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Expert Insight: Guest Contribution

By James Giermanski,


Powers International, LLC

Date: Oct. 28, 2014

Global Logistics Comment: Mexico Facilitates Trade Across Its U.S. Border

Inefficient Customs Clearance Monopoly Cost US Shippers Some $2 Billion Annually, but Relief May be in Sight

This year I did an exclusive two-part series on changes coming to the Mexican border. These changes are significant because they single-handedly change parts of NAFTA which were deleterious to trade and amounted to a hidden tariff, estimated by some to be 2 billion dollars a year. That hidden tariff was the almost exclusively generated through the control of commercial border crossing by licensed Mexican Customs Brokers and their tools, called the Relacion de Entrada (Mexican Inward Manifest) and Pedimento de Importacion and Pedimento de Exportacion (Entry and Exit Summary Documents).

These documents which were needed to release cargo from the United States for entry into Mexico could only be executed by licensed Mexican Customs Brokers.


This Mexican Customs Broker control requires all southbound ground-conveyed commercial cargo to stop on the U.S. side of the border at land ports-of-entry (POE) such as Laredo, Texas where the cargo will have to wait until the Mexican Customs Broker files the Relacion de Entrada and Pedimento de Importacion with Aduana (Mexican Customs Administration). Northbound commercial traffic destined for the United States has to stop on the Mexican side of the border for the same reason. The impact on the U.S. and Mexican shippers, and border POEs in the way of traffic, clutter, and congestion causes unnecessary delays, and costs - the hidden tariff! Here is an example.

A U.S. exporter in Detroit, Michigan ships car parts to an assembly line in Mexico. The U.S. cargo is picked up and carried by a U.S. commercial motor carrier and moved to the POE at Laredo, Texas. When the motor carrier reached Laredo, it dropped the cargo off at a designated location, usually at the warehouse facilities of an exclusive agent of the Mexican Customs Broker or at a U.S. forwarding agency in Laredo or at its own terminal. Unless there was cargo ready for a return trip back to Detroit, the motor carrier returned without cargo, resulting in a greater cost of carriage that was passed on to the exporter in Detroit.

Upon arrival of the cargo the Mexican Customs Broker is notified so he could inspect the cargo in Laredo, seal the container, execute the Pedimento de Importacion and complete the Mexican Customs paperwork. The cargo then sat until a Mexican drayage or transfer motor carrier (often owned or controlled by the Mexican Customs Broker), was dispatched by the Mexican Customs Broker to pick up and cross the cargo into Mexico.

There was no hurry to do this since the longer the trailer or container waited on the U.S. side to cross into Mexico, the greater the storage fee revenue would be for the exclusive agent of the Mexican Customs Broker. Thus, the basic costs for crossing included the Mexican Customs Broker's fee, his exclusive agent's fee, the warehouse fee, and, of course, the fee of the drayage motor carrier - all totally unnecessary costs at border POEs to move the U.S. exports into Mexico.

Essentially, the same process took place with a Mexican export to the United States. A Mexican exporter in Monterrey would ship to the United States, but its cargo would only be carried to the border on the Mexican side. The cargo is dropped off at drop lots (pensions) on the Mexican side. Again, the cargo would wait for the Mexican Customs Broker to release it for entry into the United States.


Except in this case, the drop lots were really open lots or areas where the conveyance with its cargo could be left for pick up. Security was in most, if not all, cases absent or extremely limited. Thus, drug cartels could easily enter the conveyance and steal goods or add drugs to the legitimate cargo shipped from Monterrey. As in a southbound shipment, after the Mexican Customs Broker released the cargo for movement into the United States, a Mexican drayage motor carrier would pick up the cargo to transfer it to the U.S. side.

Fundamentally, the Mexican Customs Broker had complete control of inbound cargo on the U.S. side (25% of the Customs market), inbound cargo on the Mexican side after the U.S. cargo crossed into Mexico (25%), and control of all outbound cargo on the Mexican side destined for the United States (25%), essentially 75% of the cross-border Customs market, leaving only 25% of it for the U.S. Customs Broker.


The incredible revenue produced by this situation of "releasing cargo" for crossing and controlling the entry of cargo into the territory of Mexico once crossed, constituted the estimated an annual 2 billion dollar unofficial tariff on goods crossing the southern border representing a virtual monopoly of 75% of the cross-border Customs Brokers' market. One can see why this process and resulting drayage are defended so intensely by Mexican Customs Brokers.


Fortunately, the Mexican government has recently passed new rules intended to end this costly system, set to go into effect Jan. 1, 2015.


However, you can count on huge opposition to the new rules from Mexican customs brokers, so the real impact remains to be seen.


We'll cover both those topics in part two of this commentary next week.


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About the Authors

Dr. James Giermanski is the Chairman of Powers Global Holdings, Inc. and President of Powers International, LLC, an international transportation security company.  He served as Regents Professor at Texas A&M International University, and as an adjunct graduate faculty member at the University of North Carolina at Charlotte.  He was Director of Transportation and Logistics Studies, Center for the Study of Western Hemispheric Trade at Texas A&M International University.

He has authored over 150 articles, books, and monographs with most focusing on container and supply chain security, international transportation and trade issues.

Giermansk Says:

Fortunately, the Mexican government has recently passed new rules intended to end this costly system, set to go into effect Jan. 1, 2015., but opposition will be huge. 

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