Fuel costs push transportation rates higher

U.S.–Mexico

Mexico reaffirmed its position as the United States’ top trading partner in the first quarter of 2026. Mexico supplied 16% of all U.S. imports and purchased nearly 15% of U.S. exports in the first two months of the year. The two countries no longer operate in isolation but instead function as a single industrial engine. When U.S. consumer demand rises, the Mexican manufacturing sector accelerates, triggering immediate demand for U.S. intermediate inputs and services.

Total Mexican exports accelerated sharply in March, climbing 27.7% year over year (y/y), the strongest monthly performance since March 2022 and the 10th consecutive month of annual growth. On a quarterly basis, exports increased 17.9% in the first quarter of 2026. Non‑automotive manufacturing led the expansion, with electrical and electronic equipment exports rising 17.8%.

The broader non‑automotive manufacturing segment, including machinery and equipment, posted a 43% gain during the same time period. Non‑oil exports destined for the United States grew 28% y/y in March and 18% y/y across the first three months of 2026.

Automotive exports posted a more modest 2.0% gain in March. Shipments to the United States declined 3.4%, offset entirely by a 39.2% increase to non‑U.S. destinations.

This shift signals a broader reallocation of industrial orders. Mexican manufacturing capacity appears to be fulfilling demand that was previously sourced from other countries, largely using capacity that is already installed. This makes import composition particularly important. Intermediate inputs also grew nearly 7% in Q1 2026, marking a fourth consecutive quarter of growth.

Upcoming USMCA review

As the first round of consultations on the U.S.-Mexico-Canada Agreement gets under way ahead of the formal July review, the outcome is expected to be a catalyst for investment decisions that have remained in wait-and-see mode. Momentum is building in select segments: Mexico now leads U.S. computing equipment imports with a 37% share, driven by data center and AI demand, and northern states continue to attract high tech investment.

Most notably, Flex’s $1 billion commitment in Jalisco, Chihuahua, and Aguascalientes highlights how advanced manufacturing is reshaping freight flows, even as broader capital-goods imports show slow recovery.

Cost pressures in transportation remain

Diesel prices in Mexico held near 28 pesos per liter through the first quarter, prompting government stimulus. Even with that, fuel prices rose roughly 7% from January to March. As fuel is further increasing carrier operating costs, shippers can expect carriers to push for rate adjustments.

Understanding where carriers source fuel is also becoming more relevant, as prices vary significantly by region.

The Mexican peso appreciated almost 3% in Q1, compressing margins for carriers with dollar-denominated revenues. This comes after two years of aggressive pricing, during which many carriers reduced or tightly managed operating costs to remain competitive in a downward rate environment.

Impacts on capacity availability

Carriers are becoming more selective, prioritizing higher margin lanes and customers, reducing empty miles, and avoiding lower-volume or higher-risk services. This can create localized perceptions of tight capacity even when equipment is available. Labor constraints persist as well, particularly for long-haul and cross-border drivers, resulting in cases where equipment is available, but qualified drivers are not.

Heightened B‑1 driver visa enforcement is creating capacity pressure across key U.S.–Mexico border lanes. B-1 visas are used by drivers who provide direct cross-border service from Mexico to U.S. destinations, instead of freight being brought to the border by a Mexico driver, across the border by a transfer carrier, and then reloaded on a U.S. truck.

In recent days, cross‑border driver inspections have intensified at multiple ports of entry, resulting in a notable number of B‑1 visa revocations. Feedback from carrier groups suggests revocations are commonly tied to historical driving infractions, prior English language proficiency violations, compliance flags, or increased scrutiny around potential cabotage risks.

As enforcement tightens, fewer B‑1‑permitted drivers are operating in domestic border markets. At the same time, some experienced drivers are choosing to limit or pause cross‑border activity altogether due to concerns around visa cancellation and long‑term employment or retirement implications. Together with the structural export imbalance, this is reducing effective cross-border driver supply.

Accordingly, northbound and southbound cross-border rates are pressured as carriers become more selective with the freight they accept. While this primarily impacts direct cross-border capacity, shippers should monitor conditions closely as Q2 progresses and consider contingency plans.

U.S.–Canada

Fuel costs remain a central driver of freight economics in Canada and a key reason transportation costs remain elevated. In response to rising global energy prices tied to the Middle East military conflict, the government announced a temporary suspension of the federal fuel excise tax. The measure reduces the tax on gasoline by 10 cents per liter and on diesel by 4 cents per liter from April 20 through Labour Day, September 7.

For freight carriers, this translates into a near‑term operating cost reduction, offering some relief during a period of sustained pressure at the pump. That relief, however, is limited in scope and duration. Provincial fuel taxes, carbon pricing, and underlying diesel market volatility remain in place, and the federal excise tax is scheduled to fully return on September 8.

From a freight market perspective, this policy is not expected to materially alter rate dynamics. With fuel a significant but not singular portion of operating costs, carriers continue to face pressure from labor, insurance, maintenance, and equipment costs. As a result, any fuel‑related cost relief is unlikely to translate into sustained downward pressure on rates, particularly if broader cost inflation persists.

For shippers, the key consideration is timing. The temporary nature of the fuel tax suspension means cost pressure could re‑emerge later in the year as the policy expires, especially if global energy markets remain volatile. This raises the likelihood of renewed rate adjustment discussions in the second half of the year, particularly on fuel‑sensitive lanes or contracts tied to operating cost benchmarks.

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