Impact and Trending Directions – Fresh Produce
The direct economic impact of fresh produce in greater Nogales, AZ is more than $303 million annually and more than 2,500 jobs, including primary and associated activities. Taking into account indirect and induced impacts, the industry supports more than 4,000 jobs and has an economic impact of $437.7 million to the area.
Arizona Department of Transportation issues overweight permits so trucks may carry up to 90,800 pounds when crossing at Nogales, for a distance of 25 miles north. Produce warehouses are found primarily in Rio Rico and to a lesser extent, Nogales industrial parks.An active restructuring of the produce industry is impacting Nogales in a number of different ways:
- Market pressure on cost and value is driving growth of more vertically-integrated companies linking growers to retailers, and putting pressure on specialized Nogales brokers and sales companies, but also bringing new investment into Nogales, AZ.
- Pressure to provide broader solutions for national customers is driving brokers to integrate new information technologies, open multiple offices across California, Arizona and Texas ports, and collaborate with new partners to deliver end-to-end solutions for customers.
- One produce distributor has implemented a Microsoft enterprise resource planning (ERP) solution specifically designed for the fresh food industry, NAV Linkfresh ERP, to manage and administer all operational processes from farm and greenhouse growing operations to packing and warehouse management through to grower returns, logistics and full financial management
- Nogales-based Customs Brokers serve the produce, manufacturing, consumer and natural resources industries, providing customs brokerage, trade compliance, logistics, and warehouse/distribution services. New affiliations with partners along the border allow for more flexible service delivery. Nogales-based produce companies are also setting up offices in Texas to serve broader regional opportunities.
- Market pressure to innovate with new technologies in response to customer and consumer requirements around food safety and food quality.
- A major Nogales based produce distributor has built cold storage facilities that include a forced-air precooling unit. The unit brings newly arrived produce to the right temperature, ensures automatic humidity control, and provides technology to control airborne bacteria and mold spores in the storage facility.
- Pressure from large-scale national buyers is pushing produce commodities to compete on value, price and quality, shifting from models driven by relationships, history and networks.
- Nogales brokers are exploring rail shipments through Nogales to the East and other locations. In Fall of 2016 a load of watermelon was shipped to Baltimore, taking 20 days at 1/3 the cost of truck transport. By late summer, a new 240,000-square-foot cold storage cross dock facility will be operational at the Port of Tucson. This facility connects directly to the main line of the Union Pacific Railroad. From here, produce and other perishable product shippers can access rail service directly to shipside in the seaports of Los Angeles and Long Beach, or receive direct service to Chicago. From Chicago, trains are taken by CSX to markets in the eastern United States.
- Companies are also diversifying to provide year-round product to customers, making use of multiple ports of entry and broader geography for sourcing products from growers. Distributors work with their growers to innovate on fertilization and hydroponic production, as well as creating innovative distribution models like their “Forward Distribution” with East Coast offices closer to customers.
Impact and Trending Directions – Manufacturing
The direct impact of Maquiladora-related trade in greater Nogales is more than 206.8 million annually and more than 1,000 jobs, including primary and associated activities. Taking into account indirect and induced impacts, the industry supports more than 1,500 jobs and has an economic impact of $304.9 million to the area.
Manufacturing raw materials and components move southbound at a rate of about 200-300 trucks/day, while finished goods move northbound at a rate of about 500-600 trucks/day (La Asociacion de Maquiladoras de Sonora interview 2015).
Key trends affecting Nogales, Arizona commerce include:
- Growth of key industry clusters in Sonora, Mexico impacts volume of exports/imports through Nogales. Learn more at Arizona-Mexico Economic Indicators.
- Arizona exports to Mexico (primarily through Nogales) grew 39.6% from 2005-2014. On average, about $6.6 billion moves southbound and $10 billion moves northbound annually
- Electric products increased in 2014: imports were up 4.5% and exports were up 3.7%
- Transportation manufacturing products increased in 2014: imports were up 22% and exports increased 13.7%
- Current border policy and proximity create focus in Nogales, Arizona for cross-border logistics, warehousing and trucking activity supporting maquilas in Mexico
- The foreign trade zone in Nogales, Arizona offers offers management of customs duties and fees, as well as potential benefits in the areas of inventory tax, and federal and state taxes and fees
- Managing cross-border movement of goods is made simpler with logistics, warehousing and trucking infrastructure on both sides of the border, although with parent companies outside the region, there can be warehousing further north
- One Phoenix-based electronics reseller has a 125,000 square foot facility in Nogales, Sonora that features both a distribution center and a value added assembly operation, but also has warehouse space in Nogales, Arizona
- Increasing cost-competitiveness of near-shoring makes Mexico an attractive choice for manufacturers locating closer to US and Latin American consumer markets:
- Maquilas are competitive on three fronts: shrinking labor costs differential to China, short supply chain to the US and Canada, and liberal trade policies
- In automotive manufacturing, a key Mexico industry cluster, average hourly labor costs of $38-58 in the US, $52 in Germany and $16-30 in China are less competitive with $8/hour in Mexico. The US demand for 11.4 million automobiles has a gap in US production that is well served by Mexican production, which is growing in both the consumer and commercial segments
- Automotive components (e.g., cables and harnesses) are produced by companies for US and Mexican markets.
- Similar to the produce industry, pressure to provide broader solutions for national customers is driving brokers serving the manufacturing industry to integrate new information technologies, open multiple offices across California, Arizona and Texas ports, and collaborate with new partners to deliver end-to-end solutions for customers.
- Nogales customs brokers have implemented technologies like the Automated Broker Interface in the 1980’s for electronic filing in order to stay competitive with technical advances. These brokers are positioning for flexibility of import activity across the US-Mexico border by successful application and issuance of the National Customs Permit allowing remote location filing nationwide, together with affiliating with two other custom houses, Casas International and Daniel Hastings, Inc. to create flexible multi-region customs service