Reporting on the Mexican Cartel Drug War

Despite drug war, trade with Mexico is booming

Sunday, May 8, 2011 |

By Jason Buch, David Hendricks
San Antonio Express News

A sign advertising hiring at the Corning maquiladora hangs outside the plant in Reynosa, Mexico. Photo: Lisa Krantz/Express-News


McALLEN — As the rest of the world tries to claw its way out of the economic downturn, businesses here and across the Rio Grande are hanging “help wanted” signs.

It’s evidence that despite the drug violence in Mexico that killed more than 15,000 people last year, and the negative attention that has all but destroyed border tourism, trade between that country and the U.S. has recovered and surpassed prerecession levels. Last year, trade was at an all-time high.

Mexico, the No. 3 trading partner of the U.S. and No. 1 of Texas, conducted more trade — almost $400 billion worth — with this country in 2010 than any other year since the U.S. Federal Reserve Bank began tracking the numbers in 1980.

“This is still the closest place to the U.S. to serve in the U.S. market,” said Jesus Cañas, an economist for the Fed in Dallas. “Mexico is still a great platform. This manufacturing relationship goes back to the ’60s.”

Raw materials flow south to factories that once were concentrated on the border but have begun to spread out across Mexico.

Car parts return from Monterrey, Mexico’s industrial capital. Consumer electronics are built in Ciudad Juárez, across from El Paso, and shipped into the U.S. The Rio Grande Valley is becoming an important entry point for Mexican agricultural commodities bound for U.S. markets.

But questions about the future of U.S.-Mexico trade loom behind the good news. Foreign investment, which funds Mexican manufacturing, hasn’t shown a post-recession recovery the way trade numbers have.

Some existing businesses have seen their bottom lines hurt by the violence. Others simply have had to make minor changes to protect their employees.

But the economic incentives of doing business in Mexico far outweigh the costs brought on by the drug war violence.

“We have a plant to run. We’re committed to it,” said David Hawkins, vice president of operations for Metal Industries Inc., a North Carolina company that operates a maquiladora, a foreign-owned factory, in Reynosa. “We can’t just close and leave.”


Truck traffic on the World Trade bridge complex, Laredo, Texas.

Trade along the border

U.S. demand for goods such as automobiles, clothing and consumer appliances fuels Mexico’s manufacturing industry.

When trade between the two countries fell in 2009, it wasn’t because of conflicts between drug traffickers. It was because U.S. demand for Mexican-manufactured goods plummeted.

By last year, that had changed. Total U.S. trade with Mexico topped $393 billion, up 28 percent from 2009 and up 7 percent from 2008, according to the Bureau of Transportation Statistics.

Texas plays a major role. Six of the top 10 ports trading with Mexico are in the Lone Star State: El Paso, Eagle Pass, Laredo, Hidalgo, Brownsville and Houston. Together, they account for more than 60 percent of all U.S. trade with Mexico.

The big daddy of binational trade is Laredo, with two commercial bridges where, each day last year, an average of more than 10,000 trucks crossed each way. The port saw $121 billion in trade between the two countries, nearly a third of all U.S.-Mexico trade.

Unlike the McAllen-Reynosa area downstream and the El Paso-Ciudad Juárez area upstream where maquiladoras are king, the economies in Laredo and its Mexican sister city, Nuevo Laredo, rely on logistics, and the shipping of raw materials to the Mexican interior and finished products back north.

In Reynosa, a town of 600,000, 141 maquiladoras employ more than 84,000 people. The factories added more than 4,000 jobs last year, and for every 10 of those, one job was added on the U.S. side of the Rio Grande, said Keith Patridge, president and CEO of the McAllen Economic Development Corp.

Mike Myers, the general manager of the Metal Industries plant in Reynosa, said that in March he hired 10 people, the first time he’d added staff in two years.

Across from Del Rio in Ciudad Acuña’s industrial parks, where 42 maquiladoras employ 27,071 in the city of about 136,755, the situation is much like Reynosa, said José Ramón Lozoya, a customs broker and the president of Ciudad Acuña’s chamber of commerce. Factory managers have been holding job fairs to staff their lines as a recovering U.S. auto industry creates demand for parts.

“They’re increasing, but now the problem is there’s not enough people to fill those jobs,” Lozoya said.

In Ciudad Juárez, where factories employ 194,069 — about 10 percent of all maquiladora workers in Mexico — the dollar amount of trade grew more than 30 percent in 2010 to $56 billion.

Last year in Ciudad Juárez, a city of 1.3 million, more than 3,000 people were reported killed in cartel turf wars. But despite the unchecked violence, the wheels of industry keep turning.

In the past 18 months, Ciudad Juárez maquiladoras added 28,000 jobs, said Manuel Ochoa, vice president for binational development at the El Paso Regional Economic Development Corp.


Gunmen opened fire on three Eagle Ottawa Leather company buses on a Ciudad Juarez highway in November, 2010, killing four maquiladora workers.

The drug war domino

Trade between the U.S. and Mexico is increasing despite an actual drug war that has moved beyond trafficker-on-trafficker and trafficker-on-police violence. Legitimate businesses are forced to pay protection, and their employees are kidnapped and subject to ransom demands.

A produce distributor with operations in McAllen told the story of a truck driver bringing strawberries to the U.S. through northern Mexico. The driver was kidnapped and held for ransom, and when his boss wouldn’t pay, the kidnappers killed him.

In January, a Black & Decker maquiladora manager was killed in Reynosa. Buses filled with factory workers have been attacked outside Ciudad Juárez.

The violence means those involved with trade along the border need to alter their business plans, said J.O. Alvarez, a Laredo customs broker whose business has locations across the U.S. and Mexico.

One customer had to start crossing denim shipments in El Paso because the cargo was getting stolen in Nuevo Laredo, sometimes right out of the Mexican customs lot. Other trucking companies have taken to providing high-value cargo with armed escorts, he said.

In Reynosa industrial parks, fences have sprung up around maquiladoras, and private security forces cruise the streets.

Domingo Auces, marketing director of San Antonio-based Precision Mold & Tool Group, recalled that a son of a Mexican executive at a factory making products for Black & Decker, a Precision customer, was kidnapped while playing soccer. Various companies, including Precision, lent money to the executive to pay the ransom.

“It hasn’t stopped him (the executive) from working there. It hasn’t stopped us from doing business with them. These are risks you are going to run into,” Auces said.


Employees at the Metal Industries Inc. maquiladora in Reynosa, Mexico. Photo: Lisa Krantz/Express-News

Why companies stay

Poverty remains a big problem in Mexico. According to the CIA World Factbook, 18 percent of Mexicans live under the poverty line, using the food-based definition of poverty. Using the asset-based definition, almost half the country is impoverished.

While that’s hardly good news for Mexico, for U.S. companies it means that to set up operations, Mexico is cheaper than doing business in Asia and certainly cheaper than in the U.S.

And even with the increased costs for security, changing shipping routes, developing contingency plans, and the inefficiencies and lost sales that come from not being able to meet with customers in dangerous parts of Mexico, the reality is that it’s still very cheap to manufacture in Mexico.

Manufacturing costs in China are about 94 percent of U.S. manufacturing costs, according to a 2009 report from consulting firm AlixPartners. In Mexico, manufacturing costs are only 75 percent of what they would be in the U.S., according to the report.

Production workers in the U.S. make about $15 an hour, according to data from the U.S. Bureau of Labor Statistics. Industrial workers in Mexico make about $3.50 an hour, as opposed to $3 an hour in China, according to a report from the National Council of Maquiladora and Export Manufacturing Industry.

But the savings in labor are eroded with the higher cost of shipping from Southeast Asia. It costs $4,300 to ship a 40-foot container from Hong Kong to San Antonio via Long Beach, Calif., and will take 24 to 26 days to get there, according to DHL Global Forwarding. It costs $1,800 to drive a 40-foot trailer from Ciudad Juárez to San Antonio, and the trailer will get there in eight to 10 hours.

The result is that 95 percent of goods manufactured in Mexico end up being shipped north of the Rio Grande, Cañas said. And border cities are popular among foreign manufacturers because higher-wage employees like engineers and managers can live on the U.S. side of the Rio Grande and commute to work.


Tamaulipas state police on patrol (AP)

Challenges for growth

It’s not all good news for Mexico’s manufacturing sector, however. Foreign investment in Mexico hasn’t increased significantly.

Speaking to the Mexican Senate in early April, Agustín Carstens, the head of Mexico’s central bank, raised concerns about the impact the country’s war against drug traffickers is having on foreign investment.

Numbers from the bank show foreign investment in Mexico in 2010 was only $17.7 billion, down from an average of about $25 billion before the recession. And of that $17.7 billion, $5 billion came from the purchase of Fomento Económic Mexicano S.A.B. by Dutch brewer Heineken N.V., said Rafael Amiel, IHS Global Insight’s director for Latin America Economics.

For the time being, Mexico’s automotive and manufacturing sectors have enough capacity to continue meeting U.S. demand, he said. But there are questions about the future of Mexico’s manufacturing industry, which relies heavily on foreign investment, Amiel said.

It’s not always the violence itself that’s a problem, Amiel said. The negative news coming out of Mexico makes companies leery of setting up shop there, even though some areas of the country are safe.

“There’s a clear, clear difference of what’s going on in border cities and border states and what’s going on in southern Mexico,” he said. “But I’m not very optimistic that new ventures will come to Mexico.”

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24 Borderland Beat Comments:

Anonymous said...

I heard of car loads of factory workers getting massacred on the way home from their shift, having to pay protection money to work and being at mercy of your bosses paying, this is something that should never be happening, showing it's not all about drug trafficking but unabated corruption.

OMMAG said...

As long as honest people are determined to succeed their is hope for all.

Give the good people the freedom to work and grow without the fear of government or other criminal intervention and watch the miracles happen.

Layla2 said...

The problem of why 'there's not enough people to fill those jobs' is cartel thugs like the Zetas. They have virtually run off entire towns of people along the border where these factories are located. This hurts the towns and people who want to work and make an honest wage.

I so AGREE with poster above saying that given 'the freedom to work and grow without fear of gov't or criminal intervention' must be the objective that's quickly achieved to turn this thing around.

Anonymous said...

My wife and I read this story when it first came out in the San Antonio. Our immediate reaction,it was a crock of shit. My wife sister is a human relations manager for a factory in Juarez and my brother is the general manager of another one - in Reynosa. They both are very active in the trade associations. Despite what the 'official' government line is or what factory owners are saying, the reality is that everyone is losing money, employees are being laid off. The work is just not there. I am not saying this - it is coming from the people who work in the factories. Read the article again and you will see all the quotes came from individuals who have a vested interest in perpetuating the myth. Reality is the economy all along the border is bad, ver bad.

Anonymous said...

Yes, and i know a friend of a friend of a neighbor who lives down the block who has a sister who works for so and so too.
and she says, Blah, Blah.

hasta la madre said...

12:02pm Way to generalize with anecdotal evidence. ...
The fact that the proles are being hit harder economically by the current drug war, doesn't mean corporations aren't having good quarter profits.

Anonymous said...

For anyone that believes this sh*t go and pay Juarez a visit..

Anonymous said...

i think the booming business is the cartel that has shares in all of the import export businesses that come in the port of entry to the united states and merchandise that goes into mexico

Anonymous said...

This article is very misleading.

I am Director-General of a large factory in Monterrey and have lived here for almost 12 years. There is no question that our production is up over last year but security concerns have increased so much that a regular discussion at executive meetings when I go back to the US is about closing up factories and moving elsewhere.

5 years ago, my plant spent about $40-$50,000 US a year on security. Last year it was over $2 million US. All of the executives, including myself, now have armed guards and armored vehicles. Even our kids are protected by armed security against the threat of kidnapping.

There has been lots of talk about moving plants to Panama, Costa Rica, Colombia and Belize where the safety of our employees will be better and our security costs can drop dramatically. If the Colombia US free trade goes through, that is likely where we will end up.

The risks in Mexico are getting too high and the costs are rising dramatically. Current discussions are that the increased cost of transportation will be mostly covered by the drop in security costs and less threats and extortion for our employees.

In my plant there are over 5000 employees. The talk is about moving 4-5 plants for a total of 22,000 jobs leaving Mexico, with only our newest facilities remaining.

This is the reality of business in Mexico these days. And my company is not alone. I have regular discussions with my peers in other factories here and the same discussions are going on with their companies.

Even though we are still making good profits, blood money carries a price beyond the financial. Watching our workers suffer or seeing their children kidnapped or killed is a terrible way to do business.

Anonymous said...

@May 8, 2011 3:36 PM

You are such a liar. And you know what gave it away...this little sentence "All of the executives, including myself, now have armed guards and armored vehicles. Even our kids are protected by armed security against the threat of kidnapping."

Anyone who truly lives in Mexico knows that there is no such thing as "armed guards" you can have security guards but they are NOT ARMED!!

Anonymous said...

It stands to reason, some companies will leave Mexico and go places they do not have to pay such high security costs and where living isn't so mentally debilitating. It isn't that hard to grasp! It is reality. Watch!

Anonymous said...

@6:07 pm

"Anyone who truly lives in Mexico knows that there is no such thing as "armed guards" you can have security guards but they are NOT ARMED!!"

what are you talking about? Private Security guards most definitely are or CAN be armed, they just need to be vetted and have the proper permits for carrying their firearms.

That is exactly why some American private security firms working in Mexico double up in partnership with Mexican security companies, so they will covered with firepower if need be.

Ardent said...

The following is purely overly optimistic bullshit...

'McALLEN — As the rest of the world tries to claw its way out of the economic downturn, businesses here and across the Rio Grande are hanging “help wanted” signs.'

We hear the same type of overly optimistic positive thinking bs all the time about the US economy, too. We want to believe it, but fact is that the bulk of consumers are broke in both the US and Mexico. The world is not out of its economic downturn by any stretch of the imagination.

Meanwhile, world distribution of wealth keeps getting skewed more and more unequally where the few super rich hundreds of individuals pull down hundreds of billions while all the rest of the population continues to suffer from decreasing access to most major economic resources.

Anonymous said...

Regardless if it is true or not the fact remains Mexico is slowly been destroyed my thugs . El valiente vive asta que el cobarde quiere... good old common sense. Unfortunately common sense isn't so common any more.

Anonymous said...

@May 8, 2011 6:45 PM

Oh yeah, name one company that has permission from the secretary of defense to carry firearms? I'm dying to read this jajaja....If the security guards at U.S. consultants aren't armed or at the U.S. embassy in Mexico, what makes you think they are going to give some low level security guards permission...nigga plz...who you trying to fool??

Anonymous said...

6:07 pm...what planet do you live on!!!! Have you even set foot in Mexico? Of course the security guards are armed!!!

Here's a little hint. Go to any of the better restaurants in Monterrey. In one area you will see several large SUVs with guys in suits standing around. I guarantee you they will be armed. If you don't believe me, just get in the face of one of these guys.

You must live in a complete bubble! Every major company has a number of guards who are armed. Where have you been for the last 4 years?

Clearly you have no idea.

Anonymous said...

Private security companies in Mexico have armed guards.

The I

Ovemex said...

"The size of police forces does not include the burgeoning private security sector. In September 2006, three months before the Calderon administration assumed power, the federal government allowed 375 private security firms to operate in two or more states.

By January 2011, the number of companies with multi-state permits had almost doubled to 714. Mexico City, Mexico state and Jalisco, in that order, were the three top locations for home offices of the inter-state firms. The companies' employees more than doubled from 57,947 people in September 2006 to 144,490 in June 2010.

Issued by the Ministry of Defense, 51 collective permits allowed the companies to legally possess 29,072 firearms. Unnamed industry sources cited in the Mexican press asserted the actual number of weapons owned by private security companies could be much higher.

Additionally, 1,642 other private security agencies were permitted to operate in only state."

http://www.nmsu.edu/~frontera/secr.html

You can also look up the: LEY FEDERAL DE SEGURIDAD PRIVADA

Nueva Ley publicada en el Diario Oficial de la Federación el 6 de julio de 2006

TEXTO VIGENTE
Última reforma publicada DOF 27-01-2011

Layla2 said...

An article published in El Paso Inc, Juárez cranks up private security: Businesses spent 45 percent more than in 2009 by Alejandro Martínez-Cabrera reports...

"Juárez “is the city with the largest increase in security investments,” said Ivette Estrada, spokeswoman for the Private Security National Council, or CNSP, an association of security firms in Mexico. It calculated the increase using data provided by its 298 members.

"Delphi corporate security manager Jaime Garcia told El Paso Inc. that his budget has increased by about 300 percent and his security staff by 100 percent since 2008.

"In the last three years, his company has seen an increase in extortion and tractor-trailer theft cases, Garcia said. It’s also had to address issues of travel safety with employees, as well as how to respond in case of a car jacking or kidnapping.

“Normally you don’t have to tell your spouse ‘hey honey, if you get a phone call, go ahead and pay this much.’ These are not conversations that you normally have, but now that’s a realistic thing,” he said.

“The intelligence component has become critical,” said the owner and chief operating officer of the security consultant Grupo Savant, who asked that his name not be used.

“The cartels are now fighting all over and it becomes critical for you as a security officer, if you’re providing personnel protection, to know what’s happening now and where. You can’t protect your VIP if you don’t know what’s going on in the area you are traveling to.”

--And you don't think they are licensed to carry firearms? Would they really be worth hirng if they didn't??

Anonymous said...

Borderland Beat......Please start screening these attack artists that critique every post and attack good meaning posters that have good information to share. it is getting to a point that I don't want to comment because one of these bitches will shred whatever point you try to make and put nothing into what they are saying. Conflict with discussion is ok, but bar the shred artists. They don't know anything anyway. I will only post anonymous from know on, myself.

Anonymous said...

@May 8, 2011 6:45 PM

Oh yeah, name one company that has permission from the secretary of defense to carry firearms? I'm dying to read this jajaja....If the security guards at U.S. consultants aren't armed or at the U.S. embassy in Mexico, what makes you think they are going to give some low level security guards permission...nigga plz...who you trying to fool??

Sorry to tell you this, but I know a lot of my former Military buddies that are working in Mexico at this very moment that are doing armed security, in fact it's becoming a business model for many ex-Vets that want to help people in Mexico and protect them from the Cartels, be on the watch for private armed police units in Mexico soon that are mostly Ex-SEALS and Special Forces that are contracted by Local citizens to protect them.

Anonymous said...

May 8, 2011-6:45PM,

Yo fuck nuts, there are a number of security personnel in the U.S. Consulate located in Juarez that are most certainly armed! You should do a little research before you open your ghetto wanna be mouth. In fact, if you knew anything about your own country's laws, it is possible for an ordinary Mexican citizen to legally own one handgun for home protection (of course there is a legal process and approval). Your just another problem Mexico is suffering from...pure ignorance.

Anonymous said...

I lived in Mexico for 11 years running a small wheel thrown pottery. I'm retired military and have lived more than 25 years outside of the US. There are many more people with gund in Mexico than you think. A local small liquer store owner had a permit. What makes you think there are not armed security guards? Your in-laws? Reading? I lived a free and safe life in Mexico. I felt safe, not like here in the US where crimes against property and crimes of violence are up. Drug use in the US is terrible here or at least here in rural Alabama. In fact, I wish I was back in Mexico. Things change. Things pass in time. Drug use on the US side is growing. Get a deep breath aqnd get real.

Anonymous said...

Seriously???
How about moving your jobs back to America????
Watching your fellow citizens lose jobs, and dieing a slow economic death is a horrible way to profit as well!
Large corps can lobby for free trade agreements, but can't push for a better biz climate here??? Yeah, right!
Sorry about your families being in danger but when leaching money out of your home country you get what you deserve.
How is children living in hunger, poverty and denied education any less important than your child??
At this point, I would love to go on a hate filled, foul language laden rant, but I won't.
The Lord will deal with your type accordingly.
Good day.

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