One result of that policy has been a steady rise in logistics, warehousing and transportation services to feed the factories and distribute products.

The U.S. logistics companies that recognized the opportunities posed by the policy are glad they entered Mexico, but are beginning to face more competition. They are responding by adding additional related services and by providing space and services to competitors.

Mexican industrial parks and other companies are happy that logistics services have developed rapidly around them.

It means they have more options to offer to their clients, both to move raw materials into Mexico and to ship products domestically and, primarily, for export, especially to the world's largest market, the United States.

Number of Mexico Logistics Companies on the Upswing
"Business is strong, and the competition is higher than ever," said Russell Dixon, marketing manager for Jacksonville, Fla.,-based GATX Logistics, which has operated its Mexican subsidiary for almost five years. "The future looks very bright."

"Foreign manufacturing companies have a lot of confidence in Mexico. Some were put off by the economic crash in 1994 and 1995, but more of them are getting their toes wet in Mexico now, especially small companies from around the world," he said.

"Providers of distribution space and services are growing in Mexico," observed ProLogis de Mexico Vice President Charles Sullivan, who reports to the Denver-based warehousing and industrial park giant, ProLogis. "As a company, we are seeing more demand as companies expand on a trend to outsource to logistics providers.

"One and one-half years ago, one out of 20 prospects were logistics companies. That went to one out of 10, and now it is one out of eight, or 12.5 percent, that are logistics companies."

"We are seeing an increasing number of distributors," said Salvador Nunez of Kalos Development, a Monterrey-based industrial park firm. "There are especially more of the second-tier small and medium distributors or suppliers who are requested to deliver on a just-in-time basis. More suppliers now specialize in delivering one commodity to major customers."

Companies Benefit from Logistics Service Innovations
GATX in the last year took advantage of expiring leases to move into more modern facilities within the state of Mexico surrounding Mexico City.

GATX now operates in two buildings in Tepotzotlan in the state of Mexico that have a total of 145,320 square feet. The site is 25 miles north of downtown Mexico City.

Its services include customs in-bond space, pick-and-pack, product reconditioning, relabeling, packaging and handling returns. Its transportation services are conducted through arrangements with several Mexican trucking firms.

"We have one customer that is considering a new stand-alone facility to consolidate operations," Dixon said.

"A big piece of all of this is: Will it help our customers? Many of our customers are extensions of our U.S. customer base that have operations in the United States. We plan to build a network in Mexico like ours in the United States where we operate in 34 cities in 22 states.

"Four or five years ago, we wondered if we made the right decision," Dixon said, recalling Mexico's peso devaluation and the resulting recession. "But now we have a solid base of customers that we will want to expand on."

Almacenadora Santander USCO operates 700,000 square feet of warehouse space in three distribution centers. Two are in the Mexico City area. "Mexico City North" is at Tultitlan, while "Mexico City South" is at Iztapalapa. The third is in Guadalajara.

Expansion is at hand for USCO. Giroux said a 150,000 square foot building is under construction next door to "Mexico City North." Meanwhile, a second building in Guadalajara is being sought. A Monterrey warehouse is expected to be lined up by summer.

Altogether, more than 100 USCO clients are served. Among them are Compaq, Epson, Honda, Novartis, Office Max, Panasonic, Reebok, Sunbeam, Tommy Hilfiger and Wilson Sports.

Giroux stressed USCO's labeling services for products to be distributed within Mexico. Last year, Mexico enforced new standards known as NOM or Official Mexican Norms that require multilingual packaging. Spanish must be as prominent as any other language. Stick-on labels no longer are allowed.

"We are licensed to test for all the NOMs," Giroux said. "Our main niches are pharmaceuticals, electronics, retail and the parts business. We also are specializing in value-added services as a third-party provider. When we came to Mexico, five years ago, there were no third-party providers in Mexico as they were known in the United States."

Like GATX, USCO sets up transportation programs and can select carriers, including cargo-tracking services.

"Our business went up 30 percent in 1998," Giroux said. "With our expansions in Mexico City, Guadalajara and Monterrey, we expect an equal increase again in 1999."

"Most companies are re-evaluating their supply chain," explained ProLogis' Sullivan. "They want to make a change without jeopardizing their processes. Packing services, for one, are growing faster in Mexico than in the United States."

The Outsourcing Option
"Outsourcing is the preference of manufacturing concerns in Mexico," Sullivan said. "Companies are outsourcing to others that have facilities or that can do distribution services on-site."

"I don't have the statistics, but we are seeing more high value-added products in Mexico needing air cargo," he said. "Customers are becoming more concerned about delivery, and proximity to airports is more important. It makes a big difference if they can have until 7 p.m. to get their products out daily, not 4 p.m."

Southern Gateway
Logistics has become big business in Mexico, enough so that U.S. companies are using their venture there as a stepping stone to a broader stage.

"We're in Puerto Rico, and we have partners in Brazil, Argentina and Chile," said USCO's Giroux. "We're putting the same systems throughout Latin America to achieve global diversity."

"We will have announcements soon on expansions in Central and South America, specifically Costa Rica and Argentina," said GATX's Dixon.

"Mexico was an excellent launching point for us. We entered Chile two years ago, and we would have gone into Brazil in the last year if the timing had been better. Of all the countries, Mexico was one of the most difficult. But once you do that, the others become easier."

David Hendricks is a business columnist for the San Antonio Express-News.