New Migrant Caravan Triggers Trade Disruptions at the US-Mexico Border

New Migrant Caravan Triggers Trade Disruptions at the US-Mexico Border

Executive Summary

  • The southwest US border is one of the busiest border crossings in the world, with over USD 940 million in trade entering daily from Mexico. Truck drivers moving cargo between the two countries are used to waiting times to cross the border. However, waiting times at the border have soared in recent weeks, reaching in some cases four times the average.
  • As the number of migrants arriving at the border reached historical levels in March 2019, the Trump administration decided to reassign 750 Customs and Border Protection (CBP) officers at specific ports of entry to assist with border patrol duties. President Trump threatened to close the U.S.-Mexico border, stating his belief that Mexico is not taking aggressive enough action to deport Central American migrants who seek to claim asylum at the border.
  • CBP staff redeployment caused slowdowns in inspections for passenger and commercial traffic at key points including El Paso, TX; Nogales, AZ; Hildago, TX; Otay Mesa, CA; Del Rio, TX; Laredo, TX; Eagle Pass, TX; and Progreso, TX. Delays at the border have been exacerbated by manufacturing strikes in border cities as well as the continued growth in commercial trucking traffic.
  • Although President Trump has walked back on his plan to close the southern border, giving Mexico a one-year warning, logistics managers should brace for continued delays and uncertainty at the border, as threats to temporarily or permanently close different entry points along the U.S.-Mexico border remain present with migrants seeking to enter the U.S.

Introduction

2019 has been a very active year for U.S. Customs and Border Protection (CBP) along the U.S.-Mexico border. During the first quarter of 2019, CBP has apprehended 60 groups of 100 or more migrants, compared with 13 during the entire period of 2018 and just two large groups caught in 2017. Moreover, migration from Central American countries to the U.S. historically increases during the spring months as the weather gets warmer, but this year, a record number of migrant families have already overwhelmed officials and facilities on both the U.S. and Mexican sides. 

President Trump has referred to the increased number of Central American migrants seeking asylum in the U.S. as an “invasion” and has continued to threaten to close the entire 1,954-mile border with Mexico, if its southern neighbor does not act to stop the migrant caravan. The mere fact that this idea is being contemplated is already affecting commercial traffic between the two countries, with increased truck wait times at the busiest crossings along the U.S.-Mexico border.

Although President Trump has softened his position in recent days, giving Mexico a year to stop the flow of illegal drugs and migrants across the border, lengthy delays are expected to continue for the foreseeable future as CBP personnel is being shifted from cargo inspection and clearance to border security-related jobs. As a result, wait times to cross the border continue to be a problem for commercial traffic and can be as many as 3 hours longer than usual. Moreover, thousands of trucks continue to be stranded at some of the main points of entry along the U.S.-Mexico border, generating multi-million-dollar losses daily for Mexican companies and U.S. importers.

The March 2019 Migrant Caravan

The most recent so-called “migrant caravan” formed sometime between March 23-25, 2019 in El Salvador, Guatemala and Honduras with the intention of making its way through southern Mexico, and head for the U.S. This new caravan quickly gained international notoriety when Mexico’s Interior Secretary Olga Sanchez Cordero stated that Mexico was bracing for the possible arrival of the “mother of all caravans,” which was forming in Honduras and could consist of more than 20,000 people. The government of Honduras quickly rejected the claim, but the Mexican government began setting up federal checkpoints near the Mexico-Guatemala border to prevent the flow of migrants as they travel through the country. As a response to the newly formed caravan, US President Donald Trump directed the State Department on March 29 to halt about USD 500 million (EUR 444 million) in aid to El Salvador, Guatemala and Honduras for failing to prevent migration flows into the U.S.

A few days later, media sources reported that a caravan of about 2,500 Central Americans, Cubans, and Venezuelans was making its way through Mexico’s southern state of Chiapas. This migrant caravan was only about one third the sizes of last year’s caravans, which was made up of 7,000 people at their peak. In contrast to last year though, the new migrant caravan has faced greater hostility from Mexican authorities at both the federal and municipal levels, which has encouraged them to try and reach the U.S. border as quickly as possible. As of this year, Mexico has stopped granting Central American migrants humanitarian visas at the border, and towns along the route to the U.S.-Mexico border no longer allow caravans to spend the night. On March 26, media sources in Mexico reported that police from the state of Chiapas had forced migrants to move along the state’s highways so they could not enter and stay in the cities’ centers. 

Whether the migrants currently seeking asylum in the U.S. are members of a ‘caravan’ or not, the number of people waiting along the southern border has increased significantly in recent weeks, putting tremendous pressure on resources on both side of the border. According to data recently released by the Department of Homeland Security, CBP agents apprehended or turned back 103,492 migrants attempting to reach the U.S. southern border in March, making it the highest month in 12 years (see Figure 1).

Figure 1. CBP Southwest Border Total Apprehension / Inadmissibles. Source: U.S. Department of Homeland Security

Delays and cargo slowdowns across the border

As the number of Central Americans arriving at the southern border to seek asylum increased significantly in late March, US president Trump threated to close the southwest border in punishment for what he has said was Mexico’s failure to control illegal migration. Subsequently, instead of closing the border, the Trump administration decided to reassign 750 CBP officers at specific ports of entry at the border to assist with border patrol duties.

The redeployment of CBP personnel has, in fact, caused very real slowdowns in inspections for passenger and commercial traffic at key points of entry along the border, including El Paso, TX; Nogales, AZ; Hildago, TX; Otay Mesa, CA; Del Rio, TX; Laredo, TX; Eagle Pass, TX; and Progreso, TX (see Figure 2). The long delays have been particularly difficult for container trucks hauling cargo from Mexico to the United States, with long border wait times disrupting manufacturing and delivery schedules, and costing businesses millions of dollars a day on both sides of the border. Moreover, the border slowdown has come at a particularly bad time, as the Easter season typically sees a lot of cross-border shipments.

Figure 02: Average border delays in cargo lanes between April 1-8. Source: Everstream Analytics 

Ciudad Juarez, a major industrial center in the state of Chihuahua with hundreds of assembly plants, including auto parts, cellphones, computers and medical equipment, has been particularly affected by the congested northern border crossings. Delays for trucks crossing the Ciudad Juarez-El Paso, TX border crossing, the third-largest truck crossing on the U.S.-Mexico border (see Figure 3), have stretched to seven hours on average, when under normal circumstances, a truck can cross the border within one or two hours. This situation was exacerbated by the CBP’s decision to close the Bridge of the Americas in El Paso, TX to cargo trucks every Saturday until further notice. This decision has increased congestion at the only nearby alternative – the Ysleta bridge – which has eight truck lanes and is facing three-hour delays on average, according to CBP.

In Coahuila and Tamaulipas, truckers attempting to enter the U.S. experienced delays of two to six hours. According to local sources in Mexico, the Tamaulipas border remained half-closed for many days during the first week of April as CBP personnel were working at 40% capacity, with a protest by Mexican farmers at the border making matters worse. The farmers blocked the Laredo, TX port of entry, which handles more than 460,000 US-bound trucks a year, for eight hours on April 1 to demand more government assistance. Meanwhile, wait times at Hidalgo and Brownsville point of entries (POEs) in Texas averaged 3 hours during April 1-8, while all car lanes on the Reynosa-Pharr International Bridge were closed for several hours to allow trucks that had been stranded since April 1 to enter the United States. 

In Nogales, AZ, the sixth-largest truck crossing on the southern border and the principal port of entry for Mexican fresh produce, the cargo lanes are now closed on Sundays, while delays of up to 60 minutes have been reported on the cargo lines at this POE in recent days. The Fresh Produce Association of the Americas said the partial closure of the Nogales, AZ POE will limit the availability of items from Sonora, including squash, grapes, watermelons, green beans, and tomatoes.

Figure 03: Distribution of trucks entering the United States from Mexico in 2018 by Port of Entry. Source: U.S. Labor Transportation Statistics

Manufacturing Strikes Worsen Impacts From Border Delays

In the case of Matamoros, an industrial border city that sits across the Rio Grande from Brownsville, Texas, the delays at the border has come as more bad news for assembly plants that have been struggling with persistent strikes since the beginning of the year. Matamoros is home to hundreds of factories run by U.S. companies and subcontractors that make car parts, washing machines, home appliances, and even soft drinks for consumers across the border. Over the past two months, however, thousands of assembly workers in Matamoros have gone on strike to demand pay increases of 20% and the payment of an annual bonus of 32,000 pesos (USD 1,700 OR EUR 1,510), which has caused many manufacturing companies to miss their production and export commitments.

Most manufacturing companies in Matamoros have agreed to the demands of the striking workers, but some, including Chinese automotive manufacturer Joyson Safety Systems and aerospace engineering company Parker Hannifin, decided to shut down their Matamoros operations instead. Business groups in Mexico have stated that the strikes in Matamoros have generated losses between USD 500-600 million (EUR 444-533 million). These strikes were cited by the Bank of Mexico in March as one reason why it reduced its growth forecast for the Mexican economy in 2019 by 0.6%. Politicians and analysts in Mexico have warned that strikes similar to the ones witnessed in Matamoros are likely to emerge in other border cities.

Growth in Commercial Trucking Traffic

It is important to remember that although the recent surge of migrants has certainly contributed to longer waiting times at port of entries, truck congestion along the U.S.-Mexico border is not a new phenomenon. Figures reported by government bodies (Table 1) shows that the total number of commercial trucks entering the United States from Mexico has increased by 23.8% over the last five years, with some border crossings such as Santa Teresa, NM and Eagles Pass, TX seeing an increase of over 45% in commercial truck traffic.

Table 01: Total growth rate in commercial trucking traffic over the last five years (2013-2018). Source: U.S. Labor Transportation Statistics

As the number of trucks crossing the U.S.-Mexico border has increased, parking and warehousing space along the border has also become an issue. This is particularly true for those ports of entry that are more focused on freight moving north into the U.S., such as Laredo, TX or Tecate, CA. These ports of entry have seen a significant increase in the numbers of trucks from Mexico in recent years, meaning that they can easily become congested, especially during periods of increased demand, such as holidays or the Mexican produce harvest season.

To alleviate the current congestion at the border, the U.S. Agriculture Transportation Coalition (AgTC) has asked the U.S. government for the expansion of the Customs-Trade Partnership Against Terrorism (CTPAT) program to increase the number of CTPAT-vetted companies that can make use of expedite import and export processing through the FAST (Free and Secure Trade) lanes along the southern border.

Industries Impacted From Border Closures

Closing the U.S.-Mexico border, even partially or for a short period of time, would have severe consequences for both economies. Industries that are most likely to be severely affected include automotive, electronics, computer hardware, medical devices, and apparel. Moreover, it is well-known that the U.S. depends on Mexico for fresh fruit and vegetables like avocados, tomatoes, strawberries, grapes, onions, and mangoes, while Mexico relies on U.S. soybeans, corn, dairy products, as well as pork and poultry meat. Shutting the border is likely to lead to declining of supplies, a spike in prices of food items imported from Mexico, and a drop in prices of U.S. crops. American farmers would be particularly hit as they would lose one of their biggest markets.

A complete border closure would also disrupt Mexico’s private-sector diesel imports, which largely come in by tanker trucks. Mexico’s private-sector diesel imports account for 24% of the total diesel imported into the country. The rest is brought in by state-owned Pemex through waterborne shipments. At the same time, the U.S. imports hundreds of thousands of barrels of crude oil from Mexico every day, which means that disruptions to oil transborder shipments may also affect U.S. consumers in the form of increased fuel prices.

Diesel importers, manufacturing plants, and agricultural companies are just some of the groups directly impacted by a potential border closure. To this we need to add the countless small and medium-size businesses that are suppliers to these multinational companies, including the numerous workers in the transportation sector that currently make a living out of moving products across the border. Border communities in the U.S. are likely to suffer the most, from decreased economic activity as well as potentially higher costs from crime and migration. However, ripple effects of a potential border closure would not only be felt regionally but throughout the global economy. A closed U.S.-Mexico border is likely to prompt a drop in the stock market, affecting capital markets around the world. Some experts have pointed out that depending on the timing, impacts from even a short disruption at the US-Mexico border could reverberate over the next few months. If the U.S.-Mexico border shuts down for a couple of days, it could even take a month or two to recover.

Outlook and Recommendations

Multinational companies and suppliers got a small taste of what a border closure would feel like last week as they scrambled to move their products into the U.S., amid the massive lines and intense congestion at customs check points along the U.S.-Mexico border. Although most analysts agree that the worst-case scenario of a full border closure is now off the table, the rapid escalation of border surveillance and enforcement, specifically the redeployment of hundreds of CBP personnel, will continue to hurt exports from Mexico to the U.S. 

Despite President Trump backing away from an immediate threat to close down the U.S. border with Mexico, immediate actions that supply chain managers can take to protect their networks from disruption include:

  • Monitoring bottlenecks at the border: Access to accurate and reliable information is essential for supply chain professionals to help make better decisions. In this regard, detailed information on border delays, temporary or partial border closures, and changes in policy or security threats affecting the movement of goods along a border allows managers to have a clearer picture of the vulnerabilities around a company’s supply chain network and enables the creation or improvement of back-up plans in the event of a disruption. 
  • Revisiting contingency plans: Given the recent trends in border delays and political volatility, it is an appropriate time for supply chain managers to revisit contingency plans and re-evaluate current sourcing and transportation strategies. Likewise, suppliers should assess alternate transportation modes, where necessary, and speed up shipments to their top customers under adverse circumstances.
  • Considering the use of warehouses and secured carrier yards: If trucks get stuck at the border due to a total or partial closure, it is important to make sure that transportation service providers have secure parking lots and warehouses to temporarily store cargo. Holding shipments at a supplier facility prior to dispatch is another way to minimize unplanned demurrages and delays in transit.
  • Actively communicating internally and externally: In times of increasing uncertainty, it is crucial for supply chain managers to communicate with internal procurement teams and external customers, so they understand the current situation and validate purchase orders before shipments are processed. 

One of the main lessons of the recent U.S.-Mexico border closure developments is that President Trump’s threats to shut down ports of entry should be taken seriously, which means that U.S. shippers and their Mexican counterparts must create mid to long-term plans that respond to a variety of potential scenarios. In the long run, supply chain professional should:

  • Reassess company’s risk exposure: Identifying reoccurring risks at the company or industry level can help businesses focus efforts on increasing network resilience. In order to determine a company’s exposure, supply chain professionals must review all the potential risks at the border crossings that are utilized; review parties responsible for transporting cargo from Mexico to the U.S., including company’s drivers, independent owner/operators, and sub-contracted carriers; as well as review the chain-of-custody from the point of origin in the foreign country, to the final destination in the U.S.
  • Diversify the modes of transportation utilized: Customers should consider making their inbound and outbound supply chains more resilient by increasingly diversifying the modes of transportation utilized, both for regular and expedited shipments. Although the large volume of freight moving by trucks from Mexico to the U.S. leaves few transportation options in the event of a border closure, the current crisis at the border suggests that it is time for shippers to consider shifting from road and rail to short sea shipping or air freight. Companies may want to consider ocean services connecting to US Pacific and Gulf ports to diversify modes of transportation and to avoid the risks of higher costs, longer transits, and extended delays from conventional land routes across the US-Mexico border. Moreover, companies with high value or time critical shipments should consider the more expensive air cargo option to avoid incurring penalties for late delivery to U.S. clients. 

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