Borderlands is a weekly rundown of developments in the world of United States-Mexico cross-border trucking and trade. This week: Trucking sector wrestling with fragile freight rates and loose capacity; XPO Logistics to lay off 243 employees; Mexico’s auto manufacturers restarts factories; World Trade Bridge officers intercept narcotics worth almost $1 million.
Trucking sector wrestling with fragile freight rates and loose capacity
As the economy reopens and most states relax coronavirus shutdown orders, freight volumes and rates are rising – but don’t expect the trucking industry to recover until 2021, said Patrick Donnelly, senior analyst at Third Bridge.
Donnelly said the coronavirus’ effect on the global economy could squeeze smaller trucking companies and independent owner-operators out of the sector in coming months.
“Many experts forecast that many of these smaller, independent owner-operators would fall out of the market in the back half of the year. I think that could quite possibly be accelerated,” Donnelly said.
Donnelly said the disruption of so many different domestic and global supply chains is the reason many smaller trucking operators are at risk.
“According to the former executives and industry experts we’re speaking to in the trucking and haulage world, a grossly disrupted supply chain is likely to combine with a prolonged period of reduced consumer demand to send many smaller operators out of business,” Donnelly said.
Donnelly added that freight rates are already down significantly with many trucking businesses now accepting rates below what was considered rock bottom a year ago.
“They suggest that if this trend continues, smaller operators may find it uneconomical to continue doing business,” Donnelly said. “It would likely lead to extremely tight trucking capacity in years to come when the economy has fully recovered.”
Zach Strickland, a FreightWaves market expert and market analyst, recently said it’s too soon to tell if the transportation industry and overall economy recovers over the next several months.
“The fact of the matter is that no one really knows, but keeping track of multiple data points measuring different segments of the global supply chain will enable us to quickly react to all the expected or unexpected realities of the post COVID-19 outbreak world,” Strickland recently wrote.
Outbound Tender Volume Index (OTVI), which tracks truckload volumes moving domestically in the U.S., hit 9,900 on May 15. Then OTVI dropped to 8,900 by May 21, before rising again to 9,500 over the last 10 days.
Strickland said the biggest challenges to a trucking/economic recovery include the U.S. unemployment rate and consumer spending, which affects freight volumes.
“Many companies, especially in the transportation sector, came out and reported slashing their capital expenditure budgets throughout 2020. This will certainly drag transportation volumes down. Original equipment manufacturers (OEMs) are expected to see a significant drop in orders year-over-year, but may temporarily spike truckload volumes upon resuming operations,” Strickland said.
Donnelly doesn’t think any major publicly traded transportation companies will go out of business, but they will have to adjust their strategy for the near future.
“The demand is certainly there on the grocery side. However at the other end, industrial freight, the manufacturing sector, even retailers, that’s where I think you’re going to be seeing the declines in haulage here over the next couple of months,” Donnelly said.
Large shippers like Walmart, Dollar General and Home Depot will be where carriers find the most consistent freight volumes over the rest of the year, according to Donnelly.
“Bigger carriers, because of the declines that they’re going to see in certain end markets, will be more than willing and lining up to take volumes and really solidify or build relationships with those bigger shippers, those bigger retailers,” Donnelly said.
XPO Logistics to close facility near DFW Airport, employees could be rehired
XPO Logistics announced it will end operations at a distribution center in Dallas, resulting in the layoffs of 243 employees, according to a WARN (Worker Adjustment and Retraining Notification) notice with the Texas Workforce Commission (TWC).
The layoffs are expected to occur during a 14-day period beginning July 17 at the XPO facility located at 2801 Market Street, near the Dallas-Fort Worth Airport.
“Our customer recently informed us that it is making a business model change to its operations, which will result in the customer transitioning to a different service provider and therefore terminating its contract with XPO,” wrote Richard Valitutto, XPO’s senior vice president and general counsel, in a WARN letter to the TWC.
XPO did not identify its customer in its WARN letter, but Romark Logistics is listed as the business operating at 2801 Market Street.
Valitutto said its “customer will be continuing operations at 2801 Market Street. It is our further understanding that our customer may offer continued employment to our current employees.”
“In the event that our customer is unable to hire any or all of our 243 affected employees, we will work to place many of these displaced employees at other XPO operations in the Dallas area,” Valitutto said.
Mexico’s auto manufacturers restarts factories, but a few are still waiting
The Mexican automotive manufacturing industry began slowly resuming on May 21, with General Motors restarting two factories in the cities of Ramos Arizpe and Silao.
Fiat Chrysler Automobiles and BMW restarted their plants in Mexico on May 27, after government-approved safety measures were put in place. Mexican officials had said the automotive manufacturers could resume operations on or before June 1 if coronavirus safety protocols were undertaken.
Last week, Toyota Motor Corp. and Nissan Motor Co. also said that they were preparing to gradually resume operations in Mexico. Honda Motor Co. hasn’t said yet when its plant in Celaya, Mexico, will reopen, but said it was preparing to restart the plant.
Nearly all automakers shut down their factories in the U.S. and Mexico in March amid efforts to slow the spread of the coronavirus.
Ford has not restarted its plant in Hermosillo, Mexico, and said on Tuesday it was working with the Mexican government to comply with health protocols.
“We’re hoping we can get its approval to operate,” Ford company officials said in a statement.
World Trade Bridge officers intercept narcotics worth almost $1 million
U.S. Customs and Border Protection (CBP) officers intercepted $1 million worth of heroin and marijuana during two separate incidents at the World Trade Bridge in Laredo, Texas.
The first incident occurred on May 21, when a CBP officer examined an empty box truck entering from Mexico. Following a canine and X-ray imaging examination, CBP officers discovered a total of 10 packages containing 9 pounds of alleged heroin concealed within the truck.
The second seizure occurred on May 27, when CBP officers stopped an empty refrigerated truck making entry from Mexico. Following a search, officers discovered a total of 217 packages containing 2,242 pounds of alleged marijuana.
CBP seized the narcotics and arrested the drivers. The cases were turned over to the Department of Homeland Security.