘10

MEXICO FLOODING

Alex, the first named storm of 2010, seemed at first to be much less destructive to supply chains than was feared. Its life as a full-fledged Category 2 hurricane was brief, barely more than a day, and its destruction was mitigated by making landfall in a rural area of Mexico 110 miles south of Brownsville.

Mexican-based supply chain links appeared to be spared as the storm dissipated. What wasn’t immediately apparent, however, was the vast disruptive impact that subsequent torrential rains and flash flooding would have.

The effects of the storm were particularly disastrous to transportation. Mudslides blocked parts of the seven-month old highway between Monterrey and the auto manuafacturing city of Saltillo (as a result, General Motors would idle production at three U.S. assembly plants). Collapsed bridges shut down the main highway to the border at Nuevo Laredo. The Rio Grande, usually 6-10 feet high at Laredo, crested at 39 feet. Two of the four international bridges there (where well over half of U.S.-Mexico trade crosses) closed for several days.

The head of Mexico’s truckers association reported “22,000 trucks that cannot deliver on both sides of the border and are completely stalled.” Even after the bridges re-opened, the highway south remained an impassable bottleneck for a week.

Quick responding shippers re-routed to other border crossings as an alternative to Nuevo Laredo but these suffered from considerably smaller roadway capacity, custom processing capability, and available drayage. As more and more shippers sought to similarly mitigate, a domino effect produced congestion.

Security became an important risk factor as some roads in Mexico were subject to threats of theft and highjacking. Partners balked at using these alternative routes or would drive only by day. Business continuity responses under such circumstances included using unmarked trucks, guards and even armed patrol escorts. The route to the El Paso-Juarez crossing, for example, was deemed by many too dangerous to use.

Unlike with the Iceland volcano, up-to-date reports on the condition of Mexican bridges and roadways was difficult to obtain. Rumors and word-of-mouth became the currency of information for supply chain risk managers, prompting many to question whether to act on the basis of such sketchy data. Many of the choices made were acknowledged to be subjective and less ‘fact based’ than would have been optimal.

From the viewpoint of supply chain management, Albert constituted something of a wake-up call to what had previously been a generally under-appreciated risk factor. The result has been a fresh look at a supply chain’s dependency on transportation and logistics.

“In the past,” as one executive put it, “we paid a lot of attention to risks associated with our contract manufacturers. Things like earthquakes or fires.

Now we’re looking at factors that impede our ability to ship.”

Additionally, there are supplemental complications in Mexico with NAFTA regulations and tax consequences which must be factored into contingency responses.