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Infrastructure and Operations

Closed Border: What Happens When the Door Slams on Just-in-Time Supply Chains?

Supply chains are smarter and more efficient since 9/11, but they’re still no match for a closed border

Since the last time the U.S.-Mexico border endured a significant supply chain disruption, trade flows and transportation logistics have all evolved significantly. In the years after 9/11, supply chain management grew more resilient, intelligent, and agile. But these nearly two-decades worth of improvements won’t do much good if the president makes good on his threat and close the U.S.-Mexico border.

The impact on U.S. supply chains, should a prolonged closure occur, would be devastating. Immediately following the 9/11 attacks, President George W. Bush implemented a partial border closure. The administration grounded all international flights coming into the country and put into place a more thorough inspection regimen for all vehicles entering the country. The queues of trucks waiting to cross the border grew from no wait to more than 15 hours of wait time. The economic impact was swift, and the new policies placed profound pressure on just-in-time manufacturing and inventories.

Initially, the automotive industry was among the hardest hit, and it will be the hardest hit today should the U.S.-Mexico border be closed again. Then, as now, transportation equipment is the largest U.S. import from Mexico. According to the U.S. Federal government, at $84 billion, vehicles were the top Mexican import category in 2017. That was followed by electrical machinery at $62 billion. The pressure grew so high on the automotive industry that industry took it upon itself to begin pressing the Bush administration to do something to ease the bottleneck, from finding ways to streamline inspections or staff up on the number of inspectors so shipments could flow to the assembly lines where they were sorely needed.

Of course, the auto industry wasn’t the only industry hard hit. Consumer electronics manufacturers also found their assembly lines short of parts they needed, and restaurants weren’t getting the food they expected on time, large equipment manufacturers grew concerned about their ability to fulfill orders.

It may be hard to imagine today, but back then shipments arrived at U.S. ports uninspected at the port of origin. Moreover, there certainly wasn’t any accurate manifest that detailed container contents for inspectors. With the backlog the new procedures caused, there was a rush to turn to technology to make a smarter, more agile and secure supply chain. Not only would containers and goods be inspected at the point of origin, containers securely sealed, but the manifests would be transmitted ahead of time to the next port so that goods could move swiftly and securely.

As security reporter at InformationWeek during this time, I found no shortage of stories about how RFID tags, telematics, and smarter supply chain management software was going to help enterprises to understand better what goods were in every container and track every item from origin to assembly line. I spoke with dozens of businesses that learned they had to have business continuity plans for alternative sourcing in the event of a disruption. Supply chains are certainly much more efficient as a result — but they’re certainly not immune to a border closure.

Today, the supply chain is even more intelligent, enhanced by industrial IoT, machine learning and AI platforms and other new technologies that can make it possible for supply chains to adjust instantly when possible. Still, many times the availability of goods and materials are limited to a geographic region or production supply constraints.

Fortunately, yesterday, the President walked back his border closure threats a bit, but that could change with a single Tweet. Should the border be closed, and especially if there is a long enough warning, some companies will be able to adjust their supply chains and obtain the goods they need from elsewhere in the world.

However, the reality is that most U.S. businesses impacted will not be able to adjust. And while U.S. consumers may not see the immediate impact outside of agriculture, the effect will be quick for car makers, big equipment makers, consumer electronics manufacturers, and others. While supply chains have become more agile and intelligent, they’re no match for a border closure that will disrupt supplies and materials for days or possibly (lets’ hope not) weeks.

The best way for many industries to deal with this disruption will be to hope it’s avoided altogether. As Constellation Brands president and chief executive officer Bill Newlands, whose beer such as Corona, Modelo Especial, Negra Modelo, Pacíficoand others are all made in Mexico said, when asked by Jim Cramer on CNBC yesterday about the possibility of a border closure: “There are lots of ways we could mitigate that issue, but we prefer not to deal with it at all.”

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