Manufacturing output may slow with tariff and demand changes
U.S.–Mexico
The relationship between Mexico and the United States remains complex but cooperative. This is reflected in cross-border trade as well as freight demand drivers in Mexico, namely in the automotive and other manufacturing industries.
Key indicator of future manufacturing output declines
During the first quarter of 2025, Mexico exports grew by 4% year over year (y/y), fueled primarily by frontloaded shipments to the U.S. market in anticipation of potential tariff changes. This created a temporary increase in transportation demand and a temporary tightening of capacity.
However, not all sectors showed strength, and the second quarter is not expected to be as strong. Capital goods imports into Mexico, a good indicator of future manufacturing output, declined by 7.3%.
Tariff-related changes for automotive and other manufacturing
Mexican exports overall continued increasing 5.8% in April, driven largely by growth in machinery and equipment (up 62.5%) and household products (up 18.8%). But automotive-sector exports of finished vehicles and parts fell 7.1% compared to the same month of 2024. This decline is attributed to excess inventory caused by the frontloading of the first quarter. On average, 80% of Mexico automotive exports are destined for the United States.
Now, many companies that rely on manufacturing in Mexico are facing higher U.S. steel and aluminum tariffs. What had been a 25% tariff on imported steel, aluminum, and goods made with those materials was doubled to 50% as of June 4.
Furthermore, the order removing tariff stacking for goods from Mexico and Canada was reversed. Steel and aluminum goods now face the 25% drug-related tariffs plus the 50% steel and aluminum tariffs. Compliance with the U.S.-Mexico-Canada Free Trade Agreement still exempts auto parts from the 25% auto parts tariff that was imposed globally in May and the 25% drug-related tariffs, but applicable steel and aluminum tariffs are now 50%.
The change in the steel and aluminum tariffs has particular implications for importers who take advantage of Foreign Trade Zones (FTZs) to defer tariffs. Those who placed steel and aluminum goods into an FTZ before June 4 and expected a lower rate will now be subject to the 50% tariff when the goods are withdrawn. Goods admitted on or after June 4 will be subject to whatever duty rate is in place when they're withdrawn. The FTZ changes do not apply to auto parts.
Cross-border freight impacted by trade policy shifts
Cross-border carriers are facing a dynamic freight market marked by inconsistent demand and the frequent shifts in U.S. trade policy. While heightened exports for short periods have driven strong trucking demand in specific regions, slower automotive output and exports complicate demand forecasting.
Capacity is strong on most export and import lanes, with some tightness departing from the central region of Mexico, Mexico State, and Puebla going north. Equipment condition, safety, and loading and unloading conditions complicate carrier procurement. Capacity can also be difficult to procure in produce-growing regions at this point in the season.
Economic growth initiative
The Mexican government recently launched an initiative known as the “41 Poles of Development,” which aims to boost economic growth by strategically concentrating investment and infrastructure in specific regions.
The government hopes to create competitive manufacturing and logistics hubs near key transportation corridors and markets, particularly benefiting industries looking to relocate or expand operations closer to North American supply chains. The poles are intended to attract domestic and foreign investment by simplifying bureaucratic processes, improving connectivity, and providing targeted fiscal incentives.
Watch the exchange rate
The impact of the peso–dollar exchange rate is something to watch for in June and July. The Mexican peso appreciated a full peso in the eight weeks through the end of May, with a continued downward trend. Also, the Mexican central bank cut its benchmark interest rate by 50 basis points to 8.5%, its third consecutive cut, despite inflation for April being above the target at 4.22%.
U.S.–Canada
As Canada continues to navigate through economic and market uncertainty, a topic of uncertainty for carriers has arisen: the recent U.S. executive order involving English language proficiency for truck drivers.
This order reinforces an existing requirement that commercial drivers operating in the United States be proficient enough in English to read and understand traffic signs and signals, converse with officials, and make report entries. Drivers who fail to meet these standards may be placed out of service until they’re deemed proficient.
Since most Canadian drivers speak English, the impact is not expected to be significant. But carriers have concerns about what the process of enforcement will be. Strain on capacity for freight crossing the U.S.–Canada border is not anticipated, given the current environment of oversupply. Some carriers, lanes, or regions could be impacted more than others.
Wildfires
States of emergency have been declared in the Canadian provinces of Manitoba and Saskatchewan due to wildfires, forcing mandatory evacuations in certain areas. The early start to wildfire activity signals heightened risk through June and beyond. While this has yet to have a significant impact on transportation, the past two summers have shown that wildfires can lead to the closure of key cross-country corridors and cut off access for pickup and delivery.
For example, the first incident of this year occurred near Winnipeg in mid-May, prompting a short-term suspension of Canadian National rail service. Additionally, visibility and air quality could also impact drivers across key areas of Canada and the United States.