Mexico – The Land of Sunshine, Tequila, and.…Automated Warehouses?

mexico-imagesI am currently in the final stage of updating ARC’s Warehouse Automation & Control (WAC) Global Market Research Study. I have expanded the number of segments analyzed and made a few other changes to the scope and the content since the 2014 study. One of the changes reflected in the content of this study is a downgrade in ARC’s warehouse automation growth expectations for the Latin America region. Since 2014, commodities prices have plummeted and many Latin American countries reliant on oil and other commodity exports have experienced substantial economic downturns leading to devaluations of their currencies. This macroeconomic downturn appears to have restrained investment in warehouse automation by companies in the region.

Mexico was frequently noted as the strong spot within Latin America during my discussions with warehouse automation suppliers and WMS suppliers. Granted, it is the second largest economy in the region, after Brazil, and is therefore likely to account for a large percentage of the region’s economic activity. But investment activity remains strong. Warehouse automation vendors didn’t really point to an overarching factor driving sales to companies in Mexico. But WMS suppliers informed ARC that the WMS selling environment in Mexico remains favorable due to increased nearshoring efforts by US companies. Multinationals care more than ever about agility in their supply chain, as China’s costs increase, Mexico’s proximity is becoming more appealing. But the trend back to nearshoring in Mexico isn’t new. In 2015, Menlo Logistics discussed the lead time benefits and supply chain visibility concerns when nearshoring to Mexico. More recently, Transplace discussed how the weakening Mexican peso is making the country’s products cheaper for US consumers, leading to transportation capacity constraints going North. But currency exchange rates are volatile and are unlikely to influence long-term capital decisions such as warehouse automation purchases or large-scale WMS implementations.

I decided to conduct some additional secondary research to obtain greater insights about the factors that are likely driving warehouse automation investments in Mexico at the same time other countries in the region are pulling back. Macroeconomic data on trade show the degree to which automotive, automotive parts, and electronics account for US imports from Mexico. Automotive parts warehouses often utilize warehouse automation, but the anecdotal evidence I received from vendors doesn’t support this as the primary factor driving warehouse technology investment in Mexico.  Similarly, macroeconomic data on US exports of industrial automation equipment shows that Mexico’s purchases of US conveyors and elevating equipment grew at a 12.9 percent CAGR between 2009 and 2015. This provides confirmation of my estimates and projections, but doesn’t provide additional color.

I dug further into macroeconomic reports to see if there were additional insights to be obtained. I came across the Department of Commerce 2016 Top Markets Report on the Cold Chain in Mexico. This report states that Mexico’s supermarkets have been growing at a rapid pace. At the same time, the introduction of supermarket distribution systems has become more prominent. Food and beverage, retail, and consumer goods companies represent a large percentage of warehouse automation and control sales globally. Maybe warehouse technology spend in Mexico is driven more by food and beverage and consumer packaged goods than automotive and electronics. Furthermore, maybe the automation is in support of domestic consumption more than exports. I decided to take a look at WMS and warehouse automation case studies on clients from Mexico to see how they mapped to these industries to see if it provided additional color into warehouse technology adoption trends within the country. A quick scan of publicly-available literature revealed the following projects:

mexico-warehouse-projects

This is a quickly assembled sample of recent investments that I plan to build out in the weeks ahead. The analysis of warehouse technology sales in Mexico is outside the scope of my current global research analysis. But it is an interesting country that is a positive outlier in the Latin America region. From this quick analysis, it appears that the recent strength in warehouse automation sales in Mexico is driven more by food and consumer goods than automotive or electronics. At the same time, it appears that automation of facilities supporting domestic Mexican demand is stimulating warehouse technology investment more than that of businesses exporting to the US. Mexico’s investment trends are certainly of interest to me, and I believe the country offers much opportunity for investment going forward.