Odd Lots - Why a Former Freight Broker Is Making a Major Bet on Mexico

Episode Date: April 8, 2024

US imports from Mexico are surging. Former President Trump's tariffs on China, as well as the renegotiated USMCA treaty, have encouraged supply chains to move to North America. Then Covid hit, and that re-energized interest in "nearshoring" or "friendshoring" as an alternative to China. So how much further can US-Mexico trade go? What kinds of goods are being imported from Mexico? And how does the trade boom interact with Mexico's shaky security situation? On this episode we speak with Matt Silver, the CEO and co-founder of Cargado, which is building technology to facilitate cross-border freight. Silver, a former freight broker with a long history of doing business in Mexico, talks to us about what he's seeing on the ground, who's investing, plus the extraordinarily complicated process of getting goods across the border.See omnystudio.com/listener for privacy information.

Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the Odd Lods podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. So obviously, Tracy, is something that we've grown more interested in lately. And it has very interesting sort of a macro trade,

maybe political implications. Is this sort of the booming numbers we see in U.S. Mexico trade? Absolutely. So U.S. Mexico trade has picked up as you have pointed out. And I'm kind of curious about the reasons why. This is what most interests me at the moment, as well as like the physical process of moving goods from Mexico into the U.S. But there's this story, this idea here about friend shoring. So given the Trump trade war and its ongoing evolution under the Biden administration, tensions have been rising with China.

There's this idea of companies maybe moving some of their production away from China into, either Southeast Asia or maybe Mexico. So we've seen a bit of a pickup. I really want to know what is driving it. Is it actually that friend-shoring idea or is it maybe something else? I know Mexico, for instance, is a really big exporter of car parts. So how much of that is driving it? I've seen Brad Setser discuss this a little bit on Twitter.

So I am excited to get into Mexico-U.S. trade. Totally. And, you know, you mentioned, you know, sort of Trump kicked it off after he won the 2016 election. by beginning the process of tariffs on China and rewriting NAFTA, which became the USMCA, and really sort of encouraging a shift in supply chains to North America, to the Western Hemisphere. And then it probably really accelerated further with COVID and just the massive headaches that everyone had, getting stuff out of China. And so, right, that's sort of when the idea of, like, friend-shoring or near-sharing really picked up,

like, just sort of this supply chain resiliency. idea. And then this raises all sorts of other interesting questions because, of course, if you're a Chinese company, like you're a Chinese automakers, say, or a company that makes other high-tech goods, and maybe you're worried about terrorists, we're like, well, can you set up in Mexico and get around? And so that it's like, so it is still coming in from Mexico, but the beneficial owner is somewhere in China. Like, there are some really interesting questions that arise out of cross-border U.S.-Mexico trade. Yeah, it's funny. You mentioned that. I was just reading an article in the FT that came out recently, and they were talking about the number of container ships

going from China to Mexico has hit 881,000 in the first three quarters of 2023, which is up from like $689,000 in the same period from 2022. So a lot of growth just in the space of a year. And it does beg the question, again, of what exactly is coming through Mexico? How much of this is a genuine shift in U.S. trade away from China versus this sort of rerouting? Totally. So we see the numbers and we want to get a better understanding like what are the types of goods and so on. And I'm very excited to say we really do have the perfect guest. It's someone from the freight world who has been working with U.S.-Mexico trade for a long time. And now the co-founder of a new company that's sort of going to focus on freight that goes cross

border from Mexico to the U.S. Matt Silver, co-founder and CEO of Cargado. So Matt, thank you so much for coming on Oddlods. Absolutely. Thank you for having me. Excited to be here. All right. So really simple question to start. If there's some piece of machinery that you want to ship from, say, Texas to California,

how much easier is that than shipping a piece of machinery from Mexico to California? Or maybe to flip it the other way around for a given unit of good, what is the complexity of getting that good across the border rather than just shipping it to So shipping something from, you know, Texas to California, if you're a logistics provider or a trucking company, your main responsibility is to make sure that you get the freight picked up at that location in Texas, that it's scheduled to delivery, and that ultimately you go deliver the load on time, and that you get what was considered the bill of lading signed by the receiver, and it turns into a proof of delivery, and you're good to go. When you're moving a shipment from Mexico to the United

States, and let's say you were going from somewhere like Monterey to California, you would get that load picked up in Monterey by a Mexican trucking company that would bring the freight up to the border. It would clear Mexico customs, go through U.S. customs, dealing with a Mexico customs broker and a U.S. customs broker and a border crossing carrier, and then you're working with a U.S. trucking company that's going to bring that load from, say, Laredo, Texas to Los Angeles. And so for a cross-border shipment, there's somewhere between six and eight parties involved in a single shipment, whereas domestic shipment has, you know, the trucking company, the shipper and the receiver.

As someone who has shipped a lot of stuff like home goods between the U.S. and other places, the customs process is always more complex and more time consuming than you think it will be. On which note, Matt, how long would it take for that entire like end-to-end process versus, say, a domestic shipment, which I guess just gets picked up. And then the uncertainty on the time is really just the driver going somewhere and how long that takes. How long does that sort of customs process usually take? Customs can take anywhere from one to three days. It could really go up to 10 days.

It could get longer than that if it takes a long time to prepare the paperwork. So the way that I always compare it from explaining this to somebody that has a basic understanding of freight is that a domestic shipment is your responsibility as a broker for, you know, call it one to two days, maybe three. three days if it's a longer length of haul, but that load picks up and it delivers and that's it. For a cross-border shipment, it can be anywhere from seven to 20 days. Wow. So you've got your standard transit time that, you know, from Monterey is four to six hours from central Mexico. It could be about a day.

And then it can take anywhere from one or three days to cross the border. And then, you know, there might be a 24-hour wait time before the load actually gets dispatch for delivery. And then your standard transit in the U.S. So that's where it ends up at that. to 10, if not 20 days. Let's back up a little bit. I mentioned that you're the co-founder of a new company that's going to focus on U.S.-Mexico

Trade. You've been interested in Mexico for several years. Why don't you just sort of give us the quick background of how you became a Mexico trade person and why you want to continue making this better? A Mexico trade person. You know, you can describe your proper title. I'm just going to call you a Mexico trade person. Mexico Freight Expert.

Mexico freight expert. Maybe that's a little better. Mexico, Matt, there was a joke. But, all right, so I got involved in Mexico freight when I was at Coyote. I was at Coyote for about a decade. That's a freight brokerage. Yes, Coyote Logistics, brokerage. And I started the Mexico business while I was there by sheer dumb luck. And I started building the network out and growing the Mexico business.

And I spent about three, three and a half years doing that. And then I left Coyote in 2018, started my own company, called Forger. We were a cross-border digital freight brokerage. So we'd built our own proprietary technology, similar to like an Uber freight or a convoy, but specifically focused on moving freight between the U.S. and Mexico. We were acquired by arrive logistics at the end of January of 2022. And then I left at the end of September of 2023 after helping integrate Forger to arrive and helping leading grow the Mexico business, ultimately left at the end of September and started working on Cargado shortly after that. So what was the inspiration behind?

creating a company that is dedicated to Mexico, U.S. freight. What's the opportunity that you see there? I think there is so much complexity involved in moving across-border shipment. Like I just kind of outlined that I think there's a lot of need for technology. And with nearshoring becoming such a major trend, all these manufacturers are moving production to Mexico. That's leading to the suppliers that have to support those manufacturers, whether it's their physical suppliers that are building the goods that are going into the parts that go into the car or the packaging that goes into CPG products. Ultimately, it could be those types of suppliers or it could be logistics companies and trucking companies, but they're all rushing to support their customers in Mexico.

And so as all these logistics providers and trucking companies get involved in Mexico, I believe that they're going to need tools to be able to do their jobs. And I think that there's a better way to help them do their jobs. And it's just a matter of starting with the roadmap that we've built out to build what we're building at Cargado. Talk to us about what you see on the ground. So I know a lot of the investment in Monterey, you know, we know there's a Tesla factory, say 2024 versus I think you said you've gotten to Mexico stuff about a decade ago. Talk to us about like what you see happening on the ground in various parts of northern

Mexico and elsewhere in 2024 versus what it looked like in 2014. Let me start at a really high level. When I started building with Mexico at Coyote, we were communicating with drivers in Mexico via those next cell phones where it was like a walkie-talkie that you would click to communicate with them. And so now most of the drivers in Mexico, most of the trucking companies have smartphones. They have iPhones or Android's. They've got laptops.

They've got iPads or tablets. And so technology has come a lot further along in the last decade. From a, you know, physically what's on the ground perspective, Monterey has expanded massively. I was down there a few weeks ago, and the amount of new facilities that are still getting built, everywhere you drive, you see brands that you recognize. Like I saw LG, I saw some of the different golf companies that produce golf balls and golf clubs and everything else that comes along with that. Manufacturing in Monterey, there's lots of CPG brands that are starting to build up plants in Monterey,

appliances and electronics. And so you see all these different companies that are building in Monterey right now, that the same thing's happening in Ramasurispe, which is just South. Monterey and Saltio. It's happening in the Bahiao, which is in central Mexico, cadetero, Aguas Caliantis, Guadalajara, Mexico City, Puebla. It's starting to spread all throughout Mexico as people realize it makes a lot more sense to manufacture there than it does overseas. What exactly is Mexico actually exporting to the U.S.? So I mentioned in the intro, famously, there's a lot of car components and vehicles involved here. And you were just discussing

some of the car companies that have been moving some aspects of production down. there, but what are the things that are actually coming across the border? And has there been any change there over the past couple years or so? I think it's been a lot of the same stuff. So like a lot of the automotive companies, for example, have been in Mexico for decades. Like General Motors and Ford and Chrysler and everybody else, like Tesla is the newest entrant to come into Mexico. And they've done it the loudest, but they've been there for a long time, most of the automotive suppliers. And so automotive has long been a big part of it. Electronics, whether it's appliance,

or computers or TVs. I remember we used to ship video game consoles to Mexico for a large electronics manufacturer. Beer is a major product that comes out of Mexico, all sorts of food products. Obviously, tequila comes out of Mexico, out of Helisco. You've got mescal coming out of Oaxaca and some other parts of Mexico.

There's a lot of components that go into anything electrical. And then you've got anything that you'd find in an office, anything that you'd find around your house that's got wiring in it, there's a really good chance that it came from Mexico. So most of the major appliance manufacturers have plants throughout Mexico, whether it's LG or Samsung or higher, which is GE. The majority of them are manufacturing in Mexico. So what is the main case? Why are they doing it? I mean, I guess obviously some of it must be the USMCA and Trump's, the tariffs on China, maybe some of it, the COVID supply chain

frailties. But what is the pitch right now? Company is thinking about setting up to Mexico. much is it about that and how much is it about, say, improvements in Mexico's own infrastructure such that a neighbor that's so close to the United States actually makes more sense as a manufacturing hub? I think it boils down to a few things. USMCA update from NAFTA is definitely one of them. And so you touched on that. That encouraged more automotive parts, for example, to be made in North America that go into a car that raised that percentage from 62.5 to 75%. Pandemic was definitely another major piece. So I remember at Forger, we had a customer reach out, a company called Premium Guard that said we just acquired this plant from federal mogul in Mexico because our

manufacturing in China was slowing down until we needed to be able to continue to manufacture and sell filters in spite of the fact that China was shut down. And so we bought a plant in Mexico. We need your help shipping their freight from Mexico to the United States. And so overnight, their volume just started shipping. And we saw that happen with a lot of other companies. And so the pandemic scared everybody is the second piece. And then the third piece is that, you know, the proximity makes a lot of sense. Like, it's a three-hour flight from Chicago to Monterey to go meet with a customer, to go meet with the team, to meet with a potential vendor. It's, I think, what, 15 to 18 hours to fly to China from the U.S. So getting to Mexico is a lot easier.

Time zones are a lot more similar. They're not exactly the same, but they're similar. And so it's easier from a communication perspective. There's also a lot more people that speak Spanish in the United States and Mandarin. And so you're much likely to find more cultural alignment, easier to communicate with people in Mexico than people in Asia or overseas. And ultimately, that time that you can cut down on travel and everything else directly affects your ability to control quality and control cost and everything else. And so Mexico has just made so much more sense. And then on top of it, if you're setting up manufacturing in Monterey right now, it's like shooting fish in a barrel to be able to go find

a provider that can help you move your freight or help you manage your customs process because of the density that's already there, you're walking into a market that already exists. It's getting more expensive, but it's there already. Tracy, have you been to Mexico? I have not. So I just, this is going to be like the most. I mean, I have when I was like a kid and we lived in Dallas. I think we went to one of the border towns, but I barely remember it. Sorry, I feel like I have to be very specific here. Yeah, this is like going to be the most boring point. But like to Matt's point about how it's just a three hour flight, Mexico is so close from like anywhere. And like you could just take a long weekend trip there. It's so easy. And every time I travel to Mexico like on a vacation, I'm just like it's right here. And so that point about I was just a three hour flight from Mexico maybe seems obvious. But it also is like it is so easy. Wait, I'm glad you brought that up actually. The idea of obvious. So I'm thinking how to frame this question. So I realize there is already a degree of trade between the U.S. and Mexico, obviously, and there is the free trade agreement, of course. But why hasn't Mexico been a bigger market before? Like, let's say 20 years ago.

Why didn't this happen earlier? What was the holdup? I think the technology advancement was a big piece. Again, there's been manufacturing down there for decades. Like General Motors has been down there, I think, for 50 years or something like that. But it was while Trump was in office and started the whole trade war thing. with China and said, we're going to bring everything closer to home and branded the USMCA as America first. But in reality, quote unquote, America first was really about North America. And so that encouraged trade for all of North America. And I think that was the catalyst that caused all this growth to happen. And then the pandemic kind of tipped it all over. But, you know,

it's been growing steadily for 20 or 30 years now. What about infrastructure? You know, Joe brought that up. We've seen some concerns over things like congestion in the Suez Canal at various points in time. You've seen attacks on ships. You've seen drought in the Panama Canal. Has Mexico built out its infrastructure at all to make the exchange of goods easier? Or is it benefiting from, I guess, deteriorating infrastructure elsewhere in the world? Both, I think. You know, there's definitely those external factors that are providing benefits. but, you know, there's been some investment in infrastructure in Mexico and the highways are getting better, the tollways that most trucks are going to use are getting better. There's definitely still a need

to better support it and better regulate it. So, for example, in the United States, you could go on a website and you could find a bunch of details about a trucking company in a matter of, you know, three minutes. If you just type in their MC number, their DOT number, you can't do that with the trucking company in Mexico. And there's no regulation over freight brokerages in Mexico. And so I think what I would ask of Mexico to do to make things better would be figuring out ways to help with security issues like theft in Mexico. You know, the cartel issues in Mexico definitely continue to be an issue. And then the infrastructure side of it is really related to the actual information related

to the companies that are involved in the transactions and being able to register them, being able to understand what they do because otherwise it's just the Wild West. And that's how you end up with freight getting stolen. Joe, have you been on the Mexican trucking board? I assume there are Mexican trucking boards. No, I haven't, but I find that to be a really interesting point that I'd never thought of, which is we talk about infrastructure as highways or toll roads or canals or whatever. But the idea of like also it's important that there be some sort of centralized place where you can just look up the reputation of a freight brokerage or a trucking company and how valuable it is for the government to be able to centralize that and just sort of smooth that is not something I had really.

thought about before, but it is infrastructure in the sense. Talk to us a little bit more, obviously the security situation. So it seems like this is one area where under the Amlo years, over the last five or six years, maybe no progress at all on security, whether we're talking about homicides or the strength of the cartels in certain parts of the country. Talk to us a little bit more about what you're seeing on the ground from that perspective and then how risk of freight theft, et cetera, goes into companies making investment decisions. So there are parts of Mexico that are totally fine when it comes to moving freight. Like, you know, knock on wood, I rarely hear about issues with product coming out of Monterey,

like out of northern Mexico or central Mexico. It's usually product coming out of southern Mexico, like near Puebla. So Puebla, there's a big Volkswagen plant there, and it's about two hours south of Mexico City. And so it's relatively close to what I would consider to be a major market. but a lot of carriers are scared to go there because of theft and there's a lot of cartel activity there and then Veracruz, which is along the Gulf of Mexico. And so that southern part of Mexico is still very frightening for a lot of trucking companies, for a lot of shippers, for a lot of freight brokerages to get involved in moving freight there.

And so that's where there's a lot of cartel activity. I've also seen, you know, shipments get stolen coming out of Halisco and Aguizcalientis, which is in central Mexico. So it's not to see that it doesn't happen. The concern is definitely in southern Mexico. And then from a perspective of what people think about when they start investing in Mexico, another thing related to the regulation and infrastructure side is that in the United States, cargo insurance is something that is required of freight brokerages and trucking companies.

And so anybody that's shipping goods in the United States, there's cargo insurance that insured those goods if there were a truckload that got into an accident and the goods were destroyed. Separately, there's insurance if a car was damaged or if anybody, was hurt, but there's insurance for the freight. In Mexico, there's no requirement for a freight to be insured. And so none of the freight providers insure it, none of the trucking companies insure it, and most of the beneficial cargo owners, like the manufacturers, some of them don't know that it's required. And if they do, they try to get it insured, but it becomes kind of a headache. And so

that's another big area is the fact that insurance isn't required. And so when people think about where they're going to set up manufacturing, they think, is my freight potentially going to get stolen. And if so, am I going to have to replace it or do I have insurance that can cover that? Wait, this might be a good opportunity. And I realize we probably should have asked you about this earlier. But can you walk us in excruciating detail, like the process of how these goods get moved? And again, we touched on it earlier. But like, who hires the trucking company here? Or like, who hires the freight broker? And then, like, is the trucking company, is the freight company actually U.S. incorporated or is it Mexican? Who are the drivers? How does that like immigration process

work? Is it a Mexican driver going into the U.S.? Do they switch over at the border? Is it a U.S. driver? I honestly have no idea, but it seems like the process is important here. Yes. Let's start at the very beginning. I'm a transportation leader that works at a large manufacturer in the United States, like one of the big automotive companies. And I have, I have my manufacturing plant set up in Mexico. I've got some of my suppliers set up in Mexico. I've got some of my factories in the United States or my assemblies in the United States. And I need to make sure that my stuff gets from Mexico to the United States on a regular basis.

And so I'm probably going to run an RFP or a request for pricing on an annual basis. I'm going to reach out to all of my providers. I'm going to go to a group of freight brokerages that I work with, especially when it comes to Mexico, that I trust and know that can provide good quality cross-border service who have the scale that I need. And then I'm also going to rely on a lot of the trucking companies that I've had long relationships with that continue to provide dedicated direct service to me. And so I'm going to say, hey, let's say I've got 10,000 shipments a year that are coming out of Mexico to the United States. I need capacity for that. I've got out of those 10,000,

2,000 of them are going to come out of Monterey, going to my plants in the southeast. 4,000 of them are going to come out of my Mexico City facility, going to my plants in the southeast and in the Midwest, and then the rest of them are going to come out of my San Luis Potosi facility going to Dallas and Atlanta and Chicago. So all of you trucking companies and your freight brokerages, I need you guys to provide pricing for me. And typically, they're going to say, I need it to be door to door, which means that I need you to be able to handle the entire thing from the pickup in Mexico to the delivery in the United States. Separately, I'm going to hire my own customs broker because I already have a customs broker that clears

is afraid for me at the border. And I've got that relationship. I've had it for 15 or 20 years. Real quickly, what does a customs broker do? So customs broker acts on behalf of the manufacturer, the importer, and works between them and the U.S. or Mexican government to file taxes and duties and make sure all the paperwork gets filed. All right.

Keep going. Thank you. Like a travel agent, kind of. Yeah. And so they act on behalf of the shipper. And so there's always just saying that like you marry your customs broker and you date your forwarder. You're stuck a lot longer with your customs worker.

You sign a power of attorney with them. And they're filing all this paperwork that has the exact number of nuts and bolts that are inside of your trailer, every single little piece of detail. If they get one thing wrong, that could cost you a lot of money. And so you have a longstanding relationship and you don't want that to change. And so you go to your trucking and freight providers and say, give me your pricing on all these locations in Mexico to all these locations in the U.S. Those guys are going to then either use whatever pricing data they already

have, or they're going to go out to their existing network, or if they're their own trucking companies, they already have their pricing internally, and they're going to provide pricing door-to-door to be able to handle those moves. And so let's fast forward after the RFP, after the shipper decides, or I decide, hey, I'm going to hire these brokers and these carriers to be my main providers on this freight. I'm going to start tendering them loads. And so I'm going to go and tender a load to Joe's trucking in Laredo, Texas and say, hey, Joe, I've got a load for you guys going from Monterey to Atlanta. Can you pick it up for me? And you're based in Laredo, Texas, or you're based in the United States. You've got an MC number, a DOT number, insurance and all that

stuff. You're going to turn around and go, all right, which of my partner companies in Mexico have my trailers in Monterey? And so you're going to call Jose's trucking in Monterey and say, hey, Jose, can you take one of my trailers over to this factory in Monterey? get loaded with these automotive parts and then bring it up to Nuevo Laredo, which is the Mexican side of the border, and drop it off. At that point, we're going to hire a border transfer company,

kind of like a Drage company at the ports, and we're going to say, can you guys move this trailer from Nuevo Laredo to Laredo, Texas? So that's the trucking company. Joe's Trucking does that. Then Joe's trucking has a driver that's based in Laredo

that's going to take the load from Laredo in the same trailer all the way to the final destination in Atlanta. That's one, way that it happens. Wow. I see. So it sounds like the majority of it does switch over at the border. There's a version of a switchover, whether it happens where the freight goes on the same trailer all the way through, which is called through trailer or door to door, or if it gets unloaded at the border and moved onto a different trailer, which is called transloading, both of those are options. And both of those get

done every day by brokers and three PLs and carriers. Sometimes it's a U.S. driver. Sometimes it's a Mexican driver that takes the load from Nuevo Laredo. They cross it with what's called a B1 visa, and then they go deliver the load into the United States. I don't know why it's always amused me. There are a lot of cities in the U.S. that start with new because the old country is the original name, except in the case of Laredo in the U.S. And then the Mexican partner on the other side is Nuevo Laredo.

It's the only one that I know of like that. So you mentioned that there are not requirements for freight insurance, that there isn't a centralized database where you can just type in the number of the trucking company and figure out who they are and what their deal is. How much is that put in emphasis on basically the sort of boots on the ground or feet on the ground of trusted relationships and actually getting to know who you actually can work with in the absence of sort of like more formal regulatory regimes? So it's a culture thing and it's a process thing. So when you're doing business in Mexico, you're usually going to go to dinner, you're going to go get drinks with somebody, you're going to build

the relationship. It's not just about a formal, you know, commercial agreement. You sit down in an office and you shake hand and you're done. And this is something that I experienced definitely when I was at Coyote and Forger and Arrived, but also something that I've heard a lot over the last few months as I've talked to other brokerage leaders who are leading, you know, the Mexico business for other freight brokerages. And I say, what's the number one thing that drives how you go about evaluating your carrier base? and several people have said, I have to go down and be able to get drunk with them. On tequila, presumably. I have to be able to drink tequila and catejillo's with them and look them in the face and

look them in the eyes and understand if they're actually going to provide great service for us and if they're going to answer their phone when I call them. So you've obviously founded your own company to specialize in U.S.-Mexico Freight. Do you see other competitors in that space? Are people like building out trucking supply in this particular area at the moment? We're building software. We're not building a service business. You know, we're not trying to build like another cross-border freight brokerage.

We're building software for all those brokerages. I don't see anybody else trying to do what we're doing because of the complexity that goes into it. I do see a lot of freight companies that are expanding into Mexico. So just like a Rive bought forager a couple of years ago, there are tons of other brokerages now in the U.S. that are looking to buy companies in Mexico, buy specialized cross-border providers. There's also, I've seen people that used to work for me, I think, that have gone and started their own businesses

that are either focusing on cross-border or including it as a part of what they do. And so I think there's a lot of these providers that are going to come out, you know, we're trying to go solve these problems for their customers, and I'm excited to be able to support all them as they do that. So I realize this is going to be sort of like a gimmie or softball question or book-talking opportunity, but you wouldn't be starting yet another sort of Mexico-focused

company if you weren't bullish on the prospects of continued growth. So we had this incredible growth over the last 10 years. Mexico has surpassed China over as the number one source of imports into the United States. How much more could it grow? Like, how much more runway or green space is there for the U.S.-Mexico trade? There's two things that I'll point out about this. One is, first of all, Tesla is building their plant there. It's not built yet. So none of that increased volume that we've seen is because Tesla is a plant there. It's not built yet. And there's a lot of other companies that have announced investments, but that are not built yet, which means that there's a lot more growth coming from just that volume. And I think there's going to be a few things that are going to come from that.

One is intramexico volume is going to grow significantly, along with drage volume in Mexico. and that's why we're seeing the skyrocketing of container moves going into Mexico from China. And then the other big thing is that as all of this starts to happen, I think there's a lot of other room in Mexico in terms of like, you know, white space or green space that people go build in. The Bahia is still not saturated yet. Like there's still markets in central Mexico that is not saturated. The public can get better from a security perspective.

There could be a lot more manufacturing in that area. there's, I think, over 600 McEleaders that are just in Juarez alone, which, by the way, a McEleadora is a manufacturer that exports to the United States from Mexico. There's a ton of manufacturing opportunity there. And then I think we could end up seeing a lot of production end up moving to Tijuana, Mexicali, and Hermosio, which is south of Nogales. And so I wouldn't be surprised at all to see growth happening well beyond Monterey, and most of the rest of Mexico is still, you know, wide open in terms of investment.

opportunity. What happens if Trump wins the presidency? So I realize the Trump administration renegotiated NAFTA. So, you know, presumably Trump isn't targeting Mexico specifically. But on the other hand, given the growing trade deficit and given that Trump, you know, sometimes unveils ideas that are not exactly expected. And one of those recently was a universal 10% tariff on imports. Like, is there a risk there that Mexico trade does come under scrutiny from that administration again? I think he definitely made some comments last time around when he was in office that made

it seem like he was going to start a trade war with Mexico. And I think it was posturing around getting the USMCA done. And so, look, I think if he gets reelected, it could definitely cause some issues with trade because we've already seen it cause issues. I do think what would end? of happening is he would be much more firm about the whole thing about China, sending stuff into Mexico, and then coming to the United States. And I don't know that we're going to see any B-YD cars, like, circling throughout the United States anytime soon. But, like, I saw them everywhere

in Mexico when I was there. Oh, you saw a bunch of BYDs on the road when you're there. Oh, yeah. M.G, I think is another brand that used to be British and it's owned by the Chinese now. Like, I think, I was in old cars that were Chinese cars. And they didn't, it didn't seem any different than a European car or a Korean car or American car, anything that I've been in before. But the brands were different. I was in Salulita recently near Porto Vallerta. And I was looking out to see if I would see any BYDs. I didn't see any when I was there, but maybe I just missed them.

Also, there weren't a lot of cars around there. Sorry, keep going. No, but you've got to, like, be looking for it. And I noticed when I walked out of the airport because I was like, oh, that's a logo I've never seen before. And I just, I know a lot of these automotive companies from working with them and past roles. And so I think I could see Trump putting a lot more emphasis on Chinese imports into Mexico that come in the United States and making a push to try to stop that. And then that will have a downstream effect because there's a lot of manufacturers that I've talked to in the United States who have said, hey, my suppliers were in China.

They've established joint ventures in Mexico to support us. And they're building plants in Mexico. And so if that ends up being something where Trump puts a tariff on those types of companies, it will have a direct impact on every American consumer and all the manufacturers that are building stuff and selling stuff to the consumers because their prices will go up and the cost will go up to make all that. What is the effect on trade if there's a much tighter border crackdown when it comes to migration? And we did see this a little bit, I believe, last year when the U.S. Customs and Border Protection

halted trade in some areas out of a due to – the rise in migrants. How do they interact with each other? It causes delays when they pull people that are supposed to be clearing freight away from clearing freight to go, you know, heard people. And so I remember when this happened, I think, while Trump was in office and then Governor Abbott did the same thing or similar thing somewhat recently is like they pulled people away from helping clear the freight, examining it and enabling it to come across the border and said, go, you know, round people up and make sure you get them where they need to be. And that pulled people away from clearing freight, which created longer lines of the border,

created longer truck lines, which caused delays and ultimately could have caused disruptions in people's supply chains because of the need for a lot of these parts. Most of this freight, by the way, coming out of Mexico is manufacturing driven. It's not distribution driven. And so it's all stuff that's going into production that's going to help make something and all. And so if you stop at the truckload from moving, it could cause an entire supply chain to shut down.

Matt Silver. Thank you so much for coming on odd lots. Really appreciate your explanation, the level of detail and clarity. And maybe I have some, I think I have a little bit more understanding now of how goods get across the border. But I appreciate you taking the time. Absolutely. Thank you for having me. Tracy, there was a lot in there that I like.

But I'll just start with a simple point. The idea of like sort of registries and regulation as sort of making doing business much easier, I think is a point that's easy to forget. Like we think of regulation as some sort of like a curtailment of business. But if the regulation is you have to put in some info about yourself into a website that anyone can look up and makes life easier for everyone. Yes, to some extent. I mean, I guess it helps from an insurance perspective and things like that. It goes back to the sort of like rule of law institutional strength thing. Yes.

I have to say I kind of want to go to Laredo. No, I do too. Is that weird? I have this weird impression of Laredo because my dad always complains. about it because I think he did his Air Force training there, which wasn't a fun experience for him. So he's always been kind of down on Laredo. But I feel like I want to go and watch the like the truck switch over. Totally. I would, I've always wanted to go to Laredo and also go across the border to Nuevo Laredo. Also, I really want to go to Nuevo Leone, the capital of Monterey. Like if you look at

it, it's skyline. There's some great pictures of it. Like it looks like this sort of like, like if you just looked at the skyline on a picture like in Google images, you'd think it's like some rising East Asian city because it looks so modern and gleaming and nestled in the mountains like you think you'd be looking at somewhere in Taiwan or Korea or something. So I want to take a Nuevo Leone trip as well. Yeah, that'd be interesting. So that was fascinating. I especially liked Matt's detailed description of, you know, from the time the request for trucking or a quote is made to like the end goal of actually moving the goods. That was really interesting. I guess the one question I have, and Brad Setser has written quite a bit about this, but like how much of the

increase in Mexico, U.S. trade, that widening deficit has been a post-pandemic recovery and maybe more car imports being made. We've certainly seen that in the numbers versus that friend-shoring idea, or a mix of both. But it's a lot. But it's a lot. it does seem to me like maybe there's also the thing that you mentioned in the intro, the idea that like the trade statistics undercount some Chinese imports or they don't take into account Chinese imports that are going through Mexico and then on to the U.S. So I guess I still have some questions around that overall picture, but that was super interesting. The thing that I'm really interested is whether like we're going to see a sustained capital deepening in Mexico. So you build a big Tesla factory, and then suddenly there are a lot more people that have had the experience of building a factory, right? And so then presumably you can do, I mean, it's the story we always talk about with the rise of East Asian manufacturing. But then you have that sort of learning, and then you have more people that know how to do other advanced manufacturing. Monkeys jumping from trees.

That's right. Monkeys going from tree to tree as housemen described. As Ricardo, houseman put it. Like, to me, like that's really exciting if that sort of takeoff. those sort of network effects can be built up. And so then you have manufacturing. That leads to more manufacturing. And then, of course, in theory at least, that it requires like some success from the public sector, both on security and then also infrastructure, electricity, highways throughout most of the country still not great. But it seems like there could be the seeds there of some sort of like

sustained increase in wealth, which would be pretty cool. Or just the idea that capital attracts additional capital, right? People see stuff getting built. It's kind of like a network effect. Everyone gets excited. One thing is built and that enables a bunch of other things. Absolutely. I can't believe I said monkeys jumping from trees. I suddenly had an image of like, I don't know, a chimpanzee like just leaping out of a tree going, ah, and falling to the ground. That doesn't make sense in a trade context. That's not a good trade analogy. Let's leave it there. Okay. All right. We're leaving it there. This has been another episode of the All Thoughts. podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Jill Wisenthal. You can follow

me at the stalwart. Follow our guest, Matt Silver. He's at Matt Silver. Follow our producers, Kerman Rodriguez at Kermann Armin, Dashel Bennett at Dashbot and Kel Brooks at Kail Brooks. And thank you to our producer, Moses, Ondom. For more OddLots content, go to Bloomberg.com slash oddlots. We have transcripts, a blog, and the weekly newsletter that we write every week. And you can chat with fellow listeners in our Discord.discord.g.g. slash oddlods. One of my favorite places in the internet to hang out. Go check it out. And remember, if you enjoy oddlots, if you would like us to do deeper dives on Mexico-U.S. trade, then please leave us a positive review on your favorite podcast platform. And don't forget, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is connect your Bloomberg subscription to Apple Podcasts.

Thanks for listening.