What Tariffs Are Doing to North American Freight

SPEAKER_2 (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Tracy, we can't get enough of trying to understand the immediate impact that the new tariff announcements are having basically to like every business in the world, but certainly any business that touches goods, and certainly any business that touches goods that at some point cross a border, which at some point is all of them.

Tracy Alloway (0:41)

I like the implication that we're just gonna do episodes on every single business in the world. That's what you're saying, right?

Joe Weisenthal (0:47)

Aren't we?

Tracy Alloway (0:47)

Yeah, I think we are. We're deep in the process of doing that already. So here's an episode with another business.

Joe Weisenthal (0:54)

Well, so yesterday in our episode, our first of the multiple emergency tariff episodes, we're like, we just got to go down the list and talk to all the supply chain specialists that we talked to a few years ago over the last several years. So we're just going to do that. We have another guest today who I think we talked to about a year ago, maybe a little less. We're going to be speaking with Matt Silver. He is the co-founder and CEO of Cargado, which is a freight brokerage that really specializes in US Mexico lanes, North America, knows a lot about North America trucking, cross-border trucking, et cetera. And given the world of tariffs, you know, suddenly things like knowing about the world of cross-border trucking.

Tracy Alloway (1:36)

You know, the last time we spoke to him, I think the episode was titled like how shippers are responding to a US-Mexico trade boom.

Joe Weisenthal (1:44)

Oh, yeah. So I guess we'll get to check in on whether that...

Tracy Alloway (1:48)

Let's check in on the US-Mexico trade boom.

Joe Weisenthal (1:50)

Matt, is there a US-Mexico trade boom happening right now on April 7th, 2020-25?

Matt Silver (1:56)

Well, first of all, trade for Q1 is up year over year with Mexico. So it is definitely still going the right direction. One thing to clarify, we're not a brokerage, we're a software business. But yeah, so we work with freight brokers and trucking companies that are moving cross-border freight. So we hear it from everybody involved in the process, and there's definitely anxiety and concern over how these tariffs are going to impact trade with Mexico and Canada. The thing is, the news that we heard this week revolved around basically every country besides Mexico and Canada, and the USMCA got some sort of a reprieve, if you will. But they were still hit by tariffs over the last couple of months. And so the companies like the automakers that are producing cars throughout North America, they're not getting hit the same way the companies that are bringing their cars in from overseas from Europe or Asia. And so, you know, the trucking companies that are moving this freight, they're going to continue to move the freight that they can still move that consistently shipping. But they understand that things might get a little bit rocky as all these discussions get worked through. And so, they're going to stand stronger, you guys, ultimately, and wait and see what happens with the market.

Tracy Alloway (3:10)

Right. I mean, I think even if Mexico was exempted from the reciprocal tariffs that were announced last week, and I should just mention we're recording this on April 7th, lots of things could still change. But even if they were exempt, I mean, the direction of travel seems fairly clear at this point. Give us a reminder of why US-Mexico trade had been on a sort of upwards trend line because a lot of people were saying, well, this is actual genuine trade between the US and Mexico. And then other people would say, well, this is China rerouting some stuff through Mexico in order to get further away from the Trump administration's first round of tariffs back in circa 2018

Matt Silver (3:54)

Yeah. So going back to 2018, that's when Trump updated NAFTA to the USMCA. And that encouraged more manufacturing to happen in North America and less overseas. And so you've got the pandemic that scared everybody and thinking that it's not such a great idea to rely on China for manufacturing. Couple that with the general relations that the US and China have had for the last decade or so, which has been contentious and it's not super friendly. Then you've got the latest round and everything even up to the last few hours when Trump said that if China goes through with the increased tariffs that they announced, I think he said 90 percent would be placed on all goods coming from China. Things are only escalating between the fact that Mexico is primarily on the same or similar time zones as the United States. It's only a few hours to get there, whereas it's I think 14 or 15 hours to get to China. Then the culture and language barriers are a lot simpler and easier to get through with Mexico than it is with overseas. There are a lot of reasons why companies already do manufacture in Mexico and why they're going to continue to do that. Yes, there's Chinese investment in Mexico, but it's not as heavy as people make it out to be. It's just you start to hear it more because everyone's going, well, here's how China is reacting to this trade war. They're investing in countries nearby like Mexico, but I still think we'll see more American companies investing in Mexico than we will Chinese.