Mexico may benefit from higher fuel prices

By Ilaina Jonas

NEW YORK (Reuters) - Soaring fuel prices may force some companies to move manufacturing and warehousing closer to the United States, a trend likely to benefit Mexico and U.S. urban centers, the head of AMB Property Corp AMB.N Properties said on Tuesday.

Skyrocketing fuel costs are forcing manufacturers to rethink their locations. With oil topping more than $135 a gallon, manufacturers are weighing the costs of labor against the price of shipping, AMB Property Chairman and Chief Executive Hamid Moghadam told the Reuters Real Estate Summit.

"I think Mexico stands to benefit the most," he said.

Higher fuel costs may affect not only where goods are manufactured but how they are transported and warehoused. Although the upshot is not likely to be a complete overhaul, incremental changes are likely as the cost of fuel trumps labor and rent expenses, he said.

"It's not going to be any total change of the supply chain," he said.

Still, while high U.S. labor costs and a lack of manufacturing infrastructure will likely hinder a U.S. rebound in manufacturing prowess, Mexico may benefit as manufacturers seek to cut shipping costs.

"They have the combination of cheap labor and close proximity to the U.S. market as opposed to China, which has the cheap labor but obviously is farther away," Moghadam said.

Mexico already manufactures items from drugs and food to flat panel television screens and auto parts, he said.