Migrant Caravan Disrupts Supply Chains Along U.S. – Mexico Border

Migrant Caravan Disrupts Supply Chains Along U.S. – Mexico Border

Executive Summary

  • The Central American migrant caravans have grown from small and organized groups to large and unorganized migration events that bear the potential to compromise unimpeded road and rail transportation throughout the Central American northern triangle and Mexico, and up to the U.S.- Mexico border.
  • Disturbances at the U.S.-Mexico border since the October 2018 caravan’s departure include those at San Ysidro, Calexico, and Andrade in California, and Douglas, AZ, with indications that migrants may consolidate at ports of entry, which may also include those as far east as Brownsville, TX.
  • U.S. Customs and Border Protection has been conducting exercises at ports of entry since October 31, with reinforcement from National Guard and active-duty troops, which may affect ground transportation at said ports.
  • The migrant protest and attempted border crossing in San Ysidro on November 25, and subsequent threat by President Trump to close the border on November 26, elevates the risks for cross-border ground trade.
  • A full shutdown or even intermittent medium-term interruptions are not unlikely, and such interruptions may prove difficult to circumvent.
Figure 01: Migrant Caravan Timeline

Background

The 2018 Central American migrant caravans have made headlines and have captured the attention of the international community in recent weeks. From a business perspective, the caravans have evolved from being a purely immigration-centric issue to now include considerable security and supply chain dimensions that reverberate beyond the immediate border zone, thus necessitating an understanding of their origins and implications.

Since 2014, there have been four major incidents of mass Central American migration to the US-Mexico border, three of which (one in 2017 and two in 2018) have been referred to as “caravans”. Of the 2017- 18 events, two were formally organized in March of each year by an immigration group called Pueblo Sin Fronteras (People without Borders), while the October 2018 caravan was unofficial. The 2017 caravan reached a recorded count of 200 upon its arrival at the border. The March-April 2018 caravan started at 700 people, reaching a peak of 1,200 in Oaxaca, and was last recorded at 500 people upon departure from Mexico City. The October 2018 caravan started at 160 in San Pedro Sula, growing to a reported maximum of 5,000 upon arrival in Tecun Uman, with a reported 1,500 recorded in Tijuana. The caravans consist of a broad demographic who have declared their intent to seek asylum in the U.S. in response to organized criminal violence in the Central American northern triangle countries of Guatemala, El Salvador, and Honduras.

The migrant caravans typically have traveled more than 2,500 miles to the U.S. border after originating in Central America. While press coverage of the caravans has primarily shown transportation by foot, reports indicate that those participating have employed different methods of ground transportation ranging from passtrains to trucks. Freight trains are a common method, starting as far south as Arrigas in the Mexican state of Chiapas, and travelling as far north as Tamaulipas, on operators such as Ferrosur, Kansas City Southern de Mexico, and Ferromex, collectively referred to in Spanish as “La Bestia” or “El Tren de la Muerte” (See Figure 1). This train route is one of many, the main arteries of which include a Pacific route through Jalisco, Sinaloa, and Baja California to Tijuana and Nogales, a Central route through Guanajuato, Zacatecas, and Coahuila to Ciudad Juarez, and a Gulf route through Veracruz and Tamaulipas to Matamoros. Moreover, past caravans have demonstrated that migrants participating have pursued ports of entry along the U.S.-Mexico border in major metropolitan areas, such as Tijuana, Nogales, Ciudad Juarez, and Matamoros.

Figure 02: Most common migrant routes to the U.S. border

For the duration of the present caravan’s voyage, the more countries it crossed, the larger the law enforcement presence it encountered. On October 15, Guatemalan officials attempted to close the Guatemala-Honduras border to prevent the passage of more than 1,600 migrants from the San Pedro Sula region. Although the Guatemalan officials allowed the caravan to cross later that day, the Agua Caliente border crossing remained closed for almost a week to commercial crossings, which resulted in over 300 stranded trucks at this point of entry. According to the official figures, the October migrant caravan reached 3,000 upon its arrival at the Mexico-Guatemala border on October 19.

The border with Mexico offered a greater challenge, as Mexican Federales had to employ crowd control measures as migrants blocked bridges leading to Ciudad Hidalgo in the Mexican state of Chiapas. Moreover, reports of disturbances in crossings at Ciudad Tecun Uman led to government advisories to avoid the border. In addition, due to migrants opting to employ truck and train transportation as a way to cross Mexico, this has created greater risks for the safe passage of trains and trucks particularly inMexico’s border zones and along the four main routes to the U.S. border. The greater risks faced by transporters range from security including robbery and extortion, to traffic impediments in major metropolises such as Mexico City and Tijuana. Moreover, as the caravan has made its voyage north, there has been a heightened law enforcement response with more Mexican Federales and officers of the Institution Nacional de Migracion (INM) deployed.

Beyond law enforcement, the Mexican federal government’s response was the provision of assistance and the offer of asylum conditional upon residence in Chiapas and Oaxaca, an offer that some, but not the majority of migrants, accepted. Reactions have likewise been mixed at the state level, where offers of transportation assistance were briefly extended by the Veracruz state government.

Reactions in border cities, however, have shown to be the most antagonistic, most notably from the Tijuana municipal government, where a state of emergency was declared on November 23 as municipal services reportedly reached capacity. The recently inaugurated President of Mexico Andres Manuel Lopez Obrador’s reaction has been described as balanced, due to the extension of offers of assistance from the federal government while attempting to balance the desire of U.S. President Donald Trump in his attempt to prevent the caravan from reaching the border.

On the U.S. side, since the first 2018 migrant caravan in March, the Federal Government has adopted a zero-tolerance policy with respect to illegal entries into U.S. territory. After the first caravan’s arrival at the border, President Trump issued instructions to the Department of Homeland Security (DHS) to block any future caravan from reaching the border. On October 31, US Customs and Border Protection (CBP) announced a series of exercises at crossings in Texas from El Paso to Brownsville. Aside from a heightened patrol exercise by the US Border Patrol (USBP) in Brownsville, there were no reported disturbances along the border. The CBP preparations soon came to be replicated across the border, starting with the Tucson and Yuma sectors of CBP, covering all CBP stations spanning the Arizona-Sonora border.

Disruptions along the U.S.-Mexico border exacerbated on November 25, when migrants marched from the Benito Juarez sports complex in Tijuana to the San Ysidro Port of Entry. Soon after the marchers began to cross a riverbed near the border, CBP closed the bidirectional pedestrian and vehicles crossing along I-5 and I-805, with USBP agents employing crowd control measures. Migrant also clashed with police near Avenida Ferrocarril as they attempted to enter rail cargo areas near the border. Outside of these immediate effects at CBP crossings, it was reported that 75 percent of businesses in San Ysidro closed for the entire day, complicating commercial activities during the Thanksgiving holiday weekend.

The events of November 25 represented a potential for escalation at the border. In response to these events, President Trump threatened to close the border in the event that Mexican authorities were unable to control the flow of migrants to the border. Moreover, Secretary of Defense James Mattis announced the possibility of extending the troop deployment at the border through January 2019.

Impacts on the Regional Supply Chain and Border Communities

During the first weeks of December, CBP officers at the Otay Mesa border crossing held several drills in anticipation of events paralleling those on November 25. Moreover, CBP officers have been strengthening sectors eastward along the border in preparation of additional caravan arrivals. Such contingencies have been developed at San Luis and Nogales in Arizona and reinforcements have been formed in San Diego, with the potential for reverberation as far as the I-20 at the Texas-Louisiana state line. While larger portions of the border, particularly those in Texas CBP sectors, have yet to report any major exercises, incursions, or disturbances, latest reports indicate arrivals approaching entry points east of Tijuana, and thus potentially setting the stage for similar disturbances.

As Central American migrants sought to trespass the San Ysidro point of entry on November 25, delayed inbound shipments and customer deliveries disrupted manufacturing supply chains, from electronics to car part that rely on this port of entry, resulting in USD 5.3 million in economic losses. The border was closed for about six hours, but traffic congestion was such that vehicles that had lined up to cross the border on November 25 were not able to reach San Diego until November 26. Following the events of November 25 in San Ysidro, and as migrants continued to gather at different border crossings (see Figure 3), the Trump administration stated its intention to shut down ports of entry for security and public safety reasons, while President Trump himself threatened to “close” the entire 1,954-mile border with Mexico, if the southern neighbor does not act to stop the migrant caravan. Many opinions have been expressed about the feasibility and potential implications of such a threat; this section explores the main implications for regional supply chains and communities along the U.S.-Mexico border.

Figure 03: Disruptions along the U.S.-Mexico Border as of December 3, 2018

Most analysts agree that sealing the entire border between U.S. and Mexico, as President Trump has suggested, even for a small period of time, would cause economic chaos in the region. In 2017, the bi- lateral trade between Mexico and the U.S. totaled about USD 1.3 billion per day, making Mexico the U.S. third-biggest trading partner for goods, behind Canada and China. Producers in Mexico would be affected the most by a measure of this kind, because over 80% of Mexican exports go to the U.S., which means that that country is totally dependent on the northern market. In the U.S., both consumers and producers would be impacted as well. If President Trump decided to close the southern border, costs for imported parts and goods would quickly rise, from TV sets to washing machines to chips to avocados. Industries, such as automotive and aerospace, would be the key losers as some manufactured components in these industries cross the border multiple times before ending up as a finished product in the U.S. market.

U.S. goods exported to Mexico totaled USD 243.3 billion, while trade in services accounted for another USD 58 billion. If the entire border is closed, the economic impact in the two countries will be enormous because, although part of the trade is carried out by sea and air, the bulk travels by road (See Figure 3). According to the U.S. Bureau of Transportation Statistics, 69 percent (USD 34.7 billion) of all southern border freight in September 2018 crossed in from Mexico by truck. Another USD 6.8 billion (13.5 percent) crossed by rail, USD 5.9 billion (11.7 percent) by ocean vessels, USD 1.3 billion (2.6 percent) by air and USD 400 million (0.8 percent) by pipeline.

Figure 04: Commercial Traffic Entering the U.S.-Mexico Border. Source: Bureau of Transportations Statistics

Experts say the best example of the potential impacts of closing the border with Mexico were the measures taken by the U.S. government after the terrorist attacks of September 11, 2001. On that occasion, the U.S. did not seal the entire border; instead it enacted a Level 1 Alert, which meant customs officers had to physically search every vehicle before allowing entrance. Within a day of Level 1 Alert measures, there were lineups of 12 to 18 hours at both the U.S.-Canada and the U.S.-Mexico borders. The slowdown was so intense that the city of San Diego declared an “economic emergency”. The most severely affected businesses were electronics, textiles, chemicals and Mexican factories supplying parts to U.S. auto companies.

Even if President Trump’s threat to close the U.S.-Mexico border does not come to fruition, the mere fact that this idea is being contemplated is already affecting commercial traffic between the two countries. There have been reports of increased truck wait times at the busiest crossings along the U.S.-Mexico border. With billions of dollars at stake, companies on both side of the border are not taking chances. Manufacturing managers are not waiting for trucks to be completely loaded, pushing goods out as quickly as possible. Many trucks that are crossing the border are about one-third full.

In addition to disrupting regional supply chains, closing the U.S.-Mexico border, or significantly disrupting its flow, has a large financial and human cost for communities along the border. Such measures would directly affect the lives of more than 465,000 people that enter the U.S. each day through the various ports of entry at the southern border. This number is projected to rise 87 percent by 2030. Workers who need to cross the border every day to reach their jobs will struggle to do so, which will cause their earnings to fall and disrupt production at companies who rely on these workers. Extended disruptions and closures will also lead to lower sales for businesses in the border area as customers from Mexico cannot reach these shops and U.S. customers may choose to avoid the area.

At the San Ysidro crossing in California, the biggest passenger land port in the Western hemisphere, closing the border, even for a short period of time, would be hugely disruptive. Every day, 120,000 commuter vehicles, 6,000 trucks and 63,000 pedestrians use this point of entry, many to go to and from their jobs in the San Diego metropolitan region. About 6.8 million people live on the San Diego-Tijuana border and the San Diego Chamber of Commerce estimates that the region’s USD 255 billion gross regional product depends on cross-border commerce. Additionally, tourism is an industry that is particularly vulnerable to sustained disruptions along the U.S.-Mexico border. Ever since the migrants arrived at the border, tour operators and medical and dental offices in Tijuana are reporting a slowdown in business. Considering all the direct and indirect economic impacts of a border closure, researchers have estimated that a total shutdown of the southern border would mean hundreds of millions of dollars lost per day, maybe a billion.

The story is similar in other California border crossings, including Otay Mesa, about 11 miles east, along with one in Tecate and two in Calexico in Imperial County. According to global trade data company Panjiva, corporations such as Samsung Electronics, Toyota Motor, and Sony use these entry points to truck as much as USD 34 billion worth of products a year. Industries that are particularly vulnerable to a border shutdown in the CaliBaja region include: manufacturing, electronics, tourism, automotive, aerospace and motor vehicle parts, and e-commerce.

Even partial border closures could have severe consequences for the communities in the CaliBaja region. According to the San Diego Association of Governments and California Department of Transportation, long lines and other inefficiencies at crossings like San Ysidro cost USD 7.2 billion in lost economic output and 62,000 jobs on both sides of the border. Even an extra 15 minutes of border wait time at the CaliBaja points of entry could generate as much as USD 1 billion of additional loss in productivity and 134,000 lost jobs annually.

In the Arizona-Sonora border communities, crossing the border for shopping, business, health services or visiting friends and relatives has a long tradition. This region is notable for its smaller Arizona border cities that neighbor much larger Mexican cities, as well as it unusually long and highly institutionalized state-to-state relationship through the Arizona-Mexico Commission. There are six points of entry along the Arizona-Sonora sector of the international boundary. The busiest is Nogales/Nogales, followed by San Luis/San Luis Río Colorado and Douglas/Agua Prieta. Although trade in the Arizona-Sonora region still continues to be largely sustained by agriculture, the presence of the aerospace industry has increased significantly in places like Guaymas, while automotive components are being built in Nogales and the auto industry is growing, particularly with the Ford plant in Hermosillo. All these industries would be hit hardest if the Trump administration follows through its threat of closing down the border.

Unlike other states along the southern border, Arizona businesses actually have a trade surplus with Mexico, and with Sonora specifically, which puts them in a vulnerable position amid increased disruptions along the border. Sonora is naturally a resource-rich state and many U.S. companies in the metal manufacturing and engineering sectors support a significant number of mining companies in Mexico. If the border between the two nations is abruptly closed, hundreds of American professionals would have a hard time going to work in Sonora or may have trouble coming back the U.S., if they happen to be in Mexico when the measure comes into force.

Finally, in recent years, the Texas-Tamaulipas-Nuevo León-Coahuila Mega Region has been transformed by the development of unconventional energy resources, particularly shale oil and gas, creating extensive supply chains on both sides of the border. Threats to close the border would affect the transnational energy, chemical and manufacturing supply chains in the region the most. In Mexico, Nuevo Laredo and Reynosa are just a few hours from the Monterrey/Saltillo metro area and are considered the most important industrial hub in northern Mexico. This means that disruptions to cross-border trade would not only affect the long-haul binational supply chains near the border, but also the numerous local supplier networks and business organizations.

Outlook and Recommendations

Even if the most imminent threat has since been mitigated when the US government temporarily closed the busiest US-Mexico border crossing at San Ysidro on November 25, threats made by the Trump Administration to temporarily or permanently close borders with Mexico remain present with migrants seeking to enter the US. In the short term, regional supply chain managers in manufacturing industries should therefore reassess their company’s exposure to any form of border disruption as more than 60 percent of US-Mexico trade moves by truck across borders. Suppliers would have to look for alternate routes and speed up shipments from factories that produce everything from semiconductors, pacemakers to seat belts.

In the medium term, however, intermittent shutdowns and increased border congestion could accelerate a shift of regional supply chains from road and rail to short sea shipping, which only accounts for about 13 percent of US-Mexico trade currently. In recent years, shippers have increasingly turned to ocean services connecting to US Pacific and Gulf ports to diversify modes of transportation and to avoid the risks of higher costs, longer transits and sharper delays from conventional land routes across the US- Mexico border. Other associated risks include an increasing number of thefts from trucks and rail wagons as well as a limited truck and container capacity due to a growing imbalance in northbound and southbound shipments between Mexico and the US. In particular, car makers have looked to supplement road and rail shipments for exports from Mexico, notably in the event of a supply disruption like the shortage of railcars or border closures.

While short sea routes for exports have been established for years from Mexico’s Pacific coast ports such as Lazaro Cardenas, newer containerized cargo routes have recently emerged from and to Mexico’s Gulf coast ports such as Veracruz, Altamira, Tuxpan and Tampico. Manufacturing and processing industries such as pharmaceutical, automotive, and plastics have reportedly been the main users of such services, with more reliable and reduced transit times being key reasons for the shift. For instance, shipping a container from Central Mexico to Atlanta via short sea can take 4 days from Veracruz via ports in Florida and cost about USD 3,500-4,000, while trucking the container via land would take 6 days and cost about USD 6,000.

In light of persistent border tensions, growing risks of supply chain disruptions and more regular short sea services, customers should consider making their inbound and outbound supply chains more resilient by increasingly diversifying the modes of transportation utilized, both for regular and emergency shipments.

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