Ten Logistics Points to Follow in the 2H23

2023 started slow and continues to be slow, with surprises like the exchange rate at MX$17 per dollar. How do we expect the second half of 2023 to unfold? In this article, we list 10 important points to follow in this second half of the year:

1. Exchange rate: Closely monitor its behavior. Economic experts in Mexico project an exchange rate floor of MX$16.50 per dollar and a ceiling not exceeding MX$18.00 per dollar. It's time to adjust those budgets worked out at the end of 2022, particularly for dollarized logistics.

2. Expanding Nearshoring: More and more companies are establishing themselves in Mexico, which will generate increased demand for warehouse space, transportation freight, and customs operations. New industrial parks face the challenge of energy and water supply. Freight companies face the challenge of being highly competitive now that the shipper once again controls freight negotiations. The states of Mexico, Monterrey, and Guadalajara are saturated, which has led to the construction of industrial parks throughout Mexico. The most sought-after regions are the Bajio region, led by Queretaro as one of the states with the best economic development strategies, Guanajuato with its tax benefits for business establishment, and San Luis Potosi for its connectivity with Highway 57. In the northern part of the country, Ramos Arizpe in Coahuila, along with Salinas Victoria, is preparing land to accommodate the Tier 1-2-3 automotive industry for supplying commodities to Tesla's new plant.

3. Maritime freight from China to Mexico has returned to pre-pandemic tariff levels: We can now observe Bill of Lading rates ranging from US$1,800 to US$2,200. Prominent Chinese companies are establishing fixed logistics operations at Mexican borders. An example is China International Marine Containers (CIMC), with highly competitive freight rates and the arrival of cutting-edge Asian trailers, challenging the current American and European brands we are accustomed to seeing on Mexican roads. These Chinese trucks can be diesel, gas, electric, or even use hydrogen as the next energy of the future.

4. Mazatlan as an alternative for the automotive industry in the Mexican Pacific: Mazatlan has the highest future projection in the Mexican Pacific, serving as the "lung" that will provide relief to Manzanillo and Lazaro Cardenas, which are saturated, causing delays in automotive deliveries. On average, it takes 10 days to clear customs for a ship in Manzanillo, while in Mazatlan, it only takes two days. The new Chinese brands entering the Mexican market, such as Chan Gan, Chirey, Jetour, and Omoda, have announced that their arrival port in Mexico will be Mazatlan. Heavy automotive cargo, such as passenger buses from Yutong, is arriving, with the final destination being the state of Queretaro. However, it's not all positive regarding new logistics platforms, as there is a significant lack of trailers to move cars. In Mexico, these  used to be called “Madrinas” and the shortage of this equipment is   nationwide. Mazatlan is already receiving general cargo ships with capacities of 2,500-3000 TEUs, as well as exclusive RoRo ships with the aforementioned Chinese brands.

5. Transportation fleets with idle equipment resulting from a lack of operators: On average, according to official transportation institutions, transportation lines are operating at 75% of their capacity nationwide. The shortage of operators is preventing an increase in fleet occupancy. While a large percentage of operators went to work in the United States under the B1 visa category, those who did not "adjust" to the way of working in that country have already returned to Mexico but are now earning  MX$40,000.00 (US$2,333) per month, compared to earning MX$120,000.00-$150,000.00 (US$7,000-US$8,750) per month in the US. CDL operators, who are already American, are returning to the USMCA border regions due to the salary levels in this North American region.

6. We are returning to tariff negotiations where the shipper is once again taking the lead: After three years of the pandemic, it was expected that we would learn to negotiate rates collaboratively and with mutual growth. However, that was not the case. The shipper is once again pushing down rates and extending payment terms. We are returning to the pre-pandemic times of 2019 when we did not have a pandemic in our business continuity plans. While logistics service providers increased their sales and income during the pandemic, now in 2023, there is a widespread feeling of "tariff revenge" for the previous three years.

7. Digital brokers are not fully taking off in Mexico: This new logistics player has not fully integrated into Mexican logistics. Their essence was to facilitate transportation operations for Mexican companies through technology. To date, they continue to work as a third party that subcontracts freight and pays transportation providers promptly, but they remain a third party. We do not doubt that this player will evolve over the next three years and become a great solution for the supply and professionalization of transportation operations in Mexico. Uber Freight will lead the way in the USMCA region. The industry has accepted them, the industry likes them, and digital brokers are the ideal provider for freight buyers. We just have to wait for these platforms to take off for real. They are making progress, but they need to adapt to the way Mexican logistics work, including loading and unloading times, transit times, returns, empty freight, and other transportation functions that influence the operation on Mexican roads.

8. Mandatory rail and intermodal for nearshoring: The big news of 2023 is the acquisition of Canadian Pacific by Kansas City Southern, becoming CPKC, the first pure railroad in the USMCA region. In previous points, we saw the importance of trucking, but if we want to minimize transportation impacts, we must embrace rail transport and use intermodal schemes, even though we don't have railway lines. USMCA intermodalism is a key player in achieving logistics chains that can support regional product delivery.

9. Forecasts and budgets for the year-end. Purchasing levels of materials, production levels, transportation procurement, sales levels, and profitability: It's time to sit down and review them again. 2023, without a pandemic, started slowly, and we have yet to experience peak seasons. However, we must create optimistic and pessimistic scenarios for the year-end and review our Business Continuity Plans.

10. Presidential succession: In 2023, we will start hearing from the candidates to be Mexico's next president. We don't want to get into controversies, but everything indicates that the current political party will remain in power for the next six years. Logistically, it is important to closely follow this issue because historically, during presidential election years, the logistics sector  hesitates to make important decisions about future logistics movements and investments until it understands the direction of the country and the USMCA region..

Let's follow these 10 points, let's review our 2023 objectives, let's seek advice from logistics experts, and let's not forget that our logistics chains are perfect gears guided by a high level of customer service, optimal inventory levels, accurate forecasts, and excellent logistics cost management.

Carlos Canseco is the Director of the Logistics Innovation Cluster of the State of Queretaro and the Founder and CEO of Logistics and Transportation Professionals (PELT).