Volatile US-Mexico Auto Industry Disrupts Border Trucking Capacity

As the coronavirus pandemic continues to hit auto supply chains hard, trucking capacity has been volatile at key ports of entry along the United States-Mexico border.

In Laredo, Texas, outbound tender volume (OTVI.LRD) has fallen slightly over last week, while outbound tender rejections (OTRI.LRD) have spiked during the same time, setting upward pressure on rates, according to FreightWaves' SONAR platform.

The Outbound Tender Reject Index for Laredo, Texas, (OTRI.LRD) on FreightWaves' SONAR platform went from 2.91 on June 9 to 5.86 on Tuesday. Carriers are beginning to see more freight from Mexico as factories restart.

David Henry, regional manager for Mexico at GlobalTranz, said as auto factories and other industries in Mexico resume operations, supply chains are beginning to move significantly.

Phoenix, Arizona-based GlobalTranz is a technology and third-party logistics solutions company.

"The automotive industry has come back online along with other industries, electronics, aerospace, that were deemed essential by the Mexican government, so as to not disrupt U.S. and Canadian supply chains," Henry said.

Henry also said while factories reopening are positive signs, there is a wide disparity between imports and exports.

"The level of imports [from the U.S. into Mexico] is still very, very low in comparison to exports. It's not really coming back immediately as the exports have. So it's driving a big issue with northbound capacity," Henry said. "All these truckload carriers that typically have direct trailers coming into central Mexico, places like the Bajio region, they typically have plenty of capacity."

Henry added, "Right now, those trailers are sitting in Laredo or being used in the U.S. domestic market. They have to deadhead them into Mexico or they're relying on waiting for those imports that are just coming at a very slow pace."

General Motors restarted its three factories in Mexico on May 21, after being closed since March 30 when the Mexican government declared a health emergency because of the coronavirus.

Fiat Chrysler reopened its seven facilities in Mexico on May 26 and 27, while Ford reopened all four of its plants in Mexico around June 1. Toyota, Honda and Nissan also began gradually restarting their operations in Mexico at the end of May.

Volkswagen and its luxury unit Audi were ordered to keep their factories shut by the governor of the Mexican state of Puebla, where the facilities are located.

Matt Silver, founder and chief executive officer of Chicago-based Forager, said another factor affecting trucking capacity is the Mexican economy and a recent, sharp devaluation of the Mexican peso.

Forager is a freight tech company focusing on freight solutions between the U.S., Mexico and Canada.

"The U.S. economy isn't the only one feeling the effects of COVID-19. We recently talked in depth about the economic trends in Mexico that are starting to manifest as depressed southbound volumes in and around Laredo," Silver said. "Basically, the peso is experiencing a major slump, so conversion rates between the peso and the dollar are really unfavorable for Mexican companies importing goods from the U.S."

Silver said as a result, "those big Mexican shippers are cutting import volumes and waiting for the peso to recover."

"Combine that with smaller importers closing down after being unable to weather three months of COVID-19, and you see a larger overall depression in southbound traffic," Silver said.

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