Market Currents #1: Mexico Nearshoring

June 18, 2024

We've got a good one for you this week! We spoke with Julie Castelbaum, Cargado's new Head of Operations about what they've got cooking in the crossborder space, and discussing labor reforms in Mexico in our continuing series on nearshoring.

For those of you joining us for the first time, think of us as your weekly espresso shot of industry trends, thought leadership (minus the cringe), and a sprinkle of cool stuff you won’t find elsewhere.

Your support and curiosity are what drive us to share our insights, experiences, and thoughts in the logistics industry.

Thanks and hope you enjoy!

- Curtis and Elliot

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This Issue's Index/Trend

Watching the divergence of the LTL and TL markets in terms of pricing strength is something quite unique currently. The next 6 months will be extremely interesting in this realm. Yet another sign for how different the two trucking modes are from each other!

Companies in the Space

This week we wanted to highlight Cargado, a freight startup aiming to revolutionize how US-Mexico cross-border freight is handled. 

We spoke with Julie Castelbaum, Cargado's Head of Operations:

Cargado is the platform for creating a more connected cross-border experience. Built by a team with an extensive background in freight, from Coyote, Arrive, and Convoy, we’re helping brokers and carriers optimize how cross-border freight is conducted. We know that’s vague but it’s because we’re not quite ready to publicly reveal everything we’re working on. Since launching our pilot platform, we’ve onboarded some of the largest brokers and carriers to incredibly positive feedback.

FT: Why now and why Cargado?

JC: Over the past decade alone, trade between the United States and Mexico has seen remarkable growth, expanding by 58%, from $493 billion in 2012 to $779 billion in 2022. This has been accelerated by market dynamics such as the pandemic, trade war with China, and USMCA. But we’re just at the tip of the iceberg when it comes to demand in Mexico. Companies like Tesla, Mattel, Unilever, and Kia Motors are investing billions of dollars collectively in their manufacturing footprint in Mexico and many other companies have vowed to do the same.

As manufacturers increase their production in Mexico, so too does the strain on a fragile industry that relies on outdated systems to solve complex operational challenges. We plan to address a lot of these issues with the technology we’re building at Cargado. Stay tuned.

FT: I know you guys can't reveal everything you're working on, but what can you share about how you see Cargado evolving over the next year? Any big milestones or features we can look forward to that you can tell us about or tease?

JC: In the next year, we'll have enhanced the experience for everyone in the cross border process!

Big things to come from Cargado, it seems - we're interested to keep an eye on them and see what this enhanced experience brings to market participants!

Projects, Jobs, and Gigs in the Space

We'll start with some openings at Cargado:

Right now, they're hiring for a Border Partnerships Manager in El Paso, Senior Software Engineer, and Software Engineer. If those roles don’t fit your experience but you're interested in the company, still reach out to [email protected], as they're quickly expanding beyond these roles.

Our Outlook

The opinions expressed in the content of this newsletter are solely our own. They do not reflect the views of any affiliated organizations or partners and should be considered as individual perspectives offered for informational purposes only.

FTL Markets:

This week we'll continue talking about nearshoring trends to Mexico and how COVID and other factors accelerated these patterns.

The COVID-19 pandemic disrupted global supply chains, highlighting the vulnerabilities of relying on distant manufacturing hubs. This disruption has accelerated the trend of nearshoring, where companies seek to bring their supply chains closer to home. Mexico, with its strategic location and evolving labor dynamics, has emerged as a prime destination for these efforts. Recent labor reforms in Mexico align perfectly with these global economic shifts, making it an attractive alternative to Asian manufacturing centers.

Overview of Labor Reforms

Mexico has enacted significant labor reforms in recent years, with President Andrés Manuel López Obrador’s (AMLO) Administration passing the Labor Reform of May 1, 2019, the most significant reform of Mexico’s labor relations in the last hundred years, creating a New Labor Model. This reform aimed to ensure more democratic union elections and improve labor rights, setting the stage for a more balanced labor landscape. Claudia Sheinbaum, the president-elect of Mexico generally viewed as the successor to AMLO, will probably continue or even expand these reforms.

Impact on Wage Trends

Following these labor reforms, wage trends in Mexico have shown notable changes. Minimum wage rates have seen significant increases, and average wages in the manufacturing sector have adjusted accordingly. These wage levels, while increasing, still offer a competitive edge compared to other countries, making Mexico an attractive option for manufacturing.

Attraction of Foreign Direct Investment (FDI)

Labor dynamics have been a key driver in the rise of foreign direct investment in Mexico, particularly in sectors like automotive and electronics. Companies such as Tesla and Kia Motors have expanded or moved operations to Mexico, citing favorable labor conditions. More information can be found from the Bank of Mexico, and their FDI report provides valuable insights.

Challenges and Considerations

Despite the positive trends, challenges remain. Issues like skill shortages, labor disputes, and varying regional labor standards need to be addressed. Governmental and industrial initiatives are underway to tackle these challenges, aiming to create a more stable and skilled workforce. Insights from local industry groups and business news outlets highlight ongoing efforts and obstacles.

Conclusion

The evolving labor landscape in Mexico is reshaping the country’s role in international trade, particularly by boosting imports into the US. These labor dynamics have the potential to significantly impact Mexico’s economic relationship with the US and other trading partners in the long term. As Mexico continues to refine its labor policies and attract investment, it stands to become an even more integral player in global trade.

Greenscreens Market Update - May 2024

“April Surprise in US Trucking Rates”

Takeaways

  • As much as everyone in transportation is waiting for a return to more balanced supply, the only bright spots for rates are found in the South (-0.3% ), Southwest (0.0%) and Southeast (+1.8%) markets when compared to 2023H2 rate baselines for Van.

  • All northern markets are down -7% to -8% for Van off 2023H2 rate levels.

  • A very consistent seasonal pattern between north and south is evident in all modes, but the drag in the North is dimming the overall outlook.

  • June typically exhibits higher demand as mid year financial performance puts pressure on available supply. Many pundits are calling for weak markets and we will be watching June closely as it unfolds.

Outlook

As much as everyone in transportation is waiting for a return to more balanced supply, the only bright spots for rates are found in the South (-0.3% ), Southwest (0.0%) and Southeast (+1.8%) markets when compared to 2023H2 rate baselines for Van. All northern markets are down -7% to -8% for Van off 2023H2 rate levels.

In addition to Southern market van rates, Reefer rates are showing similar differences to northern markets as rate levels are trending higher than northern markets. South (-1.4% ), Southwest (-1.3%) and Southeast (+12.8%) versus 10% to -13% for Reefer in the northern markets.

Flatbed markets are showing strength in Southern latitudes as temps heat up showing 4.8%, 5.7% and 1.2% to 2023H2 baselines for South, Southeast and Southwest markets.

A very consistent seasonal pattern between north and south is evident in all modes, but the drag in the North is dimming the overall outlook.

The only bright spot for May report is the differences on rates from a regional perspective provides some indication that balance may be returning - especially as Reefer is under strain in the Southeast. As much as we all want healthy transportation markets to return, it appears we are still bouncing on the bottom.