With Just-In-Case replacing Just-In-Time, we need more storage space

MCALLEN, Texas — Relocating manufacturers from China to North America can benefit the border region between South Texas and Tamaulipas, but additional infrastructure investment will be required.

That’s the view of Jorge Torres, president and founder of InterLink Trade Services, a full-service customs brokerage firm. He said investing in additional warehouses was essential.

“With all the ongoing issues, supply chain disruptions, geopolitical issues, there is an opportunity to relocate, to bring the industry to our region,” Torres said.

“With that, however, the other side of the equation is having the right infrastructure. We’re all working, together with counties and cities, to make sure we’re developing the right infrastructure.

In an exclusive Zoom chat with the Rio Grande Guardian International News ServiceTorres pointed out that the McAllen area needed more storage.

He later told the Guardian: “The forecast for the vacancy rate in our region is between 3.8% and 4.2%.” In other words, the warehouses in the area are filled between 96 and 98%.

“Net absorption is very low because there is no warehouse space to absorb,” Torres added, citing Commercial Real Estate Services percentages.

In the Zoom chat, Torres said the problem has been exacerbated by companies moving from a Just-In-Time management inventory model to a Just-In-Case model.

“As you know, storage space is very limited in our region. The uptake rate has increased significantly over the pandemic years, 2020 and 2021, primarily due to supply chain disruption,” Torres said.

Torres compared what was happening before the Covid-19 pandemic with what is happening now.

Before, he said, “containers flowed normally, which allowed companies to have just-in-time (pattern) production, that is, to have just enough material to produce for a few days, because the pipeline was moving quickly”.

Now, however, with supply chain disruptions, “companies are in a just-in-case inventory mode, meaning buying whatever we can now and shipping it.”

Today, Torres said, companies may not need their raw materials immediately, but prefer to store them in warehouses in case they are harder to find later.

“In most cases they are stored on the US side and that creates major problems because we have warehouses that are full of material that will eventually be needed,” Torres said. “So we need additional storage space, obviously, to be built.”

To complicate matters further, supply chain disruptions and inflationary pressures are making it harder to build more warehouses.

“The time it takes to build a warehouse is getting longer and (with) inflation issues, we’re talking about an increase in construction costs of around 35%. So those two are obstacles to setting up the warehouses and moving them up pretty fast.

In addition to more warehousing, additional investment is needed in land ports of entry, airports that transport cargo and the Rio Grande Valley Seaport, Torres said.

“We need to work on a rail bridge here and improve our airport infrastructure, as well as the Brownsville seaport. It’s going to take some time, but as a region we need to look at this, to seize the opportunity before us to ensure that companies that step back, relocate or establish entirely new operations here have the appropriate infrastructure. ”

Torres added, “We have to fight for the funds and … convince the state and the federal government that this is an area to invest in. So hopefully we will get there at some point. Overall, we see a bright future in our area, with re-shoring and all these new projects moving forward. So, I hope we will continue to develop in this area.

In the Zoom chat, Torres also talked about the impact of the USMCA.

Here is the Zoom chat:

Editor’s Note: The Rio Grande Guardian interview with Jorge Torres was prompted by a recent webinar he hosted in conjunction with the McAllen Economic Development Corporation. It was titled 2022 Cross-Border Trade – What Happens Now. Click on here to watch the webinar.

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