Redwood MX Update: July, 2024

This Month: A Weak Mexican Peso Is Good News for US Exporters

Welcome to the July edition of our monthly blog, the Mexico Market Update! Published at the beginning of every month, this report looks back at the previous month to identify key trends in Mexico, transportation news and challenges, and new investors in Mexican markets.   

As we transition into August, Mexican fuel prices average MXN $96.11 per gallon, or USD $5.09 per gallon. This is significantly higher than the national average price of diesel in the US, which is USD $3.77 per gallon as we write this. In the face of high fuel costs, it’s more important than ever to optimize routes, consolidate loads and pursue other mileage-reduction strategies. With more than 150 experts, the Redwood Mexico team helps customers achieve these types of efficiencies every day.  

The MXN/USD foreign exchange rate averaged $18.07 for all of July, growing to $18.78 on August 1, its lowest level since March 2023 and heading towards $20.00 for the first time since October of 2022. The 16-month low is driven by a slowing economy and continuing political uncertainty that continues to weaken the Mexican peso. This exchange rate positions US-based Mexican exporters for increased competitiveness and profit margins. Since freight rates are typically negotiated in US dollars, it’s a positive development for Mexican truckers as well.   

In less positive news, security continues to be a concern for companies doing business in Mexico. Cargo theft increased 36% from July 2023 to July 2024, and that trend is expected to continue. The day's most prone to theft are Thursdays and Tuesdays, when theft has grown by 28% and 24%, respectively. About 57% of burglaries occur during the night. The Mexican states with the highest theft rates are Puebla, EdoMex and Queretaro — where 38% of stolen cargo is groceries. Ensuring the security of cargo and drivers is of utmost importance to Redwood Mexico. We collaborate with customers daily to understand and minimize their risk levels. 

Transportation News and Challenges 

Bill of Lading CCP 3.1 Takes Effect  

On July 17, Mexico’s Tax Administration Service (SAT) implemented version 3.1 of the Complemento Carta Porte (CCP), usually shortened to Carta Porte — essentially a Bill of Lading for shippers. The new version of the Bill of Lading (or CCP) was adopted seamlessly by Redwood Mexico customers. Some relevant changes: The customs regime attribute has been eliminated, and HTS (harmonized tariff schedule) became optional. No major issues have been reported by transportation lobbyists, shippers or carriers following this change in requirements. Reach out to Redwood Mexico to understand any implications for your business.  

US Imposes Tariffs on Steel and Aluminum from Mexico 

On July 11, Lael Brainard, US National Economic Council Director, announced that new tariffs will be imposed on steel and aluminum shipped from Mexico. This represents an effort to strengthen US-Mexico trade and minimize China’s efforts to ship finished products to the US through Mexico. The new tariffs are an agreement with Mexico that falls under Section 232 of the Trade Expansion Act, which applies to imports that could threaten national security. A 25% ad valorem tariff will be imposed on steel that is not melted or poured in Mexico, and a 10% tariff will be applied to aluminum. 

Autos Shipped from Mexico Drive an Import Trade Surge 

Imports of autos from Mexico to the US helped cross-border trade surge to USD $73 billion in May. Boosted by shipments of cars — as well as computers, auto parts and commercial vehicles — into the United States, Mexico was America’s top trade partner again in May.  

Land Freight Costs Within Mexico Are Rising 

Moving goods within Mexico has become 10% to 20% more expensive in the first half of the year, compared to land freight charges at the end of 2023. Oscar Ceballos of the National Chamber of Freight Transport (CANACAR) reports that rising fuel costs are putting a lot of pressure on freight prices. 

Investment Trends 

Foreign investments in Mexico continue to grow quickly. In fact, the Mexico Economics Secretariat (SE) highlighted record figures of foreign direct investment in the first quarter of 2024, representing growth of 50% over the same period last year. According to MexicoNow, following are some key recent investments.  

Chinese electronic products manufacturer USI plans to invest USD $82 million to build a new plant in Jalisco. Siemens, a German technology leader, will invest $53.2 million for a new facility in Queretaro. Germany’s SAF-Holland will invest $33 million in Coahuila for a new plant where it will manufacture automotive chassis. In Sonora, ASK Industries of Italy is dedicating $33 million to a new facility producing audio components. And Japanese machinery manufacturer Nidec will invest $23 million in an expansion of its operations in Reynosa. 

Why are so many companies investing in cross-border supply chains? And should your company be next?  

Learn more about Redwood’s cross-border and international capabilities that can help you capitalize on growth opportunities. Or contact us to discuss your company’s unique situation.