Shippers can’t resist the lure of China-Mexico trade

Cheaper alternative: A container ship sits docked at the Port of Oakland in California. There are concerns that escalating US tariffs on Chinese-made goods are forcing imports to go via Mexico. — AFP

MEXICO’s replacement of China as the largest exporter to the United States is having a ripple effect through global supply chains and logistics.

Shipping companies are the latest to join the fray, spurred by increased demand and booming activity at Mexican ports.

At least three carriers this month added to the already burgeoning trans-Pacific sea lanes that deliver machinery, auto parts and electronics to the Latin American nation.

On May 6, Orient Overseas Container Line Ltd launched a new route that includes an express leg from eastern China’s Qingdao to Ensenada on northern Mexico’s Pacific coast.

The journey then moves on to Manzanillo in the country’s southwest, Mexico’s largest port by container movements.

Two further routes were inaugurated last week by Marseille-based CMA CGM and Switzerland’s MSC Mediterranean Shipping Co. Both fixtures connect China to Mexico’s busy Pacific ports.

There are concerns that escalating US tariffs on Chinese-made goods – including doubling rates on semiconductors and a jump to 102.5% on electric vehicles – are forcing imports to go via Mexico merely as a way to relabel their origin.

Under this scenario, little value is added to products before they’re shipped north as “Made in Mexico.”

Ocean-freight transport between the two nations jumped in 2022, according to the United Nations’ Comtrade Database, as manufacturers shifted more final production to the United States’s southern neighbour amid rising tensions between Washington and Beijing.

Yet that figure, measured in US dollars, barely budged last year as global trade slowed.

Now that Mexico has overtaken China as the largest source of imports into the United States, and with Washington further raising tariffs on Chinese goods, traffic is on the rebound.

Container movements at Mexican ports posted records for each of January through March this year, according to Mexican government data.

A 20% jump in the first quarter puts the country on track for the highest level in at least a decade.

As a a result, ship operators are rushing new capacity into service between China and Mexico to take advantage of the rising container traffic.

“It is probably the fastest growing trade on planet Earth right now,” Peter Sand, chief analyst at Oslo-based Xeneta which tracks and analyses global sea and air freight, wrote in a March blog post.

The impact of that spike in activity was already starting to show in January, with the Pacific ports of Manzanillo and Lazaro Cardenas both facing bottlenecks, industry publication The Load Star reported.

In April, rates from Asia to Mexico jumped 57% month-on-month to an average US$3,304 per 40-foot container, according to Eternity Group Mexico’s EAX Index, the first time since last May this figure passed US$3,000.

These costs are being exported directly to the United States, with Fitch Ratings estimating that higher shipping prices may add as much as 0.4 percentage points to core inflation this year.

A direct path between Mexican imports from China and non-value-add exports to the United States may have opened up, undermining President Joe Biden’s goal of stemming cheap Chinese imports to the United States.

Washington, for example, has pressured Mexico to give Chinese automakers a cold shoulder after previously offering incentives to set up operations there.

The reason, according to United States officials, is that trade deals with Canada and Mexico weren’t meant to offer a backdoor to China.

But shippers needn’t care. Whether half-finished cars and disassembled PCs are entering Mexico for minimal assembly work, or local factories truly are replacing China as a production hub, manufacturers must still bring tonnes of goods into the country.

Most of this comes from Asia, notably the world’s second-largest economy.

Even if Americans increasingly drive Mexican-made cars, talk on Mexican-made smartphones and sit on Mexican-made furniture, the materials and components will still come from China.

And global shipping companies will be hauling it there by the boat load. — Bloomberg

Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. The views expressed here are the writer’s own.

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