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By Carlos Canseco - Querétaro Innovation & Logistics Cluster
A Look at the USMCA Region and Transportation Logistics in 2022
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In January 2022, and amid the rise of the omicron COVID variant, we completed 22 months of reinventing our value chains. Among the most important areas in the logistics chain is transportation. According to logistics experts, right now, we are in a carriers’ market, not a shippers’ market. Furthermore, we are in the era of the driver market.
Amid the ongoing challenges the sector faces, here are 10 important points related transportation management in the country:
- Continuous and strict transportation regulation. We have three main transportation laws in Mexico: Weight (NOM 012), Mechanical Conditions (NOM 068) and Hours of Service (NOM 087). Every year they are strengthened and aligned with global regulations on transportation. In March 2022, a new local law will come into effect, Carta Porte (Bill of Lading), that looks to strengthen freight regulation across the country. The main objective is for shippers and carriers to collaborate in the physical distribution of goods, legally and efficiently.
- Lack of drivers in domestic and cross-border logistics. The USMCA region doesn’t have enough drivers. The salary difference between a Mexican and an American driver is abysmal. In Mexico, a driver’s average salary per month is about US$1,500. In the US, it’s US$1,500 per week. Still, the US doesn’t have enough drivers, which is why Mexican drivers are running to the US to become B1 drivers.
- Shippers are looking for carriers with more capacity (size). In Mexico, it is common to use a full configuration (one trailer with two dry vans, or tandem in the US). This type of transportation provides a better logistics cost per piece. The 53-foot configuration is the most used in Mexico but “fulles” help in terms of supplying transportation equipment to industry.
- Small-sized equipment for last-mile delivery As e-commerce demonstrates impressive growth, we need to deliver the e-purchases.
- Nearshoring. Nearshoring accelerated partly as a result of incredibly high Asian sea freight rates. Before COVID, Asian sea freight to Mexican ports was about US$2,800. In 2021, the rate reached an average US$11,000. In 2022, the rate is expected to fall, but not by a lot. We may have reasonable rates in 2023, but not in 2022.
- Empty FTL (full truckload) return freights are still charged to the shippers. What is the difference with previous years? In 2021 and 2022, the charges are based on full price, not cost. If shippers want to deliver products in insecure regions — Villahermosa, Merida, Sonora, Chihuahua, Tijuana — they have to pay both sides of the trip.
- Crossborder logistics. For as long as I can remember, for one import from the US we need four exports. It is a one-to-four ratio. Since COVID, this statistic has changed to one to eight, and it is increasing. There is not enough capacity to send products from Mexico to the US. There is a USMCA capacity crisis.
- Automotive FTL–LTL (less than truckload) rates are winning the price competition. The sector is paying 25%-30% above the market, which it usually does because of the perfection of their value chain. Right now, however, it is a competition they are winning against the consumer, retail, chemistry and textile industries. The carrier is going to give its trailers to the best rates in the market.
- Shippers of Choice. This is a very common grade for shippers in the US. In Mexico, it is called PËXO: El embarcador de tu elección and mainly is a ranking from the best to the worst shipper, graded by the transportation companies. What is the result? The best shipper gets the equipment. What does PËXO measure? Rates, loading-unloading procedures, constant freight volumes, payments, type of contract and penalty charges, among others.
- The previous nine points all influence rates. These points must be included in 2022 freight negotiations. FTL increases will hit double digits, meaning at least a 10 percent. Will the industry pay these prices to guarantee their clients’ deliveries? They have to. At least we think so. In logistics, there is one key premise: Nothing is more expensive than not delivering the product to your client.
Photo by: Carlos Canseco