SNAPSHOT: Protests and cargo theft put spotlight on Mexico-U.S. supply chain security

Mexico and the United States have highly integrated economies, however recent protests and cargo theft incidents demonstrate the multiple threats to the countries' supply-chain security.
     Mexico road

KEY POINTS
  • Recent security incidents in Mexico and the United States (U.S.) have highlighted the multiple threats facing the two countries� integrated supply chain.
  • In Mexico, striking teachers blockaded the tracks of a freight railway in the western state of Michoac�n from mid-January to mid-February, causing significant disruption to fuel and grain deliveries and leading to long backlogs at Pacific coast ports. Furthermore, fuel shortages since January, caused by government efforts to reduce illegal fuel theft, have prompted long queues at gas stations and severe disruption to logistics.
  • In both Mexico and the U.S., cargo theft and associated insider threats continue to constitute a key business risk, despite increasing awareness of the threat it poses to staff and operations. In Mexico, which accounts for over two-thirds of all cargo theft in the North America region, armed criminals often use in-transit hijacking to steal freight.
  • In the U.S., small-scale theft from haulage vehicles, or pilferage, rose 18 per cent in 2018. Items often targeted include lightweight high-value electronics, such as laptops, or food and beverage shipments. Criminals often target unattended trucks parked at unsecured locations, including truck stops.
  • On the U.S.-Mexico border, the arrival of several Central American migrant caravans, particularly as of October 2018, prompted U.S. President Donald Trump to reinforce border security, leading to temporary closures of key entry ports, including the San Ysidro crossing between Tijuana and San Diego. In February 2019, Trump declared a national emergency at the border, heightening the risk of temporary closures or delays due to infrastructure work.
  • Companies operating across North America can mitigate supply chain risks, however, through initial security assessments, regular threat monitoring, and the development and updating of comprehensive contingency plans.
U.S.-Mexico border

United States - Mexico border 

  ANALYSIS

  • The North America region, consisting of the U.S., Canada and Mexico, is highly integrated and economically competitive, a result of decades of integration under the NAFTA trade deal. While NAFTA was renegotiated and renamed the �USMCA� in September 2018, it preserves the majority of provisions which facilitate integrated interregional supply chains.
  • North America�s supply chain, however, faces multiple security threats, placing assets, personnel and operations at risk. Supply chain risks are particularly high for firms which rely on road, rail and port infrastructure, such as companies in the automotive sector, as these are often targeted by organised criminal groups. While security risks are especially acute in Mexico, they exist across the region.
  • In Mexico, key threats to supply-chain security include organised crime, drug trafficking, extortion, civil unrest, insider threat, and corruption. One example featured Canadian miner Telson Mining Corporation, which accused compromised employees and local criminals of stealing USD2-3 million of metal concentrates from the company�s Campo Morado mining complex in the south-western state of Guerrero in February 2019.
  • A main risk to the supply chain in Mexico comes from violent organised criminal groups, which often target in-transit haulage vehicles. Armed criminals frequently take drivers hostage during a hijacking, delaying the police�s response. According to a report produced by Skyangel, a GPS vehicle-monitoring company, cargo theft increased 300 per cent from the year ending 2017 to August 2018. Approximately 80 per cent of theft occurs in five states: Mexico state, Puebla, Michoac�n, Veracruz and Guanajuato.
  • Fuel theft from pipelines, known locally as huachicol, prompted the Mexican government to launch a new, tanker-based fuel distribution strategy in early 2019; however, this has resulted in shortages at some petrol stations, long queues for fuel and angry protests. The measures, which seek to reduce organised crime, have consequently led to disruption throughout the supply chain. The action illustrates how President L�pez Obrador�s actions to tackle crime can impact supply chains, and could subsequently be followed by similar moves elsewhere, including at ports.
  • Risks to the supply-chain have increased rapidly amid a�deterioration in the security situation�since the government launched a war against drug cartels in 2006. While the government declared an end to the war in early 2019, security forces continue to engage in�violent confrontations�with drug-trafficking cartels and organised crime groups. Furthermore, firms operating in the country continue to face a dynamic security environment, with organised criminal groups and drug cartels moving into previously safe areas. These groups often target particular sectors, such as transport, including both haulage and public transport, and oil and gas infrastructure. In turn, the security environment poses multifaceted and complex challenges to companies with supply chains, assets and staff in the country.
  • In the U.S., meanwhile, main risks to supply-chain security include cargo theft, industrial action and protests at facilities. In 2018, cargo theft fell 19 per cent from 2017, with a total of 592 thefts across the country worth an average of USD142,342 each. A high number of thefts take place at warehouses or truck stops.
  • One area of central importance in the regional supply chain is the U.S.-Mexico border. In 2017, trucks carried approximately 70 per cent of the U.S.�s imports from Mexico across the land border. Under President Trump, however, border security has become a major political issue, despite current illegal border crossings being vastly below levels from the early 2000s. On 15 February, Trump declared a national emergency over insecurity at the border in an effort to fund his proposed border wall. While Trump�s action faces legal challenges from a coalition of 16 states, the declaration could eventually lead to new infrastructure and increased friction at the border.
Mexican soldiers

Mexican soldiers 

  RESPONSE

  • Prior to an initial investment, companies should conduct a new market entry study that examines a broad spectrum of risks to manufacturing and the supply-chain. These may include investigations into third-party vendors, labour friction, political, natural disasters, organised crime, insider threat actors, and cyber, among others.
  • Stakeholder analysis is also recommended, as it will provide insight into the influences and normative behaviours of competitors, local communities and labour force, customers, government, regulators, industry associations and watchdogs.
  • Firms operating across the region should have a comprehensive threat mitigation strategy to limit supply-chain security risks. Such a strategy should be sector-specific, adopt technological solutions, and factor in the particular firm�s business activities and security requirements.
  • Logistics companies, for example, should combine use of GPS technology to track shipments and drivers in real time, while also varying routes, timings and truck stops to mitigate the risks posed by organised criminals.
  • Once a firm has established operations in the region, it should regularly monitor and update its threat/risks assessments, factoring-in the dynamic changes to the security situation. This can be assisted with intelligence services. Firms should also develop a range of contingency plans and ensure that executives and operations managers are trained and prepared to operationalise such plans.