Trade

Donald Trump’s Tough Talk on Trade With Mexico Weighs on Logistics Boom

Firms have spent billions of dollars upgrading cross-border infrastructure

A truck driver leaning out the cabin window while waiting in a queue for border customs control to cross into U.S. in Nuevo Laredo, Mexico, in November.

A truck driver leaning out the cabin window while waiting in a queue for border customs control to cross into U.S. in Nuevo Laredo, Mexico, in November. PHOTO: REUTERS

President Donald Trump’s tough talk on U.S. trade with Mexico is casting a pall over a logistics boom along the border.

Mr. Trump earlier this week said he planned to levy a “border tax” on some imports and wanted to renegotiate parts of the North American Free Trade Agreement with Mexico and Canada. He has also attacked Ford Motor Co., United Technologies Corp.’s Carrier unit and other companies for planning to place some manufacturing jobs in Mexico.

While Mr. Trump’s barbs have been directed mainly at manufacturers, logistics companies that play a key role in moving auto parts, industrial equipment and other goods are watching them closely. These firms have spent billions of dollars upgrading rail facilities, building warehouses and expanding truck terminals.

Many of these projects were planned with a view that a surge in Mexican imports would continue for years to come. The value of goods transported by truck and rail both ways across the U.S.-Mexico border totaled $340.8 billion last year through November, up 16% in the last two years, according to the Bureau of Transportation Statistics.

But the Trump administration’s statements about foreign trade out of the gate are challenging those assumptions.

Just days before Mr. Trump made his comments about Nafta, Landstar System Inc., a large, Jacksonville, Fla.-based trucking company, opened a terminal in Laredo, Texas, with capacity for 30 trucks to transfer their cargo to big rigs waiting to carry goods further north. The company spent about $25 million on the project, according to a corporate filing.

Landstar began planning for the terminal in 2014 to replace a smaller facility where trucks could only transfer their loads one at a time, leaving some trailers sitting in a nearby freight yard for days or weeks, Chief Executive Jim Gattoni said. He said the extra capacity was needed regardless of the Trump administration’s trade policies.

“There’s a lot of uncertainty,” he said. “My expectation is we’re going to continue to drive a lot of volume through that facility.”

About 1 million square feet of industrial real estate is under construction around Laredo, said Ward Richmond, a senior vice president with Colliers International, a real-estate brokerage. Industrial construction activity hit its highest level since 2008 in Tijuana, Mexico, last year, according to CBRE Group Inc., a commercial real-estate-services company.

Railroads Union Pacific Corp. and Kansas City Southern have spent billions of dollars upgrading cross-border infrastructure.

Most of these projects were commissioned before the election. CBRE in a recent report said new projects and expansions may be postponed if a border tax raises the cost of imports from Mexico.

Shares of Kansas City Southern, which railroad analysts say is among the most exposed to U.S.-Mexico trade, are down about 5% since the election.

“The to-be-determined Trump administration’s policies and initiatives create an obstacle the stock is unlikely to overcome in the near term to intermediate term,” Cowen analyst Jason Seidl wrote in a report.

A trade slowdown doesn’t appear to have factored into many companies’ decisions to invest in cross-border logistics. TransForce Inc., a Canadian trucking company, acquired XPO Logistics Inc.’s truckload division in late October, which at the time generated 30% of its business moving cargo across the U.S.-Mexico border.

TransForce Chief Executive Alain Bédard told analysts after the deal that acquiring Mexican trucking capacity was “important because the trade between U.S. and Mexico will keep on growing,” while the outlook for the company’s core Canadian business was less certain.

A TransForce representative declined to comment.

Many still expect growth. Kansas City Southern Chief Marketing Officer Brian Hancock said in a call with analysts last week that customers have told the railroad “we understand what’s being said, but we want you to continue marching down the path that we have.”

Many warehouses and other logistics operations are running full-bore as construction has lagged behind surging demand. Colliers’ Mr. Richmond said even if the Trump administration throws up barriers to imports, cross-border traffic could thrive if manufacturers set up “twin plants” in the U.S. and Mexico.

“There’s no vacancy, which is why the velocity of development is increasing,” Mr. Richmond said.

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