Freight deliveries from Mexico to the United States are soaring as the transportation industry enters the peak holiday season.
With stronger freight demand and higher trucking rates already affecting volumes along the U.S.-Mexico border, logistics professionals expect capacity to be tight the rest of the year and perhaps the early part of next year.
“Cross-border disruption is going to continue well into the next year, so it’s not just right now,” said David Henry, head of operations in Mexico for GlobalTranz, a Phoenix-based freight-tech 3PL.
Henry added, “I think the most interesting part about cross-border right now, especially the last four months, is you’ve seen a surge in demand for product out of Mexico. The demand for exports has really continued to go up.”
Roy Austin, business development director for The ILS Company (International Logistic Solutions), said consumer packaged goods “is a big, big driving factor” of cross-border volume right now.
Tucson, Arizona-based The ILS Company is a 3PL offering freight solutions in the U.S. and Mexico.
“Consumer packaged goods, apparel, automotive has all been up,” Austin said. “While we see industrial energy projects, importing manufacturers to Mexico may have slowed down a bit.”
FreightWaves’ SONAR Outbound Tender Reject Index (OTRI.LRD) and Outbound Tender Volume Index (OTVI.LRD) measures market capacity and are a good representation of the state of the market.
Heading into peak holiday season, 2020 volumes and tender rejections in Laredo, Texas, the busiest inland port along the U.S.-Mexico border, are already well above levels recorded at this time in 2018 and 2019.
Henry said the imbalance of northbound freight out of Mexico compared to southbound freight is one of the largest contributors to the current lack of capacity at the border. It’s caused the price of getting products shipped out of Mexico to rise significantly.
“That’s one of the big things that we’ve seen during this time. You have an increased cost to get product ticketed, shipped out of Mexico, just the need to reposition that equipment,” Henry said. “The pandemic has created this network issue. It’s really no one’s fault, but it’s just that added cost that’s making this need arise.”
The coronavirus pandemic has also slowed down U.S.-Mexico supply chains, said Frederick Ottosen, general sales manager for Mexico at The ILS Co.
Ottosen said there have always been regulations and security challenges for trucks in Mexico carrying loads north to the border, especially loads for the automotive production industry. But the coronavirus is adding to the time it takes for cross-border shipments.
The ILS Co. is the logistics arm of Tetakawi, one of the largest providers of outsourcing solutions to firms that have manufacturing operations in Mexico.
“Now with the coronavirus, the truck driver has to be checked before they go in. Companies are taking his temperature, then cleaning, sanitizing the truck. That takes more time,” Ottosen said. “Then you get to the conversation now. Is this going to be charged as a delay? In the past, it could take 30 minutes to get the truck ready. Now it takes an hour or more to do it.”
Austin said cleaning and sanitizing trucks and checking drivers’ temperatures will likely be part of the new normal in the freight industry.
“This is here to stay. The pandemic has taught us some things about how we used to live,” Austin said. “The likelihood is that this is the new normal and things are gonna slow down.”
The pandemic has also severely affected Mexico’s economy. The country’s unemployment rate is around 5.2%. More than 1 million jobs have been lost during the coronavirus pandemic, according to the Mexican Social Security Institute. One of the results is that Mexicans are buying fewer U.S. goods.
“We’ve seen the challenge of imports from the U.S. into Mexico really taper off. What’s happened is you have shippers in Mexico who would, under normal conditions, be buying products that come from the U.S,” Henry said. “In some cases, shippers stopped purchasing that product.”
Recent data shows that Mexico’s economy grew 12% in the third quarter, making up for some of the contraction in the previous three months at the height of the coronavirus lockdown.
However, the Mexican peso to U.S. dollar exchange rate is currently at 21 pesos to the dollar, which affects cross-border shipping.
“The exchange rate has obviously really deeply affected the imports from the U.S. into Mexico. That has really caused a lot of disruption in the cross-border Mexico market,” Henry said.
Before the coronavirus pandemic began, trucking companies that manage border-based services, or trucking companies that go in and out of Mexico, could create a capacity plan based off of a specific ratio of imports to exports, Henry said.
“Now it’s just significantly more exports and the imports have really, you know, tapered off to the point that it’s impacted their network, it’s impacted their ability to meet with a lot of contractual commitments, dedicated business,” Henry said. “In many cases, they’re having to reposition equipment, whether it’s just to pick up loads at the border or to go into Mexico. Whether it’s Monterrey or Bajio or Mexico City, those costs have consistently been passed on to shippers.”
Ottosen said the imbalance between northbound and southbound freight at the Mexican border is worse than ever.
“Today we have several clients that are willing to pay for an empty truck coming down from Laredo to Mexico City so they can send it back north with our goods,” Ottosen said. “In the past, the clients will wait a day or so. But now they know that there’s no waiting time.”
Ottosen said many carriers know that shippers don’t have time to wait for trucks to become available in the current market.
“The big carriers, like Swift and the Werners, know that they’re going to be paid. So they are just sitting and waiting,” Ottosen said.
Henry said GlobalTranz has been working closely with its cross-border customers to plan ahead over the next several months using forecasting data.
“No one is stopping, obviously. We simply have to continue and move forward. As we’ve gotten a lot busier, and with the surge in demand of exports out of Mexico, it can make things a little bit more challenging,” Henry said. “At the end of the day, our job as a good 3PL is to manage chaos sometimes.”
Austin said “planning” is the name of the game when it comes to cross-border shipping.
“Strong planning, collaborating, giving good insight and transparency to all of the parties that matter to have a successful border crossing program, that’s it,” Austin said. “It’s more important than ever to hold your partners close.”
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