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US-Mexico trade growth to remain steady in 2023, bolstered by nearshoring

Cross-border freight volumes will continue to increase next year, experts say

According to a recent Credit Suisse report, the automotive manufacturing sector has been the largest attractor of foreign direct investment in Mexico. (Photo: Jim Allen/FreightWaves)

2022 was a critical year for trade relations between the United States and Mexico, bolstered by improving supply chain conditions and resilient U.S. demand for Mexican-made exports.

Business ties and investment links between the two countries remained strong throughout the year, despite being tested by everything from supply chain disruptions to chip shortages and trade disputes

For the first 10 months of the year, cross-border commerce between the U.S. and Mexico totaled $656 billion, according to the latest U.S. Census Bureau figures analyzed by WorldCity. That’s a decline of less than 1% year over year compared to the same period in 2021, when pandemic-related consumer spending produced record-breaking cross-border freight flows.

As the new year approaches, cross-border operators and logistics professionals said 2023 cross-border freight flows should remain strong throughout the year, held up by reshoring and nearshoring of manufacturing operations to North America, particularly Mexico.

“I believe cross-border volumes will be resilient and grow year over year in contrast to a sharp decline in U.S. domestic volumes we are currently seeing,” said Jordan Dewart, president of logistics operator Redwood Mexico. “Nearshoring efforts of companies trying to avoid a repeat of the Asia-trans-Pacific fiasco that occurred during the COVID [pandemic] can already be seen.”

Here are the top U.S.-Mexico trade trends at the start of 2023:

Nearshoring boom headed for Mexico, Americas 

After the last several years of global supply chain disruptions, many predict nearshoring will be an economic bonanza for Mexico in 2023. 

Mexico is increasingly attractive as a trading partner and foreign investment destination for manufacturers looking to create a more secure supply chain to replace many commodities made in China and other Asian nations, officials said.

Nearshoring is the relocation of production and manufacturing operations from one country to another that is closer to the final consumer, in this case the United States.

“There’s a lot of opportunity for Mexico to capture a lot of that nearshoring opportunity,” Greg Orr, president of Joplin, Missouri-based truckload carrier CFI, told FreightWaves. “How much obviously is a flip of a coin, but I think with the labor rates being competitive, versus what there is in China, and minus the transportation costs that you would have coming across the pond versus crossing the border, I definitely think Mexico is positioned well to partake in [nearshoring].”

Nearshoring will generate about $30 billion in foreign direct investment in Mexico by the end of 2022, Sergio Arguelles, president of the Mexican Association of Private Industrial Parks, recently told El Financiero

Officials on both sides of the border expect the nearshoring trend to continue throughout the year. In November, Mexican Economy Minister Raquel Buenrostro said there are more than 400 foreign companies — mostly from Asia — that are currently interested in relocating to Mexico.

Ed Habe, vice president of Mexico sales for Averitt Express, said he anticipates “continued global relocation of manufacturing capacity to Mexico” in the coming year.

“Initially, those companies with a preexisting presence in Mexico will relocate additional production lines from the U.S. and other locations down to their plants in Mexico,” Habe told FreightWaves. “Then, others that are new to Mexico, will initiate manufacturing of goods and products south of the border.”

Cookeville, Tennessee-based Averitt Express is a freight transportation and logistics services provider operating in the southern U.S. as well as Canada, Mexico and the Caribbean. Averitt boasts 4,600 tractors and 14,900 trailers. 

According to Credit Suisse’s recent report, “Mexico Nearshoring Tracker Second Edition,” the automotive manufacturing sector has been the largest attractor of foreign direct investment in Mexico, followed by industrial machinery, furniture, consumer goods, plastics, home electronics and textiles.

Rail carriers such as BNSF Railway could become more of an option for shippers if trucking capacity along the U.S. Mexico border remains an issue in 2023, experts said. (Photo: Jim Allen/FreightWaves)

Cross-border truckload freight rates could stabilize in 2023

After several years of volatility, freight rates in Mexico for transporting goods north to the U.S. should remain steady for most of the year, trade experts said.

Before the pandemic, carriers usually charged about $1,000 and up for northbound freight from central Mexico to Laredo, Texas, or other border ports of entry, and about $800 to go south on the same lane.

“Mexican carriers and many border carriers are holding firm on rates and we haven’t seen a massive decline yet,” DeWart said. “Of course, a lot will depend on fuel and demand but one thing is sure — for the most part Mexican carriers have not overexpanded their fleets (like U.S. counterparts), so I do not see major changes on the supply side of transportation. I predict a lot less volatility than in the last couple years and certainly less than we are seeing north of the border.”

Orr said from a carrier’s perspective, CFI has also seen more stability in the market, but he reiterated that trucking company costs are not going down, which could have an impact on rates. 

“Carriers costs are not going down and they haven’t for the last two years and they’re not going to next year either because of the challenges with the supply chain, equipment costs — the liquids, tires, all the things that you think about in either purchasing or maintaining the equipment has gone up at an extreme clip year over year for the last two years,” Orr said. “My big concern, or maybe caution to everybody, is that chasing rates to the bottom is only going to have a bigger impact in the short term.”

Orr said border trucking capacity could also be affected by a wave of truck drivers retiring over the next few years, with not enough new recruits to replace them.

“There’s a lot of professional drivers in the industry that are kind of at that tipping point, ages in high 50s, low 60s range, and you’re going to continue to see more and more of those folks retire, especially if they’re working for a company that may not be able to make it through, they’re just going to leave the industry,” Orr said. “Watch out for all of our shippers, because the market definitely can flip one way just as quickly as it did the other way.”

Every shipper wants to save money, but “it’s dangerous to have the lowest rate in the market,” DeWart said. “Sure, you save money, but you are also the first one to get dropped when market conditions change.”

Instead of always looking for rock bottom rates, DeWart recommends shippers look ahead — and remain flexible.

“Locking in partners for the longer term ensures shippers have capacity when they need it at a rate that’s fair in the market,” DeWart said. “Flexibility in terms of how products are packaged and loaded allows shippers to utilize the transload model, which gives them access to the larger U.S. domestic carrier market and not tied to a small handful of direct partners.” 

According to FreightWaves SONAR platform, the Inbound Tender Reject Index in Laredo (ITRI.LRD) is 6.2% and has increased more than 6% since Dec. 21, signaling capacity is tightening along the border. The National Inbound Tender Reject Index is currently 5.8%.

Laredo’s inbound tender rejection rate was 17% at this same period in December 2021, when supply chains were trying to catch up with a surge in consumer online spending caused by the pandemic.

Increasing inbound rejection rates in Laredo, Texas, signify tightening capacity. To learn more about FreightWaves SONAR, click here.

Cargo theft, trade imbalance could hinder US-Mexico freight flows

DeWart said if he could talk with Mexican government security officials directly, he would implore them to do something about cargo theft across the country.

“A Christmas wish would be that the Mexican government take action against the growing criminal elements and cargo theft in Mexico,” DeWart said. “Once isolated in certain pockets, it is now prevalent in all major cities and highways in Mexico. It is the single largest threat to derail an otherwise extremely promising future for Mexico.”

From January through October, cargo theft across Mexico totaled 10,805 incidents, an increase of 7.3% year over year compared to the same period in 2021, according to the latest data from the country’s National Public Security System.

The roadways with the highest crime incidents are the Mexico-Tuxpan highway near the city of Veracruz, Highway 57 in Guanajuato and the highway between Mexico and Queretaro City.

Habe said another possible stumbling block to increased trade could be available cross-border trucking capacity.

“Nearshoring and expansion of existing lines — these two factors combined will strain supply chain flow between the U.S. and Mexico, exacerbating the continued imbalance of trailer flow and inadequate border infrastructure,” Habe said. “I do see rail becoming a more attractive and effective option — perhaps not in 2023 but soon.”

Orr said solving the imbalance between southbound and northbound freight has been a challenge in the industry for decades.

“From a U.S. perspective, we have to find what are the products or the needs, requirements that would benefit Mexican culture,” Orr said. “I think we really have to become more creative for both Mexico and Canada, we need to become more creative on what are some of the goods that they are potentially needing, develop those products to be able to have that southbound freight into Mexico or northbound freight into Canada.”

Watch: FW Now’s top stories of 2022.

Click for more FreightWaves articles by Noi Mahoney.

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Noi Mahoney

Noi Mahoney is a Texas-based journalist who covers cross-border trade, logistics and supply chains for FreightWaves. He graduated from the University of Texas at Austin with a degree in English in 1998. Mahoney has more than 20 years experience as a journalist, working for newspapers in Florida, Maryland and Texas. Contact [email protected]