Borderlands: Skyrocketing diesel prices affecting US-Mexico import rates

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Borderlands is a weekly rundown of developments in the world of United States-Mexico cross-border trucking and trade. This week: Skyrocketing diesel prices could affect US-Mexico import rates; South Texas College partners with a carrier to offer CDL training; Logistics Plus opens a 542,000-square-foot warehouse in Arizona; and exports of Mexican tequila soar 32% during the first four months of 2022.

Skyrocketing diesel prices affecting US-Mexico import rates

The price of diesel fuel hit an all-time high in the U.S. on Thursday at $5.55 a gallon, an increase of almost 20 cents from just a week ago and 51 cents more than prices in April.

While carriers and owner-operators across the U.S. are struggling to keep up with the rising prices, the cost of diesel is affecting freight rates as well as trucking capacity in Mexico also.

Rising diesel prices have already caused some of the larger trucking companies in Mexico to increase rates 3% to 5%, according to Maria Teresa Torres, a pricing and procurement manager for Nuvocargo, a New York-based digital logistics platform for cross-border trade between the U.S. and Mexico.

“Diesel is one of the most important components within any land freight rate since it represents approximately 30% of the total price,” Teresa Torres said. “The price increase in fuel represents an expense that carriers have to pay before shipping.”

She said U.S.-Mexico import rates are not as low as they used to be because capacity is tight for cross-border freight.

“Southbound rates are rising and getting closer to export costs,” Teresa Torres said. “We are currently dealing with an important increase in import rates, not only because of the fuel price increase, but mainly due to limited capacity and driver shortage.”

Other factors that affect the increase in freight rates are market-based trading, wait times, delays and stays, which indirectly affect rates as well.

It’s unclear if diesel prices are affecting U.S.-Mexico trade at the moment. The cross-border market of Laredo, Texas, is currently the No. 1 port of entry in the nation for Mexican imports, handling everything from vehicles, automotive parts, and fresh and frozen produce to home goods, machinery and electronics.

FreightWaves’ Outbound Tender Volume Index — which shows what markets are experiencing prolonged volume growth or contraction — shows Laredo volumes falling about 6% since Monday.

*SONAR: Outbound Tender Volume Index – Weekly Change (OTV.LRD). To learn more about FreightWaves SONAR,* *click here*.

In Mexico, about 80% of fleets are small trucking companies or owner-operators. Mexico imports 80% of its fuel from the U.S., but gas and diesel cost less in Mexico because the Mexican government offers the trucking industry subsidies to offset operating expenses.

Last year in Mexico, diesel prices stood at about $4 a gallon. As of Friday, diesel fuel in Mexico cost about $4.31 a gallon.

“Although the increase is not as considerable as in the United States since the Mexican government has subsidized most [diesel fuel], it is still detrimental, as it implies an increase in rates, as well as other operational issues,” Teresa Torres said.

Applying fuel surcharges to freight rates is not a common practice in Mexico yet and could catch cross-border shippers off-guard.

“A decisive factor for customer attraction are lower rates, and how long they can be maintained,” Teresa Torres said. “Although fuel surcharges need to be applied in Mexico, price uncertainty is a major concern for shippers. This is because, due to the fuel price increase, there’s a direct impact on the final price for consumers. Fuel surcharges (instead of fixed rates) help avoid financial losses for parties involved in the supply chain.”

South Texas College partners with carrier to offer CDL training

McAllen, Texas-based South Texas College (STC) announced it is partnering with a cross-border carrier to offer a CDL program.

The program is a partnership between the college and Trancasa, which operates a fleet of 700 trucks, including 450 in Mexico and 250 in the U.S. Trancasa is based in nearby Pharr, Texas.

The curriculum will meet the new entry-level driver training regulations set by the Federal Motor Carrier Safety Administration, officials said.

“We know there is an urgent need for truck drivers, and we are planning a very robust program where students will be able to obtain their CDL … and get them on the road as soon as possible,” South Texas College President Ricardo J. Solis said in a release.

The CDL course will consist of 200 hours of instruction over five weeks: 40 hours of classroom and computer lab instruction as well as 160 hours of observation and driving on a training range and public roads.

The program is scheduled to begin in the fall semester.

Erie, Pennsylvania-based Logistics Plus recently opened a 542,000-square-foot warehouse in Phoenix, aimed at providing supply chain efficiency for West Coast imports and exports.

“A portion of the facility will be filled immediately with clients from our growing solar and technology sectors,” Tom Kelly, who will oversee the warehouse’s operations, said in a release.

The facility is Logistics Plus’ second-largest commercial warehouse. Logistics Plus manages more than 2 million square feet of warehousing space at more than a dozen facilities across the country.

Exports of Mexican tequila soar 32% in first four months of 2022

Mexican producers exported 126 million liters (33 million gallons) of tequila from January through April, an increase of 32.1% compared to the first four months of 2021, according to data from the Jalisco, Mexico-based Tequila Regulatory Council (CRT).

The United States continues to be the top importer of Mexican tequila, accounting for 83% of sales in the first quarter. The U.S. imported 104.9 million liters of tequila, a 27% year-over-year increase compared to the same period in 2021.

Other top importers of Mexican tequila during the first four months of the year include Germany, Spain, Colombia and Latvia.

In the past two years, exports of Mexican tequila have increased nearly 50%, from an annual production of 351.7 million liters in 2019 to 527 million liters in 2021, according to CRT.