With the produce season ramping up and the 100 Days of Summer just around the corner, one of the busiest times of year is underway in the cross-border freight market.
As more freight hits the road, elevated pricing and tightening supply will show up on a regional basis from now into July. The temperature-controlled and dry van markets will likely experience the greatest volatility due to the high volume of fresh and frozen produce, along with beer, energy drinks, water and other in-demand consumer packaged goods (CPG) summer products moving across the border.
Besides normal seasonality, several factors may influence cross-border demand, supply and rates during this critical period.
The rise of nearshoring
Conversations about how nearshoring could impact the U.S.-Mexico cross-border freight market have been simmering since the pandemic motivated many stateside shippers to move offshore operations closer to home.
That chorus grew even louder in 2023 when Mexico became the U.S.’s largest trading partner. In fact, it was the biggest year on record, with $656 billion in two-way trade between the countries from January through November.
Foreign Direct Investment (FDI) into Mexico also rose sharply. In just the first six months of 2023, private investors and major brands from the United States and beyond poured around $29 billion into the country, up 5.6% from 2022.
Yet despite record trade and increasing foreign investment, there are two key reasons nearshoring didn’t significantly impact the 100 Days of Summer in 2023, nor is it likely to in 2024.
Freight type and modal capacity dynamics
Nearshoring has thus far been driven primarily by increased production of automotive, industrial and manufacturing goods. Because most produce requires refrigeration during transit, increased freight demand from these sectors won’t necessarily cause tightness in the temp controlled market. However, tightness could increase significantly in the coming years if nearshoring operations produce goods that call for temperature-controlled capacity, such as lubricants or chemicals. It’s also worth noting that carriers may change from dry van to temperature-controlled trailers and vice versa depending on where demand is strongest at any given time. So, seasonality aside, if nearshoring-related dry van opportunities are more abundant than temperature-controlled produce opportunities, temperature-controlled capacity could tighten as carriers seek out the most profitable freight.
Another influential factor on this front is the growing investment in railroad expansion to support increasing cross-border Mexico freight demand. In 2023, Canadian Pacific Kansas City (CPKC), CSX and Genesee & Wyoming railroads announced plans to create a new trade route for shippers connecting Mexico, Texas and the U.S. Southeast. As those railways come online, it could reduce over-the-road trucking demand.
Capacity surplus
Both the U.S. and Mexico freight markets have been and continue to be oversupplied. With so much available capacity and relatively weak demand even for produce and popular summer products, any tightness this peak season is likely to be short-lived and less extreme than in previous years.
However, nearshoring will play a critical role here too. Though nearshoring-related volumes have yet to ramp up significantly in Mexico, as investment grows, new factories come online and more capacity exits the market due to challenging conditions, we expect demand to outpace supply sooner in Mexico than in the U.S. In turn, it’s possible that the 2025 peak season will be significantly more volatile.
Increasing cargo theft
Cargo theft has long been a challenge in Mexico and has grown worse recently. Theft cases increased by nearly 4% from 2022-2023, marking the highest number on record since 2020.
Puebla, the State of Mexico, Michoacan, San Luis Potosi and Jalisco are the most affected areas, with 74% of national robberies occurring in both the state and Puebla alone. Both areas have a strong automotive manufacturing presence, and high cargo theft rates on roads such as “El Mexiquense” and “Arco Norte” continue to drive cautious carriers out of these regions.
As carriers seek safer routes, outbound shipping costs in high theft areas are rising. Rates typically increase by 10-15% during peak season, but we have seen them soar to 20-30% recently. This trend is expected to intensify during the 100 Days of Summer, especially leading up to the July 4 holiday when the market is tightest. Shippers and carriers on both sides of the border will likely see the impact on their bottom line.
Set your business up for success
Though this peak season will likely be more muted than in past years, shippers and carriers should consider the following strategies to safeguard themselves against potential volatility this summer:
· Shipping lead time. Shippers should identify their capacity needs as soon as possible to avoid short lead times that can drive up costs for trucks that deadhead from the border.
· Carrier volume forecasts. In turn, carriers should work closely with their shipper and brokerage partners to get a solid sense of expected volume during 100 Days of Summer to deploy capacity in the right areas at the right time.
· Equipment accuracy. Shippers and carriers should work diligently to understand and communicate specific trailer and temp controlled requirements to ensure deliveries arrive on time and intact.
The road ahead
With that, while we expect the 2024 peak season to cause spot rate volatility, the impact on shipper contract routing guides should be less than in previous years, especially with appropriate lead times and planning.
