Ambos Nogales—An Advanced Manufacturing ClusterNogales, AZ is a service center enabling businesses to easily understand and navigate the myriad laws, regulations and agreements governing cross-border trade. Nogales, AZ is also adept as a logistics, warehousing and serive hub for manufacturing operations in Nogales, Sonora known as “maquilas.”
While manufacturing may occur in Mexico, however, these operations have warehousing and distribution operations on the Arizona side of the border, first for receiving components and sub-assemblies to move into Sonora, and later for cross-docking and warehousing operations. By this method, northern-moving goods are transported to parent companies or distribution sites. Many companies use third parties and customs brokers to manage the logistics. Others own and operate their own warehouses.
Maquilas account for the primary regional economic impact from manufacturing. Truck crossings attributable to maquilas are about 500-600 northbound daily and 200-300 southbound daily. On a typical day in Nogales AZ and Nogales Mexico, chassis, motherboards and mining equipment move south while manufactured products including vehicles move north.
As noted in a recent University of Arizona study (Pavlakovich-Kochi 2013), the monetary impact of the maquilas for greater Nogales, AZ, including direct and secondary activities is more than 1,100 jobs and $206.8 million. About 35 percent of Nogales, Sonora maquilas are owned and operated by out-of-Arizona parent companies, while only 20 percent have a parent company in Nogales or Santa Cruz County.
Case Study: Becton Dickinson Infusion Therapy Systems
Nogales, AZ Unique Infrastructure and ServicesTurning specifically to the US side of Nogales manufacturing, there are unique infrastructure and services to support the Mexico-based production and final assembly of goods. Service providers often offer multiple services on the value chain, including customs services, warehousing and logistics, for example, or packing and logistics. In some cases the facilities are owned and operated by the US parent company, but 3rd party companies more commonly offer multiple services to Nogales maquilas.
Dry warehouses (5,000 to 50,000 square feet)Throughout the Nogales industrial parks are dry warehouses that support goods flowing both north and south to the maquilas. Many Sonoran companies use brokers’ warehouses in Nogales rather than operating their own. Manufacturing demand from logistics companies for dry storage is growing.
In addition to its concentration of existing dry and refrigerated warehousing, Nogales, AZ has dozens of “shovel ready” sites upon which which any prospective business can build a facility to suit its needs.
Service operationsU.S. companies with may locate service operations directly across the border, tying together Nogales, Sonora production facilities with distribution or customer service, for example.
- A local manufacturing company has production in Nogales and Magdalena de Kino, Sonora comprising 221,000 square feet of total facilities. The same company maintains corporate headquarters and distribution in Nogales, Arizona comprising 110,000 square feet.
- Numerous companies which manufacture everything from nuts and bolts to packaging materials and pallets provide materials to the produce and maquila industries. Other companies also specialize in making products fitted to a particular manufacturing operation including jigs for Sonoran production lines.
- 3rd party business services supporting IT, talent acquisition, technical and business consulting, legal, and training, are located in Nogales, AZ to support logistics and maquila needs.
Logistics: customs brokers, freight brokers and motor freight
- Customs brokers may serve independently or from within freight forwarders, importers or exporters, supporting the clearing of goods through customs.
- Numerous customs brokers with generations of experience offers customs brokerage services along the entire U.S. Mexico border. Because of recent changes in regulations affiliate companies advertise together and may conduct business without being required to maintain a physical presence in a given district.
- Freight brokers and freight forwarders access freight carriers to meet customer specifications, offering services including transportation, logistics and distribution
- Nogales, AZ trucking companies work with Mexican trucking companies to do border crossings from maquilas in Nogales, Sonora, sending their trailers to Mexico. A niche exists for the regional work, given that bigger trucking companies don’t want to tie their equipment up in the border area, waiting for crossing.
- Short haul trucking serves 200-300 miles and generally includes smaller local companies.
- Long haul trucking moves goods further than 500 miles.
FTZ 60, a Vehicle to Delay and Reduce DutiesAn important asset supporting the maquila industry is Foreign Trade Zone 60. The FTZ program allows participants to manage payment of duties. Nogales, AZ has an “alternative footprint” Foreign Trade Zone, which allows flexibility in locating foreign trade zones across the entire County, for a total of up to 2,000 acres of activated FTZ. There are a few powerful business cases for US manufacturers to leverage FTZs:
- The Foreign Trade zone program can assist U.S. manufacturers, particularly firms producing goods abroad and then finishing them domestically, to bring items into the United States for processing and then export them abroad duty-free. One possible scenario follows:
- Nogales, AZ warehouse sends parts to the maquila
- Parts come from global suppliers
- no duty to the parts depot
- no duty going into Mexico
- no duty coming back out
- Finished goods return to Nogales, AZ
- no Merchandise Processing Fee (MPF) coming in
- no MPF fees going out or coming back with finished goods
- Similarly, firms can bring goods into an FTZ and store them for subsequent sale in the United States without becoming subject to duty payments until they enter U.S. markets. Certain goods may even be exempt from state and local inventory taxes during the period of storage.
- Beyond the clear financial benefits of shipping duty-free or delaying duty payments, FTZs also provide U.S. firms a strategic means to deal with quota restrictions.