As nearshoring efforts continue to ramp up south of the United States border in Mexico, the demand for affordable trucking capacity continues to climb. However, according to data from the most recent United States Department of Agriculture in the organization’s Mexico Transport Cost Indicator Report, rates for shipments crossing the Texas-Mexico border averaged $3.08 per mile. Meanwhile, DAT.com’s trendline report from June 20th shows a U.S. domestic average of $2.09 per mile, a 68% disparity between domestic and cross-border shipping, creating potential future disruption as manufacturers move closer to their end-markets.
Redwood Mexico, the cross-border shipping arm of fourth party logistics leader Redwood Logistics, has identified four leading causes to the growing differential in domestic and cross-border trucking rates. Rising diesel costs, Mexican driver shortages, cargo theft and the dollar/peso conversion depreciation have all contributed to increased shipping per mile and interest rate charges.
“If logistics service providers (LSPs) and shippers are complaining about high interest rates in the US -roughly 6%- it's double that in Mexico,” said Jordan Dewart, President, Redwood Mexico. “As a result, Mexican carriers are not rushing out to expand their fleets while they're at capacity. This hasn’t created an unrecoverable issue at present, but if proper investments aren’t made now there might be similar disruption on the roads compared to what was experienced at the ports in 2020 through 2022.”
Redwood Mexico’s sources and customer research indicates a Mexican driver shortage approaching 60,000. As security concerns continue to pulse through cross-border trade, many drivers are holding out until safer conditions prevail, furthering shortages. Cargo theft is up 11% from the first half of 2023 compared to the same period last year. This lack of safety is creating issues both on the rate and driver recruitment side. One example is Jose Cardenas, VP of Transportes Innovativos, who reported that 20-25% of his fleet is holding out due to security concerns.
Carriers and drivers who continue to work as Mexico expands safety efforts face another issue in the form of diesel costs. In Monterrey, diesel prices average 23.2 pesos/liter (roughly $5.15/gallon in USD) and in Nuevo Laredo diesel will run a carrier 22 pesos/liter (roughly $4.89/gallon in USD). With the drive from Monterrey to Laredo, TX accounting for nearly 140 miles, carriers covering this lane are paying $321 in diesel costs alone, driving up the per mile fees and interest rates that shippers and LSPs are experiencing.
“The conversion rate from USD to the peso is taking its toll on Mexican shipping rates,” added Dewart. “As cross-border commerce continues to escalate, the disparity between the dollar and peso should ease. Current shipping rates and interest rates that LSPs and shippers are experiencing are exorbitant. The expectation is for it to continue as manufacturers experience growing pains in their nearshoring moves. Shippers who are asking for their rates to be lowered this summer are being urged by Mexican carriers to up their rates and lock them in for the next three years to avoid seeing market rates skyrocket.”
While these early reports indicate a series of potential roadblocks, the optimism in nearshoring remains strong. As with any move of this magnitude, shippers and manufacturers knew to expect increased interest rates in the short term so as to realize higher profitability in the long term. As a leading cross-border solution, Redwood Mexico is uniquely positioned to continue assisting those companies that are moving their operations south of the border.
“We currently offer cross-border capacity solutions, warehousing and distribution, U.S. customs clearance, Mexico customs clearance, industry leading technology & TMS solutions, and physical Redwood assets that assist in the movement of freight,” concluded Dewart. “By combining current operations with our recent expansion in Monterrey, Redwood is expanding to match the growing need for nearshoring transportation options and expanding our ability to connect the diverse platforms that our customers’ cross border partners utilize.”