Federal Maritime Commissioner Carl W. Bentzel wrote the President-elect on November 8, 2024, regarding policies to help Puerto Rico become an offshoring and distribution hub.
Text of the letter:
Dear President-elect Trump:
The COVID-19 pandemic exposed vulnerabilities in global supply chains heavily reliant on the People’s Republic of China. Many American companies are looking to nearshore or increase their inventories in response to hard learned lessons about so heavily relying on goods and commodities sourced from one country and so far from our borders.
Reducing the distance goods must travel allows for quicker responses to disruptions, and addresses s America’s vulnerabilities to relying on Chinese manufacturers. Mexico has proven to be a popular alternative to China for manufacturing items destined for the United States, but Puerto Rico presents a compelling alternative to Mexico and other non-U.S. options for the nearshoring of manufacturing.
Puerto Rico has a rich history of manufacturing, most recently to include pharmaceuticals and biotechnology. Despite its many advantages, it has struggled to compete with the lower costs associated with operating in a country like Mexico. I am confident that there are legislative or administrative actions that could remedy some of the conditions that put Puerto Rico at a disadvantage to foreign nations.
From 1976 to 2006, Puerto Rican manufacturing benefitted from the implementation of Section 936 of the U.S. Code. Manufacturing in Puerto Rico was harmed after the repeal of this tax incentive. Restoring some form of tax incentives for manufacturing or retail distribution investments would have stimulative benefits for Puerto Rico. It would encourage nearshoring and by extension, stimulate economic growth, and create jobs. At a national level, a reinvigorated Puerto Rican manufacturing sector would protect our supply chain from disruptions such as the one experienced during COVID-19.
There are abundant benefits for encouraging nearshoring in Puerto Rico, starting with its territory status. Puerto Rico operates under the same legal and regulatory framework as the mainland. Puerto Rico is within the U.S. Customs jurisdiction and would allow for more measured evaluation of goods and products than afforded in other heavily congested U.S. land and maritime entry points. This familiarity reduces compliance complexities and mitigates risks associated with operating in foreign markets. Shared cultural and linguistic ties facilitate communication and collaboration and this cultural alignment can enhance productivity and stronger working relationships.
Puerto Rico boasts a well-educated and skilled labor force, especially in sectors like pharmaceuticals, biotechnology, and advanced manufacturing. This talent pool can meet the demands of high-tech industries without the need for extensive retraining.
Puerto Rico enjoys key advantages in shipping and logistics compared to locations in some foreign countries. Puerto Rico is close to the U.S. mainland, significantly lowering transportation costs and improving supply chain efficiency compared to routes from Mexico. Additionally, Mexico’s transportation system is plagued with underdeveloped road infrastructure, long wait times at border crossings, frequent cargo theft, outdated truck fleets, inadequate rail networks, complex customs procedures, and geographical challenges like varied terrain, leading to higher transportation costs and potential delays in deliveries. By comparison, recent investments in Puerto Rico’s infrastructure have modernized facilities and improved logistics capabilities, making it an attractive location for businesses looking to establish or expand manufacturing operations. Finally, and of importance, Puerto Rico is served by U.S.-based, U.S. Citizen shipping companies.
Supply chains must not only be resilient, they must also be secure and here Puerto Rico has a distinct advantage over Mexico. Puerto Rico offers a more stable political environment than some regions in Mexico, where political instability and crime can pose challenges for businesses, and where business is deeply influenced by drug trafficking and organized crime. Corruption in Mexico is deeply entrenched in many levels of government and law enforcement with issues like bribery, embezzlement, and collusion with organized crime identified as significant concerns.
Encouraging nearshoring in Puerto Rico would support the island’s economy but simultaneously strengthens U.S. supply chains, making them more resilient and efficient. With the right policies and incentives, we can attract significant investment to Puerto Rico, benefiting both businesses and the local community. A concerted effort to promote nearshoring in Puerto Rico would not only benefit the people of Puerto Rico but would also serve to strengthen the U.S. economy as a whole. Investing in domestic manufacturing reduces our reliance on foreign supply chains, enhances national security, and supports local economies. We should seek ways to prioritize keeping U.S. investments within our borders whenever possible, benefitting American workers and families. By fostering a thriving manufacturing environment in Puerto Rico and creating incentives for the storage and retail distribution of goods, we can meet that goal as well as tap into a skilled workforce eager for opportunities and innovation.
Thank you for your attention to this critical matter.
Sincerely,
Carl W. Bentzel
Commissioner
Federal Maritime Commission
Carl W. Bentzel is a Commissioner with the U.S. Federal Maritime Commission. The thoughts and comments expressed here are his own and do not necessarily represent the position of the Commission.