How NAFTA Has Changed Site Selection in North America

Demand continues to grow for office, research, and light industrial facilities in the Southwest, like the Enterprise Tech Center in Dallas shown here.

By Staff -- Logistics Management, 12/1/1998

NAFTA is affecting a lot more than duty rates and border-crossing procedures. Since the agreement took effect five years ago, changing trade patterns have spurred a shift in the location of manufacturing and distribution facilities in the United States, Canada, and Mexico.

Changing duty structures mean that companies now can serve both Canadian and U.S. markets from a single location economically and efficiently. Because it no longer is necessary to manufacture a full line of products in both countries for domestic distribution, manufacturers are rationalizing their production, says John Ferguson, corporate manager of marketing for PBB Global Logistics in Buffalo, N.Y. As a result, trade patterns are shifting from a traditional east-west to a north-south orientation. The elimination of duties between the United States and Canada means that companies are doing regional distribution that encompasses markets on both sides of the border. He cites the New York/New England/Toronto/Montreal region and the Seattle/Portland/Vancouver area--rapidly becoming known as the "Cascadia" region--as prime examples.

The situation is a little different on the U.S.-Mexico border, where duty structures, customs procedures, and other regulations affecting cross-border trade are changing more slowly. There, rapid growth in trade with Mexico means that more companies want to locate in the Southwest for administrative reasons, says Tim Keith, regional vice president for distribution site developers Meridian Industrial Trust. "A lot of our customers want to administer and integrate their North and South American operations, so they set up headquarters in places like Dallas and Miami," he says.

The constant back-and-forth movement of raw materials and finished goods across the U.S.-Mexico border, due largely to the popularity of the maquiladora assembly plants in Mexico, has funneled a great deal of traffic through the Southwest. Keith says he's seeing some warehousing sited on the border to handle raw materials and parts inventory for manufacturing and assembly in Mexico. "Those goods are not being distributed for U.S. consumption directly from the border, though," he notes. Instead, they are being shipped to regional DCs in the Southwest--many of them constructed within the last five years--for distribution to that region's fast-growing consumer markets.