The Mexico Trade Boom - Odd Lots Podcast
Anyone who knows me well appreciates my passion (addiction?) for podcasts. I recently listened to a particularly informative discussion about the boom in imports from Mexico and the general economic growth of our southern neighbors.? Two Bloomberg journalists interviewed Matthew Silver, a U.S.-Mexican freight brokerage expert that is now building a software solution to help streamline the cross-border trade process (https://cargado.com/). Anyone else interested in trade, geopolitics, and the details of what “near-shoring” really means should give it a listen! ?Some highlights from their conversation:
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Growth Just Getting Started:? Mexican imports to the U.S. in 2023 were over 30% higher than pre-pandemic imports on a nominal basis (~15-20% in real terms) and strong near-term growth is virtually assured with expansions by numerous U.S. (and some Chinese) manufacturers now underway.
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Many Cooks in the Kitchen: Shipping in the U.S. is a fairly straight forward transaction generally featuring three parties: a shipper, a receiver, and a trucking company.
Conversely, a Mexico/U.S. shipment likely entails at least six parties making coordination and fast delivery more difficult: a Mexican shipper, a Mexican trucking company, a Mexican customs broker, a U.S. customs broker, a U.S. trucking company, and a receiver. Mr. Silver’s new platform ostensibly aims to make coordination among these parties more seamless.? ?Customs inspections and transfer of cargo between transportation providers can add up to two weeks to transit time if border resources are stretched.
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Room in the Middle: Monterrey, located three-to-four hour truck drive from the U.S. border, has strengthened its position as a manufacturing hub with a nexus of suppliers and vendors. However, there is ample room for growth in other central markets – including Ramos Arizpe, Queretaro, Saltillo, Guadalajara, Mexico City. Border market maquiladoras have also obviously benefitted.
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The Two P’s Driving Demand – Politics and the Pandemic: Mexico’s growth has been directly tied to the political, especially since the U.S. initiated tariffs against China starting in 2018.? The pandemic’s influence on supply chain reconfigurations has also been well-documented.? Both demand drivers seem unlikely to dissipate though China is likely to an especially sensitive subject, especially if Chinese-based companies continue to establish manufacturing hubs in Mexico.
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USMCA -> Auto Win: Mexico has long had a thriving auto assembly industry since NAFTA’s signing over thirty years ago but its successor trade agreement further boosted auto growth with the increase in automative parts required to be manufactured in North America from 62.5% to 75%.? Tesla’s Monterrey plant won’t be operational for another two years.
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Emerging Market Risks: Freight and logistics companies in Mexico still have to grapple with operating risks unique to the country including the lack of cargo insurance, cargo theft, deficient transportation infrastructure, and general cartel activity. These risks are amplified in Southern Mexico.? Another key risk for growth not highlighted in the podcast are both ongoing shortages in both water and electricity infrastructure preventing further development. ?
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One-Stop or Pit Stop: One key subject for U.S. industrial real estate investors relates to the trucking journey of cargo entering the U.S. ?Cargo can be either be 1) transloaded at the border – i.e., transferred from one trailer to another and taken by two separate trailers/drivers, or 2) transported in the same trailer throughout the trip (a “through-trailer”).? The growth in trade between our countries will likely lead to much more demand for not only warehouse space in border markets, but also trailer storage lots for transloading.?
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The China Factor: As referenced, Chinese suppliers have either relocated manufacturing plants in Mexico and/or altering their trade routes to the U.S. through the country (China to Mexico shipping volume increased ~60% in January versus the prior year).? Given the political headwinds, goods primarily produced by these companies will likely be subject to meaningful trade disputes (i.e., tariffs).? The auto sector is most likely to run headlong into this dilemma with BYD and MG Motors both growing their presence in the market.?
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Give the podcast a listen! Would also be thrilled to hear your thoughts on Mexico’s future if you have insights.?
Managing Principal @ Cresa | Industrial & Logistics Real Estate Advisor
11 个月I really enjoy Odd Lots.