Mexico Trade Adapting to the New Normal

After years of rapid growth despite weak economic growth, downward pressures are beginning to catch up to the Mexican logistics sector, as reflected by declining freight volumes through ports and over the border with the United States. The COVID-19 pandemic is only deepening the pain of a national economy that already had been stagnating, auto production is declining, and cargo volumes moving through the ports hit six-year lows in 2019.

The Mexican economy is struggling, with GDP increasing a mere 0.1 percent in 2019, according to JOC parent company IHS Markit, and set to slide as much as 8 percent this year as the full effects of the COVID-19 outbreak unfurl. Added to that, IHS Markit’s Mexico Manufacturing PMI plummeted to a record low of 46.9 in March, and automotive production, which accounts for nearly 4 percent of GDP, plunged nearly 25 percent in March, according to INEGI, the national statistics institute.

That’s forcing the industry to adjust to a new reality of lower freight volumes but with no let-up on the demands for reliability within Mexico’s supply chains. Freight volumes will rebound, making the next 12 months a critical period for logistics managers and their transportation providers to not only adjust to a new environment but to take steps so supply chains become more resilient and agile when the market turns.

Yet, there also are some positive signs, most notably the signing of the United States-Mexico-Canada Agreement, and relative strength and resilience in Mexico’s biggest trade partner, the US, COVID-19 impacts notwithstanding. Through its dozens of trade deals, Mexico has cemented itself as a factory floor for not just North America but much of the Americas, too, allowing it to ride the overall regionalization of trade. COVID-19 has exposed the weakness of US importers focusing on China sourcing, adding extra impetus to source from Mexico — when possible. When the pandemic threat ends, the agreement offers the potential for increased trade and cargo and the kind of certainty that could encourage investors to again put their money into the country.

Longer-term, Mexico’s logistics sector should benefit from continued infrastructure improvements, including a 30 percent expansion in capacity at Contecon Manzanillo SA de CV terminal and a dredging project that will enable the Port of Altamira to handle 14,000-TEU vessels. And the new rail line into Veracruz makes it the country’s first port to experience competition from two major railroads.

With market intelligence from the JOC, IHS Markit, and industry analysts, this webcast will analyze the impacts COVID-19 is having on the Mexican economy, the country’s freight flows, and the outlook on the other side of the pandemic.