Marketplace Dynamics in US-MX Freight

Existing trade dynamics 

The US and Mexico are neighbors, and for the first time in 20 years, they’ve become the largest trading partners in exports and imports. Each year, over 9 million trucks cross through the border between these two countries, and with +450 nearshoring investments announced to be up and running by 2025, that amount will only increase. This level of interconnectivity would make you believe that simplicity rules every process related to getting cargo from one country to the other, but it doesn’t; in fact, there can be anywhere from 10 to 15 parties involved in every cross-border transaction. 

Despite its inherent complexity, which requires constant communication and navigation through different customs and regulatory requirements, this trade lane has shown remarkable resilience and potential for growth. According to the Boston Consulting Group, the US-MX relationship has flourished and is projected to surge by $300 billion in the coming decade. This impressive growth trajectory is primarily driven by a synergy of geopolitical and logistical factors that emerged and strengthened during the pandemic and are still relevant to this day. 

Global Changes and Nearshoring

Before the pandemic, the order of global trade meant having extended supply chains that relied heavily on China’s manufacturing prowess; today, in 2024, there is a clear shift towards a new order: the growing prominence of trade blocs led by North America, with companies focused on moving production closer to their end users. 

The need for this shift started with the realization that existing global supply chains lacked resiliency and flexibility, especially when costs for maritime shipments tripled during 2021 and only began to stabilize in late 2023. Recognizing the need for dependable, regional approaches to final products, rather than over-reliance on a single country for production, has become paramount. Kasey Phillips,  managing director at BCG, highlights this challenge: "One of the key questions is whether companies can develop a broader value chain that extends beyond merely manufacturing the end product." 

With the new USMCA negotiations, the Biden administration has adopted new industrial policies in the US, with legislation encouraging direct investment in strategic industries such as semiconductors, manufacturing, renewable energy production, electric vehicle infrastructure, and battery technology.

The net effect of these deals is to pull investment back to the US—especially for industries deemed critical to national security, like computer chips. The Inflation Reduction Act, for example, goes beyond the familiar “Buy American” incentives to encompass a “Buy North American” approach, such as extending the $7,500 credit for electric vehicles with powertrains or battery technology made in the US, Canada, or Mexico, highlighting the importance of trade blocs. 

The increasing emphasis on resilience through diversification of global markets and supply chains will translate into a continued drop-off in trade between China and the United States as companies seek trading partners and manufacturing locations to rebalance their global risk exposure. In 2023, the goods imported from Mexico (475,606.7 million USD) accounted for 15.4% of U.S. total imports, while Chinese goods (427,229.2 million USD) accounted for 13.9%. When examining U.S. exports to other countries, Mexico accounted for 16.0% of the total, significantly surpassing China's share of 7.3%.

Balancing Interests

As we navigate the evolving landscape of US-MX trade, marked by global changes and a shift towards nearshoring, it's crucial to understand the delicate balance of interests between shippers and carriers. Each party plays a pivotal role in the supply chain, with specific needs and expectations that must be met to ensure a smooth and efficient trade relationship.

Shippers

• Competitive rates: Logistics costs fluctuate significantly, making competitive rates crucial for shippers to sustain competitiveness and profitability. This balancing act might affect the reliability and speed of service delivery.
• Reliable capacity: The more time-sensitive the need for each load, the more critical it becomes to have a capable and trustworthy partner that consistently fulfills your requirements. 
• Low maintenance for new partnerships: Every company is used to its level of operational complexity, so adding partners that can adapt to your existing SOPs and ways of working while bringing best practices in efficiency becomes critical. 

Carriers

• Planned Volume: Having assets and drivers grounded is a nightmare for carrier operators due to the fixed costs of whether they are moving cargo. Carriers tend to look for a consistent volume of loads each month to operate with certainty for the future; the more they can plan, the better they can serve their customers’ needs. 
• Timely payments: Liquidity is vital for any business, but for carriers, it is even more so, considering the cash flow necessary to cover tolls, fuel, and salaries. Carriers (especially owner-drivers and small/mid-sized fleets) will continue relying on factoring companies and/or favoring customers that provide better payment terms. 
• Safe and reasonable loading/unloading conditions: Retaining drivers is top of mind for most carriers. It hinges on multiple factors, including the treatment and conditions that drivers experience at the facilities they load/unload on. Implementing robust processes that include scheduled operations and improving loading/unloading efficiency is essential. This approach reduces idle times for drivers/carriers, significantly contributing to preference, job satisfaction, and performance.

Evening the playing field

Nuvocargo sits in the intersection of shippers and carriers, building technology, teams, and processes to streamline their operations and find efficiencies to improve their experience.

• Matching Preferences:  Based on the data generated at the service level, including timeliness, transit times, incidents, and qualitative feedback from carriers and shippers, Nuvocargo can identify and pair operations that are suitable matches. This, in turn, drives consistency in the experience and service for the benefit of both shippers and carriers.
• Data-backed Efficiencies: Powered by NuvoOS, Nuvocargo shares granular and actionable data with shippers and carriers, creating tighter feedback loops and providing opportunities to make smarter decisions. 
• Standardization through Research: We have established that each shipper and carrier tends to have their own processes for cross-border shipments, which escalates complexity for the marketplace. We create products based on extensive research to standardize SOPs for any type of customer. 

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“One of the main challenges in logistics is ensuring that each party has complete and correct information whenever needed. Technology allows us to consolidate the relevant data points for all parties; this not only helps us improve coordination between all incumbents and reduce idle times, but it also opens the way for data insights and task automation, which drives efficiencies that allow for faster transit times at a lower cost, translated into competitive rates for our customers.” - Luis Garcia, Head of Marketplace at Nuvocargo. 

Looking into the future, we expect the trade imbalance between both countries to tighten further with the arrival of nearshoring. Supply chain resiliency will be the name of the game as these projects ramp up, seeing a much higher spike in two to three years. Still, companies can build more resilient and less risky supply chains through warehousing, trusted partners, and dedicated freight strategies when dealing with US-MX freight.

Luis Garcia expects that,  to cope with the increasing traffic strain at the border, all parties involved - shippers, carriers, customs brokers, and authorities, among others - to further adopt the digitalization of information and communication to help the ecosystem handle growing market needs more efficiently. Finally, the trade imbalance is expected to deepen, increasing the spread between northbound and southbound shipments. Shippers offering smooth loading/unloading experiences and shipments in both directions will have an edge on their ability to procure. At the same time, carriers will actively seek southbound demand to improve their asset utilization.