The Mexican GDP growth rate for the first quarter of 2024 came in at 0.2% sequential quarter over quarter growth in the first estimate released, 1.6% year over year. Production of vehicles increased 0.6% while the export of vehicles increased 11.3% y/y. The quarter’s growth was stifled a bit due to poor March numbers, but April more than picked up for that, increasing production 21.7% compared to April of 2023. Automotive continues to be a bright spot for Mexico, as it capitalizes on the nearshoring drive. Another bright spot is the strengthening peso relative to the U.S. dollar. The peso strengthened in March to an average of 16.8 pesos per dollar, compared to the prior two-month average of 17.1 pesos per dollar.
Economic activity in Mexico continues to reach record levels that support the expectations placed on nearshoring. Finished vehicle production and automotive exports also keep reaching all-time highs in Mexico; finished vehicle production grew 21.7% in April compared to the same period last year and exports grew in the same month 14.4% with most of that volume 90% approximately heading to the U.S. In general, the total value of Mexican exports to the U.S. reached record levels in Q1 of 2024, reaching almost 120 billion dollars. The Mexican GDP growth rate for the first quarter of 2024 came in at 0.2% sequential quarter over quarter growth in the first estimate released, 1.6% year over year. Production of vehicles increased 0.6% while the export of vehicles increased 11.3% y/y. The quarter’s growth was stifled a bit due to poor March numbers, but April more than picked up for that, increasing production 21.7% compared to April of 2023.
Automotive manufacturing has expanded to 10 states and continues to be a bright spot for Mexico, as it capitalizes on the nearshoring drive. 90% of Mexican automotive exports are shipped to the North American market so the fate of this industry has a heavy impact on transportation demand across the continent. The strengthening of the peso relative to the U.S. dollar is another factor influencing economic activity. When the peso strengthens, Mexican exports lose competitiveness, but Mexican imports become attractive. The peso strengthened in March to an average of 16.8 pesos per dollar, compared to the prior two-month average of 17.1 pesos per dollar. Nearshoring will continue to have a large impact on the Mexican economy. As of 2023, Mexico broke into the top 10 exporting countries worldwide, ranking ninth.
It is important to keep in mind that this growth doesn’t come without challenges. For example, the Texas Department of Public Safety recently performed enhanced safety inspections on all commercial operating vehicles (COVs) departing from the Ysleta port of entry commercial cargo facility at El Paso, Texas. These inspections had a significant impact on wait times and the flow of COVs entering the U.S. As northbound volumes increase, bottlenecks like this would lead to even longer wait times. It is important that your cross-border transportation strategy is flexible enough to manage disruptions of any kind, work with a provider that can offer flexible options that allow you to respond and pivot fast when this kind of disruption happens.
2023 truckload capacity stats for Mexico are out. The total number of carriers providing service grew 11% and the number of total truckload capacity grew 16%. And in the first quarter of 2024, new license plate grants grew 4% compared to the first quarter of last year. This growth reflects the current and future expectations of expansion from the Mexican economy and the continued and lasting impact from nearshoring.
The Mexican Government has also recently made some changes that impact transportation. They recently announced temporary tariffs of between 5% to 50% to 544 HS codes applied to goods from countries that do not have a trade agreement with Mexico. This measure will apply to products such as steel, aluminum, bamboo, rubber, chemicals, oils, soap, paper, cardboard, ceramic products, glass, electrical material, musical instruments, furniture, and more. This went into effect as of April 23, 2024, and is effective up to two years after its publication. The government has also made some improvements at the border. One of the common disruptors of cross-border trade, Mexican customs processes, recently experienced technological updates. It is estimated that 41 of the 50 customs offices have strengthened their technological capabilities to achieve a steady flow of goods maintaining a high level of supervision for customs authorities. From January to March 2024, 5.3M foreign trade operations were carried out at Mexican customs offices, of which 3.6M were carried out at the country's border customs, registering an increase of 4.8% compared to the same period in 2023. The customs offices of Nuevo Laredo, Tijuana and Ciudad Juárez are the three main border customs offices in the country, together they carried out 59.8% of the total border customs operations.
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Cross-border: U.S.—Canada
Economic Health
The Canada GDP growth rate for the first quarter of 2024 is expected to be around 3.5% sequentially. Inflation for groceries has decreased substantially in the past year, from 11.4% to start 2023 to 2.4% as of this February. While grocery prices remain higher than they were pre-pandemic, cooling inflation off the peak figure is good news for the food and beverage freight industry as it allows for a potential increase in demand. The S&P Global Canada Manufacturing PMI in April was 49.4, which is the 12th consecutive month of contraction (a reading under 50).
Thaw season
Each year, the Canadian government institutes a thaw period that reduces load limits on all public roads during a certain time. This timeframe is dependent on zoning, but the final two zones just recently finished their thaw period as of May 10th and 17th.
Labor negotiations
The workers from the two largest railroad companies, Canadian National Railways (CN) and CPKC (Canadian Pacific Kansas City), have voted to strike, setting the stage for mass disruption. Talks are ongoing to reach an agreement, but if they are unable to do so by May 22nd a strike could go into effect. We expect that many shippers will not want to risk waiting until the 22nd to find out if the strike will happen and will start converting from rail to truckload in the days leading up to the decision to prevent supply chain failure. There are also negotiations ongoing at both the ports of Montreal and British Columbia. All port operations at both of these ports remain fully functional, although until a deal is reached, the possibility of a strike remains. These situations are fluid and to be monitored closely for changes.
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