Two-Front Trade War Could Create Double Trouble for Trucking

June 05, 2019 by Alan Adler, @AlanAdler

A two-front trade war with Mexico and China threatens to slow production of heavy-duty trucks, according to trucking industry executives and analysts. Furthermore, it could eat into corporate profits and chill business investment.

Trucking industry experts are worried about President Donald Trump’s threatened 5 percent tax on Mexican imports beginning Monday. They already are seeing the start of a slowdown from a 25 percent tariff on $200 billion of imports from China that started June 1.

“Mexico is an important part of our manufacturing footprint at both the supplier level and an assembled-truck level,” said Troy Clarke, chief executive of Navistar International Corp. He made the statement Tuesday during a review of the company’s latest financial results with investors.

TOO EARLY TO SAY

Clarke said with the Mexican tariffs not yet implemented it’s too early to assess the impact.

“Quite frankly, we really don’t want to speculate on what the outcomes of that might be,” he said. “But trust us – we’re up to our elbows in some of that analysis as we speak.”

Navistar could lower its earnings projections for the year depending on tariff impacts, said Walter Borst, Navistar’s chief financial officer.

Trump is threatening the tariffs to compel the Mexican government to halt the flow of migrants through the nation to the U.S. border. The Chinese tariffs are intended to extract trade concessions.

TRUCKING IMPACT

Several of the largest manufacturers of heavy-duty trucks sold in the U.S. assemble vehicles in or source components from Mexico. Trump’s tariff could increase to 25 percent by October if Mexico doesn’t act.

This matters to shippers and manufacturers that build trucks in Mexico.

Navistar builds two-thirds of its trucks in Mexico and one-third in the U.S., Clarke said.

Daimler Trucks North America operates a plant in Saltillo that builds its flagship Freightliner Cascadia. It also builds the truck in Santiago. Additionally, Daimler has a components-remanufacturing plant in Toluca and an International Parts Distribution Center in San Luis Potosí.

Daimler Trucks North America Saltillo, Mexico, plant

Daimler Trucks North America’s plant in Saltillo, Mexico. (Photo: Daimler Trucks North America)

“Trade disputes always entail uncertainties, both for companies and for customers,” Daimler Trucks said in a statement.

THE SUPPLY CHAIN

Supply chains also face significant impacts. Vehicle components travel back and forth from Mexico several times as they are transformed into finished products. The 5 percent tax could be applied on each crossing.

For example, many cast engine blocks and components come from outside the U.S. Tariffs raise the price of the final products sold in the U.S. or exported, according to the Diesel Technology Forum.

Approximately $1.7 billion in goods crosses into the U.S. from Mexico daily, according to the U.S. Chamber of Commerce. Of that, 70 percent arrives by truck, U.S. Bureau of Transportation Statistics data show.

Two-way trade with Mexico in auto parts totaled $165 billion, or $452 million a day, in 2018, the Motor & Equipment Manufacturers Association said.

“The tariffs and tariff threats are increasing the risk for business investment,” said Kenny Vieth, president of ACT Research.

CHINESE TARIFFS

The protracted U.S.-China trade war shows no signs of ending. Trump has threatened to add 25 percent tariffs to another $300 billion of Chinese goods.

Trucking is the main transportation for most foreign goods arriving at large West Coast ports in Los Angeles, Long Beach and Oakland. The number of truckers needed to haul freight to warehouses and distribution centers is falling as the number of ocean shipments from China declines.

As businesses find new sources for products they were importing from China, trucking business could increase at East Coast ports in New York, New Jersey and Savanna, Ga., said Avery Vise, an ACT Research analyst.

Trucks move freight farther inland from eastern ports because major markets are within driving distance. Most cargo from western ports moves east by a combination of truck and rail.

Alan Adler May 15, 2019
The trucking industry already was softening before the latest round of tariff increases in the U.S.-China trade war brought new challenges.

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