Expert Insight: Transportunities
  By Erik Markeset  
     
  March 19 , 2007  
  The Positive Impact of the Change Allowing Mexican Truckers to Operate in the U.S.  
     
 

Recent Announcements Advance the Vision Declared by NAFTA but Never Executed

 
     
 
Markeset Says:
The businesses that will be hurt, if the announcement becomes reality, are those that have exploited the inefficiencies of the current situation.

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On February 22, US Secretary of Transportation Mary Peters and the Mexican Secretary of Transportation and Communication Luis Tellez inaugurated an inspection process that will apply to 100 Mexican trucking companies that wish to become certified to operate in US territory beyond the current 20 mile “commercial zone.”  Six months from now a proportional number (based on tractors) of US trucking companies will begin a process to permit their operation in Mexican territory.

This event fulfills a commitment made 12 years ago under NAFTA to allow trucking companies to operate on either side of the border to support the trade of goods enabled by NAFTA.  The idea of facilitating transportation along with trade is sound and is consistent with agreements made between high-trade neighbor countries around the world, particularly in Europe.  It is in the interest of exporters and consumers on both sides of the US-Mexican border to reduce the extraordinary inefficiency that characterizes truck movements that execute close to 5 million crossings per year at 21 points.  The current process adds on average 5 hours and $85 to $120 dollars per crossing.  The independent Mexican Institute for Competitiveness (www.imco.org.mx) estimates savings of approximately $250 million a year from the opening of the border to trucking services.

But will it actually happen?  This article explores the Mexican perspective which harbors a degree of skepticism, despite the optimistic statements made by the governments of both countries.  “I’m not certain how serious of an effort is under way,” says Brad Skinner, CEO of TMM Logistics, one of Mexico’s leading third party logistics companies and operator of one of the country’s largest dedicated fleets (www.tmm.com.mx).  He adds, “I think we need to see what happens in the Congress of the United States, with the labor unions, and with all of the other vested interests that have thus far blocked any further progress on this matter for the last 12 years.”  Federico Ruiz, a senior executive at EASO and its sister company Tractoenlaces de America (www.easo.com) is also doubtful: “I think these are political maneuvers.”  Will this ever go beyond a pilot program?  We’ll have to wait and see.  The skepticism is founded on the 12 year history preceding last month’s announcement, acknowledged in Secretary Peter’s statement that “the time has come for us to move forward on this longstanding promise with Mexico.” 

A brief history of relevant events includes:

  • Until 1982 Mexican trucking companies could enter US territory with some freedom
  • 1995: United States prohibits entry of Mexican trucks.  Mexico returns the favor.
  • 2000: NAFTA dispute resolution panel rules in favor of Mexico ordering opening of the US border
  • 2001: In January, President Bush promises to abide by the panel’s ruling.  In September world events distract US attention from Latin America and raise security concerns not previously considered
  • 2002: Rules established for Mexican truckers to enter the US, the include: drivers must speak English, poses insurance, meet licensing and medical requirements as well as security requirements
  • 2007: Pilot program launched, the first actionable step towards making the vision operational

While there are pessimists north and south of the border, the Mexican trucking companies surveyed for this article were not concerned about an invasion by American trucking companies.  “The opening should give is more advantages than disadvantages,” says Ruiz.  His opinion is shared by Francisco Uribe, General Manager of Transportes Astros (www.transportesastros.com.mx) a medium sized trucking company with a national focus.  “NAFTA preserves cabotage rights in each country and prohibits direct investment in companies that perform domestic transportation exclusively.” 

Furthermore, both Uribe and Ruiz think that the all-American driver accustomed to the US network would not feel comfortable driving in Mexico where roads can be as excellent as they can be awful, diesel grades are different, signage is poor, language and tradition are very different.  Because of this and because of their in-country focus, they do not feel threatened.  Skinner is not so sure.  There are plenty of Mexican-Americans with the language skills and the understanding of both countries that can be hired by US truckers and feel comfortable driving in Mexico.  But the same people can also be hired by Mexican trucking companies that are serious about entering the cross-border business.

The businesses that will be hurt, if the announcement becomes reality, are those that have exploited the inefficiencies of the current situation.  These include companies that have specialized in the multi-step border crossing process, also known as the “transfer.”  Trucking companies whose business has disproportionately been border-to-destination moves will be hurt if they are not able to leverage their in-country delivery competency into securing moves from origin.  “Their value-add will be reduced,” says Uribe.  Some of these are companies with existing US partnerships.  How the partnerships play out will probably be a function of each relationship.  Will the US companies want to deliver all the way to the Mexican destination, hand the freight directly over to the current partner (minus the “transfer”), or let the Mexican company pick up from origin.  Whoever “owns” the customer will likely drive the answer.

This gives rise to a related question of whether or not a Mexican trucking company can operate in the US without a significant partner.  Skinner, a logistics veteran with experience in both countries, thinks that would be difficult, pointing to operational and commercial issues such as insurance, backhauls, interchange, fuel cards, maintenance, legal and emergency support all at competitive costs.  Whether through a partner or by individual action, the first Mexican companies to tackle the obstacles to operating in the US will either end up as first-mover winners or as losers of an expensive gamble if they fail to capture additional business.

Why did it happen now?  Did both governments finally decide to put the interests of voiceless majority of exporters and consumers ahead of the vociferous interests of a few parties that prospered from the inefficiency?  Is the US showing support for the new government of Felipe Calderón, or returning a favor for the significant gesture by Mexico of extraditing its most notorious drug lords last month?  Or, perhaps  the progress has to do more with economics than politics: the US driver shortage just got too painful.  This is the greatest concern of some Mexican trucking companies that otherwise are skeptically pleased by the announcement.  The fear is that Mexico’s most talented drives will be recruited by US trucking companies, with the immediate consequence lost drivers and the long term effect of higher wages. 

Who wins with this change?  The winners are exporters, consumers and efficient trucking companies on both sides of the border.  In his press release on this matter U.S. Ambassador Tony Garza states, “The free and efficient movement of goods by trucks across the border will stimulate increased commerce and trade between our two countries. Every time our nations cooperate to overcome another obstacle to free trade, we strengthen our relationship and improve the lives of our citizens.”  Provided you’re not one of the losing parties, one can’t take issue with the statement.  Transportation costs will decline and service levels will improve to the benefit of Mexicans, Americans, and Canadians.

Trucking companies that have the scale, volume, and infrastructure to operate efficiently stand to do well.  The three companies interviewed for this report affirmed their interest in participating either in the pilot program (becoming one of the 100 test companies) or in the post-pilot phase.  Skinner points out that TMM is in the midst of a major re-investment effort and will very shortly have an entire fleet with average age of four years and compliant with US specifications.  Whether or not leading Mexican trucking companies such as TMM, Easo, or Astro become pilot participants is in the hands of the DOT, which is accepting applications right now and will begin conducting on-site inspections within the next 60 days.  More information is available at DOT’s website: www.fmcsa.dot.gov/spanish/english/mmc_english.htm

During the next six months we expect to see the Mexican Ministry Transportation and Communication open the application process for US companies.  Additional information is available at the Ministry’s website: www.economia-snci.gob.mx/sphp_pages/sala_prensa/textobd.php?res=1177

For an update on progress of the pilot program and more information on the US perspective of this matter, stay tuned for future Transportunities articles.

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