Cross-border 🇺🇸🇲🇽Market Update
November 2023, Vol. IV
Monthly cross-border updates curated with insights from our experts.
Happy Shipping!
A recent survey by McKinsey & Company of more than 250 global shippers and logistics providers showed that 93% of shippers plan to maintain or increase their technology investments over the next three years. These investments are mainly focused on creating tools that work for shippers and carriers to address shared challenges, like real-time transportation, visibility planning, and telematics for fleet management. This investment is also expected to allow shippers to lower costs and improve their existing productivity in transportation and warehousing.
Digital Logistics on the Rise
2024 is now clearly in sight, leaving behind a year marked by the volatility of the freight market and the growing opportunity of nearshoring in the region. With one month still to go, we look at some of the trends impacting the end of the year and beyond. This time, our focus is on the anticipated surge in technology investments among shippers, which is expected to continue growing at an accelerated pace in the coming years. We also join QED Investors on a trip to Nuevo León to experience nearshoring firsthand, and dive deep into the role of customs in facilitating nearshoring processes. Plus, railroads face a new decree that could impact freight movements, and big-rig manufacturers struggle to meet California’s electric mandate.
At Nuvocargo, we are focused on simplifying U.S./MX cross-border trade with a specific emphasis on shining a light into the black box at the border. Read on for some of the top trends and insights on cross-border trade, curated and analyzed by Nuvocargo’s team of experts.
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Cross- Border
Market Updates
Nearshoring Beat
• Fuel prices have been dipping steadily for the past month, according to the U.S. Energy Information Administration (EIA), with nationwide dips of .36 cents per gallon on average compared to last year.
• Average outbound linehaul rates in the top five spot market states (California, Illinois, Georgia, New Jersey, and Texas) increased by $0.02 per mile to $1.73 per mile during the beginning of November.
• The Logistics Managers’ Index (LMI) shows expansion in the logistics industry for the third consecutive month, clocking in at 56.5, up 4.1 points in October vs. September.
• There was a 2.4% increase in the value of goods traded between the U.S. and Mexico in September 2023 compared to the same period last year, according to the Bureau of Transportation Statistics.
Hype or Reality?
Expert’s Take
Customs processes are known for being tedious and complex, yet they sit at the center of international trade, and the U.S.-Mexico border is no exception. Jay Gerard, Head of Customs at Nuvocargo, delves deeper into the key role of customs in nearshoring operations from China to Mexico. While the reduction of customs duties serves as a primary advantage, challenges arise in determining product origin as supply chains globalize. The importance of technological investment is also highlighted to ensure competitiveness in a market rapidly growing in volume and sophistication.
The Role of Customs in Nearshoring to Mexico
News from the Border
Railroads to Prioritize Passengers Over Freight Operations
Mexico's government has mandated private railway companies, including Canadian Pacific Kansas City (CPKC) and Ferromex, to prioritize passenger services over daily freight operations on more than 10,000 private rail lines. The decree aims to establish four short intercity and three long passenger routes, but has so far been met with wide skepticism as to its practicability. In 2021, Mexican railways transported approximately 1.1 million carloads of freight, a 7% increase from the previous year, primarily driven by the industrial, agricultural, and mineral sectors. The impact on freight operations across Mexico still remains uncertain.
Innovation Hub
Big-Rig Manufacturers Struggling to Meet California’s Electric Mandate
Earlier this year, California became the first state in the U.S. to establish emission standards for trucks, slated to take effect in January 2024. Though this move provides a tremendous growth opportunity for electric vehicle (EV) truck manufacturers such as Tesla, Daimler, Volvo, and Nikola, they are now facing substantial pressure to scale production to meet increasing demand. However, a considerable hurdle lies in the reluctance of many trucking companies to transition from diesel to EV trucks, attributed in part to the scarcity of charging stations and the limited 500-mile travel capacity associated with many of these vehicles. Adding to the complexity, the California Trucker Association has filed a lawsuit against the regulation, asserting that it doesn't align with the current infrastructure realities in California and the wider United States.
Despite the challenges posed by this new mandate, California remains optimistic. The $15 billion USD investment by truck manufacturers in developing EV trucks, coupled with their commitment to achieving carbon neutrality by 2045, fuels optimism that substantial investments will be directed toward the essential infrastructure required. With the growing volume of imports and exports between California and Mexico, this shift becomes increasingly relevant, potentially shaping the future landscape of the freight sector.
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Facts & Figures
The concept of nearshoring has become a prominent topic in both business and logistics circles, prompting one of our leading investors, QED, to venture to Nuevo León, a Mexican state that has attracted $42 billion USD in foreign direct investment (FDI) for nearshoring projects, since 2021. The objective was to assess the extent of the nearshoring hype, revealing that it is not merely a trend but a tangible and ongoing reality. However, this opportunity also brings significant challenges that need to be addressed.
Even with these increased investments, 68% of shippers and 80% of carriers have cited that cost is the biggest challenge for digital transformation in different areas related to logistics and warehousing. Therefore, it becomes imperative to decide where, how much, and in which processes to invest in order to stay ahead of the competition.
• Energy:
An $80 billion USD investment in energy infrastructure is required to meet growing consumption.
• Water:
Despite a functioning water supply, water permits are capped due to environmental concerns.
• Industrial space:
There is a minimal 2.1% vacancy in industrial space, requiring a $50 billion investment for 50 to 70 million m2 of surface area.
• Logistics infrastructure:
Increased investment in logistics infrastructure is required to accommodate growth between the U.S. and Mexico.
• Security and rule of law:
Operational costs can increase by 2-5% in Mexico due to safety issues.
Nevertheless, these challenges also present opportunities, including integrating small and midsize enterprises, creating modern borders, embracing electric vehicle manufacturing, promoting clean energy, improving logistics and infrastructure, and developing fintech solutions for the expanding number of midsize global companies entering Latin America. As nearshoring transforms supply chains, the administration of Nuevo León is actively collaborating with invested companies to address challenges and reinforce a commitment to fostering a conducive environment for nearshoring.
Get all the insights from QED’s trip to Nuevo León here.
“We are optimistic that Mexico Customs will begin to invest in some or all of this type of technology as we continue to see momentum in the nearshoring movement, with security and reducing friction at the border becoming even more of a priority for Agencia Nacional de Aduanas de México (ANAM), as well as all customs agencies around the globe.”
Jay Gerard,
Head of Customs, Nuvocargo