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Coronvirus could threaten New Mexico trade

Copyright © 2020 Albuquerque Journal

Contagion has yet to hit the U.S.-Mexico border region, but as the new coronavirus spreads across the globe, companies and trade experts are closely monitoring the outbreak and preparing for disruptions.

A Union Pacific freight train transports containers past the facilities of Twin Cities Services, Inc. in Santa Teresa in March 2016. New Mexico’s burgeoning trade market is threatened by spread of coronvirus. (Andres Leighton/For the Albuquerque Journal)

Some companies at the Santa Teresa border industrial parks in southern New Mexico are already facing dwindling supplies from China and South Korea, where international shipments of goods and components critical to operations here slowed down or ground to a near halt in the past month, said Jerry Pacheco, executive director of the International Business Accelerator and president of the Border Industrial Association.

“Anyone tied into Korea or China is feeling the strain,” Pacheco said. “One company with materials that come from China and go into their plant here told me that many Chinese suppliers have had to shut their plants down, or that only 50% of the workforce is showing up.”

Jerry Pacheco, founder, president and chief executive officer of the Border Industrial Association. (Courtesy of Anderson School of Management, UNM)

Items like automobiles and electronics contain thousands of components, and a delay in receiving just one component delays production of that item.

Companies are stockpiling inventory in preparation for supply-chain disruptions.

But that, in turn, is driving up demand for temporary warehouse space. That’s difficult to provide in the short term, because the industrial real estate market in Santa Teresa and nearby El Paso is already near capacity, reflecting today’s booming trade along the border.

“The real estate market here is already tight, with unprecedented occupancy rates, and (building managers) want five-year tenants, not people looking for temporary space for five months,” Pacheco said. “I’ve dealt with three companies just in the past two weeks looking for temporary space to store as much supply as they can to mitigate disruptions going forward.”

One company is in the process of moving its production from Asia to this region to better manage the current risk from coronavirus and from other potential epidemics or natural disasters in the future, Pacheco said.

“There’s discussion all over, especially among colleagues in the auto industry who are worried and trying to figure out a plan B if there are major disruptions in trade,” Pacheco said.

In the long term, that bodes well for the region, which could see more companies with off-shore operations re-shoring their production and supply chains as they prioritize risk management over the economic gains they reap from cheaper business costs in Asia, Pacheco said. But it’s difficult to make such major transitions in the short term, and as the virus spreads worldwide, the hit to the global economy in general and potentially to trade along the border could be significant.

“It certainly has great potential to slow economic momentum,” Pacheco said. “Here at the border, we’re tied into the global economy and we export to the world. The local impact (from coronavirus) all depends on what happens with the global economy.”

The problem is no one knows how extensive the worldwide contagion will be before it’s contained or a vaccination is developed, making predictions on economic impact difficult, said Robert Queen, director of the U.S. Commerce Department’s New Mexico Export Assistance Center.

“It’s still developing, so it’s too early to forecast anything in relation to the virus,” Queen said. “It’s not just a border story, it’s a global story, and we don’t know what the impacts will be.”

Less movement of goods, people

New Mexico Trade Alliance President Randy Trask said limits on movement of goods and people are impacting everyday business activities, such as attendance at trade shows or travel to manage business operations.

“The coronavirus may affect business a lot more than people are thinking,” Trask said. “… The entire country of China more or less shut down for an entire month. A huge number of not just consumer goods, but electronics, components and so forth coming from China all came to a virtual halt.”

Many companies had stocked up on inventory in advance of the Chinese New Year, which is when the coronavirus hit. But in the weeks since, most of that inventory has been depleted, and without more flow of inputs to manufacture, distribute or sell, things will get put on hold, which leads to production declines and layoffs, Trask said.

“These are very real things we have to think about,” Trask said. “Nobody knows yet what the situation will look like in the coming weeks, in part because everyone is mostly focused on the health impacts now. But there could be real consequences on the business side.”

Those impacts could potentially spread well beyond trade to include nearly all business sectors, depending on how widely and severely the virus migrates in the U.S. and elsewhere. No cases of coronavirus have yet been identified in New Mexico, but Exxon Mobil said Thursday it will reduce investments and rigs operating in the Permian Basin in West Texas and southeastern New Mexico because worldwide energy demand is dropping, significantly cutting crude prices.

The border region may be particularly vulnerable to contagion, given the massive flow of people and goods back and forth between the U.S. and Mexico, with tens of thousands of crossings everyday. That’s aggravated by immigration problems, with thousands of Central Americans and others seeking refuge in the U.S., many of whom are currently housed in hostels and makeshift tent cities in Juárez, Pacheco said.

“In a worst-case scenario, there would be a lot of disruption at the border as screenings are enforced for everyone coming and going,” Pacheco said.

That would significantly delay commercial transport between businesses on both sides of the border, said Guillermo Lopez, general manager for printing company Monarch Litho, which operates plants in Santa Teresa and Juárez.

“We send goods everyday back and forth,” Lopez said. “Waiting times to cross the border could become much longer.”

Supply chain disruption hurts

Companies all along the border, from Texas to California, are facing supply-chain issues, said Ernesto Bravo, president of the Tecma Group’s western division and board member of the U.S.-Mexico Chamber of Commerce’s California division. Tecma helps manufacturers worldwide to set up facilities in Mexico.

“We’re absolutely seeing disruptions all along the supply chain with China, some more serious than others,” Bravo said. “A car generally has some 14,000 components, and if just one is missing, you can’t build the car. It’s the same situation with electronics or consumer goods – if you don’t have just one single piece of raw material needed for a more complex product, it impacts production.”

On the positive side, there are signs of supply-chain problems easing as contagion slows in China, Bravo said. And, like Pacheco, Bravo believes the coronavirus will likely accelerate the trend of businesses seeking to re-shore operations from Asia to the Americas, particularly in Mexican border regions like Juárez and Tijuana.

That’s been a growing trend since the Great Recession in 2008, and since the Tsunami in Japan in 2011.

“We’ve been seeing that trend all along the border for at least five years,” Bravo said. “Companies want to distribute the supply chain closer to operations here and not put everything all in one basket in Asia.”

That transition will take time, limiting its ability to buffer potential impacts now from the coronavirus. But even with major disruptions, New Mexico’s trade with its southern neighbor and other countries will continue, Pacheco said.

NM exports more goods than ever

New Mexico’s exports worldwide reached a record $4.8 billion last year, up 30% from $3.7 billion in 2018. That made New Mexico the No. 1 state in the nation in percentage growth in exports, according to the Commerce Department.

Of the total, Asia accounted for $1.52 billion in exports, including $921 million to China, $279 million to Japan, and $129 million to South Korea.

But while those exports may be most vulnerable now given the coronavirus’ spread in Asian countries, Mexico remains the state’s top trading partner, absorbing a record $2.39 billion in New Mexican products last year, or 50% of the state’s total exports.

Even in a worst-case scenario, the coronavirus would not shut down the border, Pacheco said. “Our economies are so tied together, we simply can’t see the border close, because it would be shooting ourselves in the foot,” Pacheco said.

“Both countries need to work together on preemptive measures and containment. We still need all the products that go back and forth, and while the coronavirus could cause disruptions, trade will go forward,” he said.

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