Peak Season in Mexico: Is It Time to Rethink Your Shipping Strategies?
By Troy Ryley, Managing Director for Mexico, Transplace
Last year, the imbalance in trade between the U.S. and Mexico left shippers scrambling to find truck and rail capacity as carriers were forced to reposition empty equipment in order to meet the demand – resulting in the worst capacity shortage the market had experienced in a decade. And already in 2015, the normal pools for equipment that accrue in Mexico during the off season have yet to appear, so capacity remains tight for a number of key reasons. Additionally, there has been a devaluation of the Mexican peso in the last few months due in large part to the drop in the price of oil, which is increasing the effects of these issues even more.
Mexico will import less cargo due to it being higher in cost, and it will export more as Mexico products are even cheaper for U.S. consumers. This has not only made for a challenging off-season, but is also an indicator of more troubles to come. Now that produce peak season has begun, the capacity shortage will be further intensified – the increase in produce shipments will command available capacity and create challenges for shippers, as much of the equipment will be refocused on perishable and time-sensitive agricultural products. Combined with the seasonal slowdown in southbound movements into Mexico, this will create serious capacity concerns.
Is it Time to Rethink Your Northbound Shipping Strategy?
Unfortunately, this year’s peak season capacity shortage is projected to be worse than pre-recession time periods. In key markets such as Monterrey, Guadalajara and the Bajío Region, there will be approximately only one trailer moving south for every 3-4 northbound trailers required.
Many companies have already tried a couple of different ways to try and combat this issue, including:
- Giving carriers an extra 2-3 days’ notice on their transportation equipment needs. However, while giving advanced notice will help, it does not solve the issue of a lack of capacity for all shippers in the Mexican market.
- Transloading goods to the U.S.-Mexico border. This has alleviated some capacity challenges, but moving freight to the border on a transload shouldn’t be viewed as a fix-all solution. While it does give shippers access to more U.S. carriers that don’t currently enter Mexico, it doesn’t eliminate the potential wait time and backups at the border.
In general, shippers need to understand that even with implementing new strategies to adapt to a shortage of capacity, service levels will continue to be affected – both in the pickup of freight and the corresponding issues at the border.
Growing Challenges and a Possible Solution
As the constantly increasing number of exports from Mexico to the U.S. aren’t slowing down, the resulting challenges will not simply disappear. Shippers need to explore new strategies and work with their carrier partners to create a mutually-beneficial shipper-carrier approach to peak season.
One way to compensate for the imbalance of trade during these high demand months is through a peak season surcharge (PSS), similar to those implemented by ocean and air carriers. This pricing strategy enables carriers to operate as the market demands, without the risk of incurring significant loses. By paying a PSS, shippers would enable their carrier partners to relocate some empty equipment in order to meet demand. While this won’t create a guaranteed capacity solution, it can help make hard to come by capacity more readily available.
Additionally, partnering with a third party logistics (3PL) provider can help shippers take a more collaborative approach to implementing a PSS strategy. A 3PL can help pool together companies willing to pay a PSS in order to command greater freight spend in order to secure more capacity, then diversify the empty miles and repositioning of equipment among those participating companies. This would allow them to enter the spot market and pay premiums on an as-needed basis – and not as their only option other than waiting.
Do you think a peak season surcharge in Mexico would be beneficial to your supply chain strategy?