Higher truck costs could crunch Mexican capacity

The Mexican peso has been swiftly losing ground against the U.S. dollar since the start of the year. That, in turn, is forcing many small and mid-sized carriers in Mexico who can’t afford more expensive equipment, to close shop, trucking executives told attendees at the JOC Inland Distribution Conference in Memphis, Tennessee, earlier this month.

“The exchange rate for pesos to dollars has increased 22 percent,” said Miguel Gomez, CEO of Fletes Mexico Carga Express. “Right now, you want to buy a brand new truck, it’s 22 percent more expensive in Mexico.”

And Gomez’s estimation is an understatement. The value of the dollar in the last year has increased about 27.33 percent against the peso, according to the United States Federal Reserve Bank. The peso-dollar exchange rate hovers around 16 pesos to one dollar. That’s roughly a 26 percent year-over-year increase.

As of Wednesday, the Mexican peso had fallen to a one-week low against the U.S. dollar.

The factors behind Mexico’s potential capacity crunch stand in marked contrast to those north of the border, said Shawn Boyd, executive vice president of marketing and sales for the Americas at DHL Global Forwarding.

In the U.S., larger truckload carriers began expanding their fleets in the second quarter of 2014. That pushed the JOC Truckload Capacity Index up 7.4 percentage points year-over-year in the second quarter to 89.1, the highest index reading since 2008.

Driver shortages in the U.S. trucking industry, however, are a well-documented and growing concern. According to the ATA,  the number of drivers now needed but not available will rise to 47,500 by the end of this year. While driver capacity at the moment in the U.S. remains adequate, that hasn’t erased fears of a growing shortage of qualified drivers.

In Mexico, Boyd said, “there are drivers.” Mexican drivers do not face the same stringent regulations as their counterparts in the U.S. "Even when they do," said Gomez, "corruption and relaxed government oversight allow firms to keep drivers on the road." Furthermore, “In Mexico, we do not keep (log) books for drivers,” Gomez said.

"It’s not a matter of driver capacity in Mexico," said Boyd. “The capacity is not with the drivers, the capacity is with the trucks.”

The exchange rate could be a game-changer for shippers who have become accustomed to the relative calm in Mexican capacity.

“A lot of the small to mid-sized carriers are going out of business in Mexico,” Gomez said. In a market dominated by owner-operators, that means a majority of the market is at risk if carriers can no longer afford equipment.

Gomez’s firm is the fifth-largest carrier in Mexico, but in Mexico even the fifth-largest carrier only accounts for several hundred trucks. “You compare that with the Swifts, the J.B. Hunts, the Schneiders, you’re nothing,” he said.

The potential capacity crunch in Mexico is not a matter of trade imbalances or tightening federal restrictions. “It’s a matter of financials,” said Gomez.