US-Mexico freight slows as potential shutdown looms

US-Mexico freight slows as potential shutdown looms

Northbound and southbound truck delays are mounting on the US-Mexico border as a wave of immigrants stretches US Customs and Border Protection thin. Photo Credit: US CBP.

Freight costs and congestion are rising along the dividing line between Mexico and the United States and will continue to do so whether or not US President Donald Trump decides to close the border, as he threatened to do multiple times in the past week. For companies doing business across the border, the idea of a shutdown was once unthinkable. Now that’s changed. They need plans to deal with present and potential disruption.

Trump softened his position Thursday, telling reporters he would give Mexico a year to stop the flow of illegal drugs across the border (although earlier ultimatums focused on immigration) and that he would impose automotive tariffs before closing the border. But it’s not back to business as usual on the border, where US Customs and Border Protection (CBP) is shifting people and resources from cargo inspection and clearance to immigration-related jobs.

The shift away from an immediate shutdown Thursday came after dire economic warnings from Republican allies, business groups, and members of Trump’s own administration. Despite the apparent change in stance, the president made it clear that his previous threats were no bluff. “I will do it. You know I will do it. I don't play games, I'll do it,” he said Thursday, according to Politico. At the same time, Trump said he “would probably start off with the tariffs.”

Exacerbating existing issues

Even without the threat of a shutdown, international freight operations already are beginning to snarl along the 1,900-mile border. “I had a conversation with somebody in El Paso [Texas] whose business was severely affected as Customs personnel were taken off normal functions,” and shifted to immigration duties, Troy Ryley, president of Redwood Mexico, a division of Chicago-based Redwood Logistics, told JOC.com.

Across the border from El Paso, in Ciudad Juárez, truckers heading to the US border face up to 12-hour delays following a reshuffling of border agents, according to Reuters. The US Department of Homeland Security is deploying up to 750 CBP personnel from other parts of the United States to the Mexican border to deal with the flood of would-be immigrants arriving there and is seeking recruits from other agencies. 

In Laredo, the largest US-Mexico border crossing point for freight, CBP on Wednesday closed lanes on three of the bridges bringing freight and people into the United States. Cargo operations at the Laredo Field Office Ports of Entry, which extend from Del Rio to Brownsville, Texas, are currently operating fewer truck lanes, CBP said in a statement Wednesday.

“CBP would like to emphasize that the normal cargo hours of operation remain in effect at all eight Laredo Field Office ports of entry and there are no plans at this time to reduce weekend hours,” said David P. Higgerson, director of field operations at the Laredo Field Office, adding that shippers could monitor border wait times through various sources, including the CBP Border Wait Times (BWT) website.

In Nogales, Arizona, which handled more than 337,000 US-bound truck crossings last year, CBP last week said it would suspend commercial truck crossings on Sundays. CBP’s Tucson, Arizona, field office said it would “monitor the situation and strive to restore services as soon as operationally possible.” Nogales is a major point of entry for produce from Sonora, Mexico.

Francisco Kim Olguín, vice president of the National Association of Private Transporters, a Mexican trucking group, said shippers are dealing with delays for southbound trucks at the border as well. “All the border crossings are working very slowly,” he told JOC.com, adding that shippers are considering whether intermodal may be a more feasible way to move cargo.

As disruption continues, along with the possibility of a full or partial border shutdown, shippers and their transportation providers and customers should prepare contingency plans to keep their supply chains running in the event of a worst-case scenario, said Ryley. “You have to talk with your carrier partners,” he said. An actual border closure would spark a broader crisis.

Were that to happen, (as a shipper) “I would not ship,” Ryley said. “I would hold product at origin, unless the carrier is willing to use their trailer as storage.”

Volatile and vague

Of course, no one actually knows how likely that worst-case scenario might be. But logistics managers should remember this president was willing to shut down the federal government for 35 days to try to get funding for a Mexican border wall from Congress. A similar pattern of brinkmanship is now on display, pitting the White House against Mexico, the “northern triangle” Central American nations of Guatemala, Honduras, and El Salvador, and Congress.

The president last Friday threatened via Twitter to close the border or “large sections of the border” if Mexico “doesn’t immediately stop ALL illegal immigration coming into the United States.” He appeared to backpedal on those remarks Tuesday, acknowledging that Mexico is apprehending large numbers of Central American migrants along its southern border.

But on Wednesday, the president reiterated his threat, this time if Congress doesn’t “immediately get together and eliminate the loopholes at the border ... If no action, Border, or large sections of Border, will close. This is a National Emergency!” he said in another tweet. Then came Thursday’s talk of a year’s delay and potential automotive tariffs.

Amid the political noise and confusion, US shippers and their counterparts in Mexico will have to craft some operational plans that respond to a variety of potential scenarios amid an increasingly turbulent political atmosphere. The open and repeated discussion of border closure is only one destabilizing factor calling for more dynamic and fluid risk management.

Trump already has threatened to withdraw from the existing North American Free Trade Agreement (NAFTA) unless Congress approves the replacement United States-Mexico-Canada Agreement (USMCA). On Tuesday, US House Speaker Nancy Pelosi, D-Calif., said there would be no vote on the USMCA until Mexico changed its labor laws, as required by the agreement.

It’s therefore quite possible the US will drop out of NAFTA, returning to what the president called “pre-NAFTA” trade arrangements. If the president takes that unilateral step, Congress will have six months to approve a new trade pact, after which trade between the US, Mexico, and Canada would be subject to World Trade Organization (WTO) tariffs.

Mexican goods shipped to the United States would face an average tariff of 3.5 percent under the WTO rules, and US goods would face tariffs in Mexico, but that’s a long-term worry for businesses — at least six months away — compared with the more immediate threat of a full or partial closure of the southern border, the conduit for $1.4 billion-1.7 billion in daily trade.

“Closing the U.S.-Mexico border would inflict severe economic harm on American families, workers, farmers, and manufacturers across the United States,” Neil Bradley, executive vice president and chief policy officer at the US Chamber of Commerce, said Monday. “Even threatening to close the border ... creates a degree of economic uncertainty.”

White House officials are trying to reduce uncertainty by suggesting a shutdown could be limited to non-commercial traffic. The administration is “looking for ways to allow freight passage,” Larry Kudlow, director of the National Economic Council, told CNBC’s Sara Eisen Tuesday. “If you can keep those freight lanes, the truck lanes, open, that’s probably the nub of it,” he said.

Kudlow told CNBC there are ways to do that “which would ameliorate the breakdown” in supply chains. “It’s a very difficult task; I think it’s doable,” he said. “The president will make a final decision on all these things. He hasn’t yet.” Trump is scheduled to visit the US-Mexico border Friday. “Security is more important to me than trade,” the president told reporters Tuesday.

Redwood’s Ryley agreed that a partial shutdown that exempts truck traffic would be possible, “at least in Laredo,” thanks to the World Trade International Bridge. The bridge was built in 2000 to remove truck traffic from three other bridges linking Laredo and Ciudad Juárez, but there are only a few other dedicated truck crossing points along the nearly 2,000-mile border.

In addition to the World Trade International Bridge in Laredo, there is a small truck-only crossing point in San Luis, Arizona, built to divert truck traffic from an older port of entry. The San Luis crossing handled only 28,211 northbound trucks in 2018, compared with more than 2.3 million US-bound trucks that crossed the border from Nuevo Laredo, Mexico, to Laredo, Texas, last year.

Seeking alternatives

Unfortunately for shippers, the sheer volume of freight moving by truck between Mexico and the United States leaves few transportation alternatives in the event of a border shutdown. Trucks transported $484 billion in US-Mexico freight last year, according to data from the US Bureau of Transportation Statistics, while railroads moved $78 billion, ships moved $67 billion, and planes moved $17 billion.

Some freight could be switched to ocean vessels crossing the Gulf of Mexico or moving along the Pacific Coast, but the logistics challenges would be formidable and the costs would be high, perhaps high enough to keep businesses from shipping altogether. Prior attempts to create water-based services linking Mexico and the US have had only limited success.

“We hear customers more and more are trying to diversify, trying not to put all their eggs in one basket,” Jose Minarro, senior vice president of Mexico customs for logistics provider Transplace, told the JOC Mexico Trade Forum last August. “So we've seen tremendous growth in intermodal, versus pure truck in the last five years,” and sea and air could also benefit, he said.

Even so, shippers with established transportation networks, routes, and modes aren’t necessarily quick to change. “Most people aren’t thinking about the logistics in that way. They’re not creating flexibility in their supply chain to make adjustments when needed,” said Ryley. To those ends, he recommends shippers move freight through several border crossing points, not just one.

“The one consistency with logistics in Mexico is that it’s always inconstinent,” Ryley said. “Logistics managers have to have more than one bullet in their gun. We saw this when a hurricane flooded the road between Monterrey, Mexico, and Laredo, and there were very few clients who could shift freight from Laredo to McAllen, Texas, which was the natural solution.”

And available truck and rail capacity aren’t the only issues affecting cross-border freight movement. Warehousing and storage space is becoming more scarce as well. “There’s 33 million square feet of warehousing space in Laredo, and it’s not going to take a lot for those buildings to fill up,” Ryley said. “Laredo is running at 97-98 percent rented capacity. There aren’t extra buildings around for temporary storage.”

Laredo differs from other border ports, such as El Paso and McAllen, Texas, which are more heavily focused on goods moving to and from factories directly across the border. Laredo is more focused on freight moving north into the US, whether by truck or rail. Truck traffic heading north through Laredo increased 6 percent in 2018, according to border-entry data from BTS.

All this means Laredo can easily become a bottleneck, especially during periods of surging demand, such as produce season. Shippers will remember the impact when a freak wind storm in 2017 damaged the World Trade International Bridge, shutting it down for a week. That pales in comparison to the disruption that could result from closing the border to truck and rail traffic.

Tractor-trailer ‘ripple effect’

During even a partial border closure, Laredo would become a truck parking lot, Ryley said, as truckers arriving at the border from both sides would find few places, if any, to unload freight or drop trailers. “On the US side, they’ll get overwhelmed quickly,” Ryley said. “If it happens, there will be a ripple effect not just at the border but through transportation providers all across the US and Canada.”

The end result would be “a bunch of trailers tied up with merchandise,” that would have to be offloaded before that capacity could return to active duty in the United States or Mexico, which would have an immediate impact on available truck capacity in both countries, Ryley said. Depending on the timing, even a short disruption at the US-Mexico border could echo loudly over the next few months.

“It would take a while for the border to dig its way out” after a closure, he said. “If it’s shut down for a couple of days, it will take a week or two” to restore balance. “And we’re headed into peak produce season, and that would make it even worse.” The imbalance of northbound and southbound loads and equipment already is exacerbated in spring and summer, he said.

Shippers involved in cross-border transportation should already be reaching out to their carriers and logistics partners, discussing potential scenarios and the means to minimize economic damage in the case of a full or partial shutdown of the US-Mexico border. Otherwise, the problems they’re experiencing now will seem small compared with what they could suffer.

“There are carriers who would argue today that peak produce season has already started earlier than expected, with a tightening of capacity,” said Ryley, who has been involved in cross-border transportation for more than two decades. “We have Easter Week this month, and that will add more pressure on truck capacity. So it’s shaping up to be a tough month.”

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

Hugh R. Morley contributed to this story. Contact him at hugh.morley@ihsmarkit.com and follow him on Twitter at @HughRMorley1.