Borderlands: Stronger Mexican peso could pose challenges for US-Mexico trucking

August 6, 2023

Borderlands is a weekly rundown of developments in the world of United States-Mexico cross-border trucking and trade. This week: A stronger Mexican peso could pose challenges for U.S.-Mexico trucking; Tesla seeks $100 million to build Semi truck charging stations; OmniTRAX taps a former Amazon exec to lead its Texas railroad; and cargo truck processing returns to a Texas border crossing.

Stronger Mexican peso could pose challenges for US-Mexico trucking

Mexico’s nearshoring wave has helped the manufacturing industry boom across the country, but a strengthening peso and tightening trucking capacity could create challenges for cross-border trade with the U.S., experts said.

Matt Silver, vice president of cross-border solutions at Arrive Logistics, said the peso’s appreciation against the dollar could impact U.S. shippers and carriers running cross-border freight working with trucking companies in Mexico.

“The biggest impact that we’re seeing from the peso’s change is on purchasing transportation,” Silver told FreightWaves. “With carriers in Mexico, they do business in pesos, they pay their expenses in pesos, their employees are paid in pesos. But if the trucking company is moving cross-border shipments, there’s a very good chance that they’re getting paid in U.S. dollars.”

Although the peso’s value has depreciated slightly in recent days to about $17.33 per dollar, Mexico’s currency has been on an eight-month resurgence. Around July 28, it reached its highest value against the dollar since late 2015 when it sat at $16.63 per dollar.

The peso’s rally has been supported by the rise of nearshoring — when a manufacturer moves its production operations closer to the product’s end market, along with investors that have been lured into Mexican assets by higher-yielding interest rates from the country’s central bank.

Silver and Arrive Logistics research analyst Aryan Shah recently wrote a blog post about the potential impact the rising peso could have on cross-border freight rates and U.S.-Mexico trade.

Austin, Texas-based Arrive Logistics is a multimodal transportation and technology company providing solutions for both shippers and carriers. The company has offices in Columbus, Ohio, Tampa, Florida, and San Antonio, as well as Guadalajara, Mexico.

“If a Mexican carrier is getting paid 1,000 U.S. dollars a year ago for a shipment, that might have been worth 20,000 pesos to them,” Silver said. “Today, that shipment might only be worth 17,000 pesos. So they’re getting shorted, about 3,000 pesos, roughly.”

Like any business, Mexican trucking companies have monthly fixed costs, which could be anything from lease payments on equipment to insurance payments.

“The carriers’ response ultimately will be: ‘As long as I’ve got my fixed cost, I’m not going to just eat that change in value of the peso,’” Silver said. “So carriers are going to start asking for rate increases from shippers.”

Silver said shipments from factories and suppliers from central and southern Mexico to the U.S. could be the most affected by rate increases caused by the peso’s appreciation against the dollar.

“The further south, the longer miles, the longer cost, the bigger impact you’ll see from that impact on the exchange rate,” Silver said. “Something shipping out of Monterrey, Mexico, has a short transit, less fuel costs, the cost is lower to operate, you just don’t feel the impact as much as you do from southern Mexico, and there’s a lot more that’s getting produced in southern Mexico right now.”

The U.S. imports everything from fresh produce, home appliances, computers, electronic components, medical equipment, furniture, auto parts, vehicles and more from Mexico.

The United States’ land borders with Mexico and Canada include some of the busiest and economically vital supply chains in North American supply chains. Southern border ports of entry such as El Paso, Pharr and Laredo, Texas, as well as Otay Mesa, California, handle billions in daily cross-border trade.

Jorge Canavati, principal at J. Canavati & Co. LLC, said when the peso rises too high in value against the dollar, it makes exports from Mexico to the U.S. more expensive.

“The peso has to find a balance. It is overvalued right now, and this is causing exports to become very expensive,” Canavati said. “Exports are losing competitiveness.”

J. Canavati & Co. is a San Antonio-based company that provides international logistics and trade consulting. Canavati said he believes the peso will eventually find a steady balance again against the dollar, once the U.S. finds its own economic footing.

“I think it’s going to balance out, but the peso could maybe go lower against the dollar at one point by year’s end,” Canavati said. “Once things also balance out in the United States with the interest rates, hopefully we’ll see more balance with the peso.”

Tesla seeks $100M to build Semi truck charging stations

Austin, Texas-based Tesla is reportedly seeking almost $100 million in funding from the federal government to build nine charging stations for its all electric Class 8 Semi truck, according to Bloomberg.

The charging stations would stretch along an 1,800-mile corridor along the U.S.-Mexico border, from Laredo to the electric automaker’s factory in Fremont, California.

The plans were discussed in emails from Tesla executives to the Texas Department of Transportation between May and early June, Bloomberg said.

Tesla is seeking almost $100 million in federal funding to build nine charging stations from Texas to California for its all electric Class 8 Semi truck. (Photo: Tesla)

Tesla reportedly told Texas officials that the project could qualify for federal grants being distributed under the Bipartisan Infrastructure Law and requested Texas officials to include the charging stations in the state’s funding application, which was submitted last month.

Tesla proposed that each station be equipped with eight 750-kilowatt chargers for Tesla Semi trucks and four chargers for Class 8 trucks made by its competitors.

The charging corridor would help Tesla connect its U.S. automotive plants with the $5 billion factory it’s building near Monterrey, about 150 miles from the U.S.-Mexico border. The factory is scheduled to open in 2025.

OmniTRAX taps former Amazon exec to lead Texas railroad

OmniTRAX Inc. has named former Amazon global supply chain executive Shariff Gonnella president of the Brownsville & Rio Grande International Railway LLC (BRG).

BRG provides rail transportation to facilities located within the 40,000-acre Brownsville Navigation District at the Port of Brownsville in Texas. It includes cross-border rail interchanges that connect to the Union Pacific and CPKC railroads and serves as a strategic import and export artery between the U.S. and Mexico.

“Texas has continued to shoulder record-breaking freight volumes — stretching shipping infrastructure capacity to its limits — and Brownsville offers global shippers the much-needed optionality and efficiency to reach worldwide markets,” Sergio Sabatini, OmniTRAX’s president and COO, said in a news release. “Shariff’s experience creating international infrastructure capacity and his vision to transform the BRG into a dynamic, global freight gateway are the ideal skills to help us meet the ongoing demands of nearshoring and international trade.”

Denver-based OmniTRAX is a transportation and transportation infrastructure holding company. It primarily owns or operates railroads, with a network of 25 regional and short-line railroads in 12 U.S. states and three Canadian provinces.

Cargo truck processing returns to Texas border crossing

U.S. Customs and Border Protection announced commercial cargo processing is slated to return on Monday at the Marcelino Serna port of entry in Tornillo, Texas.

Trade officials anticipate about 300 trucks a week will use the port once service resumes.

The cargo facility at the port of entry originally opened in March 2016, but trade operations were suspended a year later because of limited traffic, according to a news release.

The decision to resume commercial cargo operations was made following the June 2023 completion of the nearby Samalayuca toll road in Mexico. Tornillo is located about 40 miles south of El Paso.

The Samalayuca toll road/highway serves as a route for cars and trucks traveling from northern Chihuahua state to the border crossing at the Marcelino Serna port of entry. Upon completion of the toll road, trade officials requested CBP to resume commercial traffic through the port.

“CBP stands ready to meet the growing needs of international trade in our region,” acting CBP Director of Field Operations Ray Provencio said in a statement.