How Mexico's growth as U.S. trade partner affects trucking

Matt Cole: 
How cross-border trade between the US and Mexico has evolved and how it impacts trucking.

Jason Cannon: 
Hey everybody, welcome back. I'm Jason Cannon and my co-host as always is Matt Cole. Mexico has become the United States leading trade partner in recent years through July of this year. Trade with Mexico represents more than 15% of all of US trade ahead of candidate, 13% in China at almost 8%.

Matt Cole: 
So what does that mean for the US transportation industry? Third party logistics provider, sunset Transportation, has some insights.

Alex Pascal:
Mexico, as you mentioned, in 2023, Mexico became the largest trading partner with the US and I believe there were different reasons why primarily in 2019 when the first Trump administration renegotiated NAFTA and now U-S-M-C-A, one of the changes that was made was that the rules of origin were changed. So how much content of the product is from Mexico, Canada or the us? It's from one of those three countries, whether instead of being from Asia or Europe, and that has kind of regionalized a lot more the supply chains within North America. It has pushed Mexico to become the largest trading part of the us. Also all the integration with Mexico and the us. So in the US we have I 35, which pretty much is the highway leaving Laredo, and on the Mexican side is Highway 57, which connects all northern Mexico with the middle part of Mexico, which is pretty much where all the manufacturing and automotive companies are. Also, after COVID, one of the big pushes from the US was to be less reliant on Asian imports, primarily China. There's different factors, but we see that trade between the two countries. Even with all the tariff talks and everything going on, I think it's going to continue to increase the next years.

Danny Trevino:
Additionally, I mean, it's been 30 years since SNAP has started, so as you mentioned, and we've seen it, everyone, key players that are involved with trade have grown, right? And so it's more interconnected than ever, especially in logistics as per se and customs brokerage, logistics firms, transportation companies have now installed and started working with people from within their same companies in the US and in Mexico. So more than ever, everything has been integrated in the past few years. We've seen it from a customs brokerage perspective, a lot of communication and information back and forth between both authorities from both countries to become more than a trading partner. It's just to become a global hub or regional global hub that it's interconnected with every aspect of supply chain, right? So we've seen this in the past 30 years, thanks due to nafta, but in the couple of last years, that's when we've seen an increase in flow of information and multinational companies getting installed in both sides of the country. Even Mexican companies opening in US and US companies opening in Mexico as well, right?

Jason Cannon: 
A new report from Sunset Transportation, which has been operating in Mexico for about the last six years, looks at the history of trade between the US and Mexico, some of the challenges that come with cross-border transportation and offers some predictions on future trade.

Alex Pascal:
With this new report that we work with our corporate, we were trying to bring to light a little bit of the history of the trader between Mexico and the US to sort of explain what we see going forward, why we see it, some of the changes that we think are going to happen, and just some of the growth and some of the opportunities that for our customers and where we as sunset can bring value added to our customers where we can help them. We know it's a difficult process and there's a lot of parties involved in cross border shipments, whether it's US brokers, Mexican brokers, the drayage, the carrier, the US carrier, the Mexican carrier. There's different services, so our value added to our customers is to try and inform them and educate 'em as to what are some of the best practices in the industry and just facilitate some of that. We always say that Laredo or any border between Mexico and the us, it's always like a black hole. Nobody knows what's going on there and how it works, and it's not until you actually go down to Laredo and you see all the trade, all the trucks, all the warehouses. You see how it's done that you educate yourself and understand, oh, this is why, or the report is sort of a background information as to where we came from, where we are and where we think it's going in the future.

Matt Cole: 
Much like we've seen in the US with cargo theft surging in recent years, cross-border freight is also dealing with that same challenge.

Alex Pascal:
I would say that one of the biggest challenges right now is security concerns. Unfortunately, in Mexico, there's still a lot of cargo theft that happens primarily in specific regions of Mexico, but it's across the country. That's one of the main concerns and how we navigate that and some of the best practices that we can implement, whether it's the drivers only driving during the day, avoiding certain roads, inform the customer shippers about additional insurance for their freight. Those are some of the things that we can do to mitigate the risk. Now, the risk is always going to be there, but there's steps that we can take to mitigate it as much as possible. Another thing or another constraint that we think is going to continue to, at least for the foreseeable future to be, there's not a lot of infrastructure in Mexico, not a lot of highways. Most, I would say 85% of the freight moves to one corridor, which is the one I was referred to, highway 57, which is the one that connects to Highway 35 on the US side. That's why Laredo is the number one hub or crossing point between Mexico and the US and that highway. We need more infrastructure, whether it's highways, port, infrastructure, we need a lot more things, and I think the government in Mexico has taken steps to improve that, but I believe we're behind the curve a little bit on that.

Danny Trevino:
Another thing that needs to be revised is the customs regulatory being compliant. We see a lot of our clients that they forget as to the steps to take in order to clear Mexican customs. So it's very difficult when you don't know or no one explains that part. And I mean, going back to what Alex mentioned is that we had to work with good partners in Mexico in order to navigate that part of the supply chain process, right? The custom clearance due to all the regulatory information, paperwork that has to be provided by the Mexican exporter, importer, and it's part of what we do day to day, so we focus a lot in trying to navigate the swamp or the black hole area, as Alex mentioned. So the idea is to make everything go smoother and a lot of people forget. It's also part of the process from a shipment, so a lot to do in that area. That's why we have to have good teams focused in each part of the supply chain in order to get this shipment delivered across both countries or whichever country in this case. Right?

Jason Cannon: 
The biggest question around cross-border trade with Mexico is how an increased focus on tariffs from President Donald Trump could impact future trade activity.

Alex Pascal:
It's been an interesting year so far, but if you look at the numbers, and this is up to July, I think the last time the report that I saw, the trade between Mexico and the US has increased by 6% if you compare it to the same timeframe last year. So if we thought initially back in February when all these conversations about terrorists started happening, nobody knew what to expect, and to be honest, the number one problem that we see right now is just the uncertainty. That's the theme that I hear throughout the industry, whether it's shippers, whether it's carriers, whether it's whoever, nobody knows what's going to happen next year. They don't know the rules of the game. Most of these big companies, their investments, they plan five, 10 years ahead, so they need to know the rules of the game, and the same with carriers.

If you're a carrier and you're planning on expanding your fleet, it's a big investment, so you need to know what to expect for the next five, 10 years. So far this year, like I mentioned, the trade has increased year over year, but that's only because Mexico and Canada were both insulated because of the U-S-M-C-A, the first trade deal that the Trump administration negotiated in 2019. That is up to renegotiation next year in 2026. We believe that the US is going to continue to pressure both Canada and Mexico to get some concessions around trade and other security immigration up until 2026 when they renegotiate, and we'll see what happens.

Matt Cole: 
What did trucking companies need to know about working with cross-border freight?

Danny Trevino:
Make sure if it's going to be an interchange trader that is going straight through into Mexico, whoever's your partner in Mexico, make sure they're seated pad compliant, preferably, and them have conversations to understand and mitigate any risk as to what it takes to take that trader down into Mexico, right? That's real important. Working with a good insurance companies interchange insurance product liability. To a certain point, it's not needed in Mexico, but at the end, many clients have started requesting insurance in Mexico, so it's also important to emphasize and ask the question to the client, whomever, you're moving that into Mexico, make sure to let them know about the risks. And there is no Mexico insurance unless it's, as I mentioned, we have to contract that for that specific shipment and making sure also where that trader's sitting to. In Mexico, there's specific areas in Mexico that are high crime, very unsafe. So that's also something to point out and just making sure the partners are reliable, you're working with, and obviously understanding the product that you're moving is not the same to move plastic commodities than tequila. Tequila's a very high risk product. We always heard that, and it's very common to hear cases where there's a lot of depth on tequila. So it's just having those good conversations and making sure you're working with the correct people in Mexico, right, and also here at the border, very important.

Jason Cannon: 
Now, despite all the uncertainty that comes with tariffs trade with Mexico is expected to increase going forward.

Alex Pascal:
We believe that it's going to continue to grow. That's what we put it on the report. As I mentioned before, we obviously don't have, I wish I had a magic ball to see what's going to happen, but more than likely, the changes that we're going to see to U-S-M-C-A are going to force companies to be more regional and be less reliant on Asian and European imports. That remains to be seen what will happen next year. But everything points to that. I don't believe that the us, Canada, or Mexico will ever pull out U-S-M-C-A because it's beneficial for the three countries. It is something that we saw that uptick after COVID, that companies, even the government wanted to be less reliant on China and Europe and Vietnam and all these other countries. They wanted to have more control, and we all saw it. I mean, we saw the delays at the ports during COVID, empty shelves, all that kind of stuff. So we think that the trade is just going to continue to grow, and there's some investments already going on to facilitate that increase in trade. Just in Laredo, I don't know if you guys saw the news last year, but President Biden signed the order for the new bridge Laredo between no Laredo and Laredo, Texas. Now, it still has to be built, but that just tells you that they're seeing the increase in trade over the next years.

Jason Cannon: 
That's it for this week's 10-44. You can read more on ccjdigital.com. While you're there, sign up for our newsletter and stay up to date on the latest in trucking industry news and trends. If you have any questions or feedback, please let us know in the comments below. Don't forget to subscribe and hit the bell for notifications so you can catch us again next week.