Carriers that chose to ride out Mexico's economic woes understand the old Chinese proverb, "Perseverance furthers."You often hear admiring words about "nimble" businesses that are able to move on market opportunities quickly, jumping into profitable ones as they take off and slipping out of others just as they start to tumble. But some fleets are finding out that being a little less nimble and displaying a little more perseverance also has its rewards.
Right after the three North American partners signed NAFTA, the Mexican appetite for imports looked like it was going to outpace even the most optimistic forecasts from supporters of free trade. Many U.S. carriers moved quickly to capture some of that southbound freight, usually through partnerships with Mexican carriers.
And then the Mexican spending spree stopped dead in its tracks with a drastic devaluation of the peso in late 1994. Southbound traffic dried up overnight, and northbound cargo was limited to contract moves from the crossborder "maquilladora" plants. Worse, Mexican fleets in the fledgling NAFTA partnerships faced huge operating cost increases just as international and even domestic freight evaporated.
Things looked grim for the Mexican economy -- the country's gross domestic product started shrinking rapidly, unemployment rose just as quickly, and inflation seemed certain to head into the high double, if not triple digits. A nimble strategy would have dictated pulling out of that market as quickly as possible.
But a number of U.S. carriers decided to hang in there with their new Mexican partners. Some, like CFI and MS Carriers, had dedicated major portions of their fleet to Mexican traffic lanes, and others, like Evergreen Transport, had more modest NAFTA operations. Despite the gloomy outlook, these fleets continued services started in the good times, supporting both their international customers and new partners.
Well, the news from Mexico has taken a decided turn for the better. After contracting sharply in 1995 and early 1996, the economy has posted four consecutive quarters of GDP growth. Slow wage growth, lingering inflation, and high unemployment continue to rein in optimism over Mexico's future economic health, but the collapse so many worried about never materialized, and a slow, steady recovery seems well under way.
Trucking is sharing in that recovery. The head of one major Mexican fleet says that not only has international freight volume begun to grow steadily, but that the traffic is well balanced between north and southbound moves, rates are stable in both directions, and carrier competition has moved from price to service. Domestic rates are actually beginning to rise, he reports, and there is a rapidly expanding market among manufacturers and retailers for third-party logistics services. Bearing out the fleet executive's optimistic appraisal, some Mexican truck builders have increased sales projections for 1997 by 50% since the beginning of the year.
And the news is equally upbeat from U.S. carriers that stuck with their NAFTA strategies and partners. Whether from caution prompted by recent history or a desire to downplay a good thing when competitors are listening, fleet executives in this country are tempering their public comments about the revival of crossborder freight. Yet the smiles behind the words are clearly evident. Not only have those freight levels started growing again, but according to the head of one major U.S. truckload carrier, right now there's more profit in that traffic than in domestic freight.
More profitable freight is sure to draw those nimble carriers back to the border, but I wonder how Mexican carriers are going to react to such flexible business strategies. U.S. fleets that have shown a willingness to endure bad times are certain to be much more attractive partners for the Mexican trucking industry as it moves quickly to modernize both its equipment and its operations. This is one market that may go to those with strong convictions rather than agile moves.