Mexico’s booming exports expected to boost cross-border trade in 2024

Source: FreightWaves  
Date: 27th December 2023

US-Mexico freight volume to increase this year, experts predict.

As more global supply chains shift manufacturing to Mexico, cross-border operators said nearshoring will be a key economic driver for the North American freight economy in 2024.

Nearshoring — the relocation of production and manufacturing operations from one country to another to be closer to end consumers — has fueled manufacturing growth across Mexico as shippers look for supply chains that are closer, cheaper and more favorable to doing business with the U.S.

One of the largest nearshoring projects headed to Mexico will be Tesla’s $5 billion automotive factory in Monterrey, which is scheduled to be completed within the next two years.

The increased focus on bringing supply chains back to North America helped Mexico replace China as the top U.S. trading partner in 2023. Mexico has been the top U.S. trading partner since the beginning of 2023, reporting $656 billion in two-way trade from January through November, according to the U.S. Census Bureau.

FreightWaves recently spoke with trade professionals who mostly remain bullish about the prospect of U.S.-Mexico cross-border freight flows this year. They also discussed nearshoring, cargo capacity and hot commodities in 2024.

What we’re seeing is certainly, foreign direct investment is still pouring into Mexico. Just every single day, multiple companies are announcing either brand new construction or expansions of existing facilities for players that are already in Mexico. Production is coming and a lot of it is going to be coming online in 2024.

Just say even if global manufacturing were not to increase this year, just the jockeying of existing manufacturing to Mexico will represent good things for North America in general. Cross-border trade is a natural positive.

2024 is expected to be a year of expansion and consolidation. Companies already trading between Mexico and the U.S. are accelerating expansions into more facilities and new commodities in their supply chain. And for companies new to trade across the U.S. and Mexico, more and more entrants consolidating their positions and committing to this trade lane long-term.

Many forecasts indicate there will be little to no overall growth in the freight market for 2024. There’s also a lot of uncertainty around consumer demand with very little consistency in consumer spending as it relates to specific end markets. Consumer spending has shown resilience over the past several quarters and can continue in 2024 despite interest rates, the global economy and the geopolitical environment. The end markets are due to consumer spending patterns, which believe will closely correlate with interest rates. It is expected some opportunities for improvement in automotive, consumer packaged goods and retail, with less opportunity in chemicals.

Despite excess US trucking capacity, cross-border lanes may tighten
The capacity buildup that occurred in the market post-COVID-19 lockdowns was unlike anything the industry had seen before as rates and freight volumes increased, and capacity was added on a large scale. Given this huge influx of capacity over an extended period, it’s taken longer than normal for that capacity to exit the market. We saw capacity leave the market throughout 2023 and will continue to see more in 2024. Because the macroeconomic outlook doesn’t support any large increase in demand, supply exiting will be the driving factor to bring capacity and freight into greater equilibrium, which I suspect will occur sometime in mid to late 2024.

As the market comes out of this bottom, we don’t expect to see Mexican carriers entering the market like they do in the U.S. Carrier supply is much more stable in Mexico, so we already know who the vast majority of the carrier base will be, and they will still face driver and equipment shortages. Freight rates will likely continue to come up as the demand increases and supply is not as elastic as a perfectly competitive market with free entry and exit would suggest.

2024 will take over cross-border trade. Many companies are forecasting higher bookings than what they have produced for 2024. That is a forecast, of course. Then on the flip side, the carrier side, we’re not seeing any investment into growing their fleets or adding more trucks. The cross-border carrier market isn’t planning on making major investments in trucks. They’re finally taking receipt of trucks they ordered 18 months ago but they’re just using those to reduce the age of their fleets, not adding trucks. I think the No. 1 reason is not so much on the demand side but there’s just not enough drivers to go into these trucks in Mexico.

How explosive will it be in the next few years? That’s the big question. Is it going to be a single-digit, double-digit, or triple-digit impact?
Many would bet on the higher side, the impact coming out of Mexico, because it just makes sense. These new economic blocs, North America and Monterrey, Mexico, are the ones that are going to have and are already seeing some of the biggest impact investment-wise. There was a conference in Mexico recently where there was a big talk about the Interstate 35 corridor, Austin, San Antonio, Laredo, and Monterrey, representing a huge impact on the U.S.

Where cross-border loads are headed in 2024
When we’re talking about loads that will thrive in 2024, it’s impossible not to highlight the automotive industry. The growth in Mexican car production is remarkable, 13.54% year on year in the first three quarters of 2023, and it’s not just the giants like GM, Ford, Nissan, VW — even smaller players in the parts and components game are set to benefit significantly. We are anticipating a surge in demand for raw materials and unfinished goods crucial for car and machinery production, especially given the highly integrated nature of the auto industry.

There were times in the past when maybe we were dependent on things, especially automotive. Now it is diversified in the case of not just automotive, but foodstuffs, liquors, electronic products, office supplies — you name it, it’s getting moved cross-border nowadays.

All of the big retail customers are ramping up their production in Mexico, and they’re trying to get products sourced out of Mexico, your Walmart, Home Depot, Lowe’s, Target, all of them are looking very heavily to Mexico to source products in the fast-moving consumer goods space. Looking forward into the future, companies like Google, Samsung, LG, GE, Mattel, Lego, all of those brands, almost every product they make is going to be ramped up and coming in from Mexico.

Prospects for continued nearshoring growth in Mexico
As companies look to reduce costs and increase their supply chain resiliency, working with vendors and suppliers in Mexico and Latin America makes perfect sense. Momentum from investments in infrastructure continues and it’s expected that these strategies will lead to additional freight opportunities, especially in the manufacturing sector. However, cargo theft and security remain concerns in the region, while demand for warehousing and cold chain space has increased, making these things harder to find and more expensive.

The nearshoring trend is not slowing down anytime soon. Foreign direct investment in Mexico is expected to grow by around 10% annually, reaching approximately $60 billion by 2027, and there are at least 495 new companies projected to enter the country between 2024 and 2025, which makes for a very promising outlook as we consider the long-term effects of this trend.

We saw an immediate impact, especially in 2023 with companies already in Mexico, which I refer to as phase one. I’ve seen the second phase, brand new companies that have started to open up facilities, initially planning to come online this year, and now it’s been pushed off to 2024. Part of it is because of the U.S. economy; we have been getting mixed signals on the economy. I’ve been in factories in Mexico that have been built, they’re just kind of waiting to get turned on, and they don’t have a good idea of volumes yet. The impact right now is more on existing companies that have the existing manufacturing in place, and they’re relocating that existing manufacturing into Mexico. The big part that everyone’s hoping for is the brand new manufacturing that everyone’s been telling me will be happening in this year to two years.

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