News / US-Mexico trade boom as near-shoring trend is driven by rising costs in China

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Despite an inability to take market share from Los Angeles and Long Beach, as they struggle to clear southern California of a backlog of ships and containers, the future of Mexico’s intermodal and Pacific coast ports remains promising, a leading truck and intermodal broker has claimed.

On the sidelines of the recent TPN show in Long Beach, Tom Sanderson, chief executive of Transplace, a company focused on the cross-border trade between Mexico and US, said intermodal traffic between the two countries will show “tremendous growth” as the near-shoring trend takes a grip in the production of consumer and other goods

Meanwhile, a tightening of trucking capacity is also emerging – at the same time as investment in Mexican industrial production continues to grow in response to the burgeoning near-shoring trend, itself propelled by the continued hiking of costs in China.

“Labour costs in Mexico are now roughly on a par with China – there’s been a huge shift in labour costs because wages in China have been growing at such a strong rate,” Mr Sanderson said.

The top 10 largest automotive OEMs now have plants in Mexico, while the centre of gravity of production in the country has also shifted in recent years.

“It used to be that these plants were all along the US-Mexican border, but as the Asian and European carmakers came into play it was more in the centre of the country, and since then it has been about taking advantage of clustering logistics and industrial centres,” he said, referring to the fact many of the materials used in automobile construction enter Mexico via its principal Pacific port of Lazaro Cardenas.

He said the rail infrastructure connecting central Mexico with the US heartlands had adequate capacity, while the road routes were heavily congested. At Laredo, the busiest border crossing, it takes a truck around three hours to enter the US, and the congestion is expected to worsen.

Traditionally, the peak season in Mexico-US traffic has run from April to July, but Mr Sanderson said that as the Mexican economy grew it had stretched the timeframe of the peak season, with the result that trucking rates are “going up substantially” as capacity becomes increasing stretched.

“That capacity is drying up at a pretty unfortunate time,” he said.

The flipside is that it makes the intermodal alternative increasingly attractive.

“Ramps are readily available through the country and intermodal growth is going to be tremendous in coming years,” he said.

APM Terminals’ facility in Lazaro Cardenas is under construction

Mr Sanderson also reminded delegates that there were also large volumes of freight moving in the opposite direction.

“A lot of the products made in Mexico often have components coming from the US. And on the southbound intermodal move, you can postpose the customs clearance until the freight arrives at the rail terminal in Mexico, which unfortunately doesn’t work on the northbound route.

“Nonetheless, the fact that a lot of this is long-haul freight means that rail is better in terms of fuel and labour costs, and we think there is going to be a big truck to intermodal conversion.”

However, despite the growth of these intermodal routes, he saw little opportunity for the port of Lazaro Cardenas, where APM Terminals is constructing a new 1.2m teu facility due to open in the first half of 2016, to grab market share from the LA-Long Beach complex, despite the current backlog in southern California.

“With the manufacturing growth in Mexico, ocean imports and exports have grown substantially, but is Mexico a viable alternative to Los Angeles and Long Beach? Not yet. There are two obstacles: time and cost,” he said.

The transit time from Shanghai to LA-Long Beach is 20 to 32 days, whereas Shanghai to Lazaro Cardenas is 24 to 40 days, on top of which comes the rail leg.

“So going via Mexico adds both time and cost. This is compounded when you get into Mexico. There are also not enough volumes yet to drive rail service frequency,” he said.