Tightening Mexico truck capacity benefiting cross-border rail

Tightening Mexico truck capacity benefiting cross-border rail

An intermodal freight train.

A variety of factors, including strong domestic US freight demand, is putting pressure on cross-border trucking between Mexico and the United States. Photo credit: Shutterstock.com.

Strong freight demand and higher trucking rates within the United States mean fewer trucks available for northbound loads at the US-Mexican border. That’s amplifying the perennial shortage of US-bound equipment there, even as demand for cross-border truck and intermodal rail capacity grows.

That could spur cross-border intermodal demand as a variety of factors crimp over-the-road truck capacity in Mexico and the United States, including new Mexican hours-of-service (HOS) regulations that will take effect in late August and the US electronic logging device (ELD) mandate that took effect last December.

This year, peak produce will really test surface transport

The imbalance in northbound and southbound shipments between the United States and Mexico hits shippers hard in the spring and early summer, the peak produce shipping season from Mexico, and in recent years it has been getting worse. The ratio can jump higher than three to one northbound-to-southbound shipments.

“This problem is just getting bigger,” said Carlos Godinez, commercial and new business director, Mexico, at Transplace. So is cross-border freight traffic, despite trade disputes. Truck traffic from Mexico into the United States rose 3.6 percent in the first quarter, US Bureau of Transportation Statistics (BTS) data show.

In April, the dollar value of US-Mexico trade by truck increased 20.1 percent to $35.9 billion, according to the BTS. At Laredo, Texas, the largest US border crossing by truck volume, the value of goods transported across the border by truck jumped 15.3 percent year over year in May to $19.9 billion.

Those figures, the latest available, were released before the produce season really kicked off, tightening northbound capacity at the border even further. “It’s a very dynamic environment in both countries right now,” Godinez told JOC.com. “It’s been a busy year in terms of both volume and rates.”

Northbound truck traffic rose 6.6 percent and 4.7 percent year over year in January and February, respectively, before dropping less than one percent in March, BTS data indicate. In terms of truck crossings, however, March was the strongest month in the first quarter, with 534,661 northbound trucks.

“In the past, we had this very clear surge and peak season for cross-border freight, normally after the holidays, and then demand would drop and pick up again in February,” Godinez said. “This year we didn’t see that drop.”

The US ELD mandate, which stung shippers in Canada, is having a less direct impact on shippers and consignees in Mexico. That’s partly because the US-Canada border is far more open, with Canadian truck drivers delivering goods throughout the United States and picking up freight to return to Canada.

Very few Mexican truck drivers or carriers have similar authority, and most freight is still transferred, or increasingly, transloaded, at the border. The US portion of any northbound or southbound trip may be longer now, and Godinez said Transplace has run into problems when US drivers run out of hours.

“We coordinate pickups [at the border] for Mexican importing companies, and now, more often, we’re getting different answers than we used to,” he said. “Part of that goes back to the effect of the ELDs” on transit times. “But we also see truck drivers and companies rejecting freight from certain shippers.”

Those would be shippers that haven’t received the memo on how to be a “shipper of choice” and “driver-friendly” yet. “Drivers are asking if this freight is coming from certain shippers, and if the answer is yes, they say, ‘I don’t like to go there,’” Godinez said. “That’s something we didn’t see before.”

When that happens, Transplace finds itself explaining the change in the US market to the Mexican importer. “They may not understand why we can’t supply the capacity,” Godinez said. “In some cases we need to explain why trucking lines aren’t willing to pick up freight from certain shippers.”

That’s led to an increase in cross-border conference calls between Mexican importers, US exporters, and logistics intermediaries, he said. “We’re trying to use the influence of the Mexican importer, who is paying for the freight, to help the freight flow faster,” said Godinez. “Everyone is part of the problem.”

Finding a solution is even more critical when, as he points out, there’s an abundance of alternative loads truckers can choose to haul.

“There’s so much demand in the US right now, that when trucking companies look at utilization and productivity, they will use their available capacity for domestic freight because they can generate more turns,” Godinez said.

Starting in late August, Mexico’s first HOS rules will require drivers to take eight consecutive hours of rest after working 14 hours and to take a 30-minute break after driving five hours. That could mean longer transit times within Mexico. New rules on doubles also threaten to constrain capacity.

“We shall see how fast and big an impact we see,” said Godinez.

Assessing intermodal options

Railroads also are seeing a surge in Mexico-US freight traffic, both intermodal and carload. Kansas City Southern’s cross-border revenue increased 19 percent year over year to nearly $220 million in the second quarter, propelled by higher automotive, chemicals, and petroleum volume, KCS said.

Union Pacific Railroad also reported strong automotive shipments from Mexico that helped boost its finished-vehicle traffic in the latest quarter.

Cross-border intermodal revenue at KCS was flat year over year, but US-Mexico intermodal volume rose 5 percent from a year ago, the company said in its second-quarter earnings report. Overall, cross-border volume carload and intermodal freight jumped 13 percent for the railroad.

Congestion in the first and early second quarter slowed cross-border traffic and increased dwell time at KCS’s northern Mexico terminals, but that congestion “is largely behind us,” Jeffrey Songer, executive vice president and chief operating officer, told investment analysts during a July 20 earnings call.

“We continue to work on operational improvements at the border to ensure we have capacity to achieve planned growth,” said Songer. KCS last August opened a US-Mexican rail cargo processing facility in Laredo to speed trains across the border, and has now started operations with international crews.

“Our customers are actively looking for options on rail,” Brian Hancock, executive vice president and chief marketing officer, said during the earnings call. The exchange rate has caused pricing problems for KCS in Mexico, however, as the railroad charges customers in dollars rather than pesos.

“Certainly there is more intermodal business,” Hancock said. Some of that business may be driven by tariffs imposed by the United States, not on Mexico, but China. “Product [that] may have been coming from China ... it’s now coming in through the US and then down into Mexico into the steel plants,” he said.

Transplace’s cross-border intermodal business is expanding, Godinez said, partly as a result of a greater effort by the third-party logistics provider but also tightening truck capacity. Truck-to-rail conversion is likely to become increasingly palatable to shippers as truck capacity in Mexico tightens.

Like the United States, Mexico is having a hard time finding enough truck drivers. “The problem is different here, but it’s of the same magnitude,” Godinez said.  

And it’s just as hard to solve. “I don’t see anything that will change the problem of the lack of truck drivers,” he said. “It’s not an easy job and not a fancy job. You have many manufacturing plants that pay as well as trucking companies. And security is still a concern for drivers in certain regions.”

Security is an issue for railroads as well. Even so, “customers are moving from truck to rail,” he said. “Shippers need and want solutions. There’s not a lot of capacity in the market, and even if you have a beautiful new truck, you need to have someone driving the wheel. They need to come together.”

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @willbcassidy.

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