In a June 2021 Harvard Business Review article and in this blog, Resilinc CEO Bindiya Vakil and her co-authors Tom Linton and Dale Rogers argued that more robust and sophisticated Pan-American supply networks are critical destinations on the roadmap to drive greater resilience, sustainability and agility in U.S. supply chains. Central and South America have the young workforce that can staff the ecosystem of cost-effective suppliers U.S. OEMs need. Shipping by land can be less costly and more efficient than the ocean shipping from Asian countries on which the U.S. now depends. And developing a Pan American Manufacturing Ecosystem would also create jobs, build wealth, reduce the pressure to migrate, and promote political stability in countries such as Guatemala, El Salvador, and Honduras.
But to make the necessary improvements in road and rail transport infrastructure and to develop other features of the manufacturing ecosystem—especially in the troubled countries of Central America’s Northern Triangle, El Salvador, Guatemala, and Honduras—will require sustained public- and private-sector investment, as well as long-term cooperation from Central American political and business leaders.
While Congressional support will be needed to allocate funding, the Biden Administration—as part of its efforts to make U.S. critical supply chains more reliable and resilient—is encouraging private investment and using State Department funds to provide technical assistance to trade officials in Mexico and Central America to alleviate supply chain bottlenecks and disruptions.
In the apparel sector, U.S. trade officials held a roundtable in October 2021 with industry leaders to discuss investing in Central America. “Recent concerns about the unreliability of geographically extended supply chains … make this a particularly opportune time for expanding production in the Western Hemisphere,” Deputy U.S. Trade Representative Jayme White told executives. “Onshoring and nearshoring [apparel supply chains] is essential,” agreed Kim Glas, spokesperson for the National Council of Textile Organizations.
Then, toward the end last year, NCTO and Vice President Kamala Harris announced several private-sector commitments from U.S. apparel and textiles firms to strengthen economic opportunities in the Northern Triangle. These include a new “multi-million-dollar” investment in a Honduran yarn spinning facility by U.S. manufacturer Parkdale Mills.
The investment reflects Parkdale’s assessment that brands and retailers want to redesign their sourcing strategies to mitigate the supply chain disruptions that became so formidable during the pandemic. The company’s Honduran investment alone will enable its customers to source one million pounds more yarn per week from Central America and shift that sourcing away from Asian suppliers, according to Textile World.
Underpinning these and other investments are the favorable terms of the Dominican Republic-Central. America Free Trade Agreement (CAFTA-DR). Parkdale CEO Anderson Warlick
White said he expected CAFTA-DR terms and the interest by brands and retailers to source more parts, materials, and products closer to home to result in a doubling of CAFTA-DR trade.
In similar fashion, the U.S. Mexico Canada Agreement, which reformed and updated NAFTA, has been stimulating greater investment by U.S. and Canadian firms in Mexican supply chains and logistics. For example, the merger between Kansas City Southern and Canadian National railways—which if finalized will create a single freight rail network from southern Mexico through the U.S. Gulf Coast and Midwest and across Canada—was driven in large measure by the certainty provided by USMCA.
There’s a great deal still to do, and greater investment of public dollars will be required. Transitioning Asian-dependent U.S. supply chains to a Latin American manufacturing supply base will likely take 20 years. It makes sense for economic, political, social, environmental, and other reasons, but it won’t happen without continuing support and investment.