BY: MARK B. SOLOMON
What if they threw open the U.S.-Mexican border to all qualified trucking companies, but no Mexican truckers showed up?
It would indeed be an ironic outcome of a battle that has dragged on for more than 11 years, culminating in March 2009 in a mini-trade war that has cost U.S. exporters billions of dollars in lost revenue and, according to U.S. Chamber of Commerce estimates, led to the loss of more than 25,000 American jobs.
Yet it is entirely plausible, according to various experts. For all the publicity surrounding the March 3 announcement by President Barack Obama and Mexican President Felipe Calderón of a tentative resolution to the cross-border dispute, few expect the status quo to change for years to come. The agreement would allow carriers on both sides of the border to operate beyond a 25-mile “commercial zone,” but that doesn’t necessarily mean they’ll take advantage of that freedom. In fact, Mexican truckers will have little, if any, desire to operate deeper into U.S. commerce than they already do, these experts say.
“The majority of Mexican truckers don’t want any part of it,” says Herb Schmidt, president and CEO of Con-way Truckload, the truckload unit of Con-way Inc. Schmidt estimates that only 5 percent of the 80 Mexican truckers that have cross-border interline relationships with Con-way Truckload have even considered serving the U.S. market beyond the commercial zone.
“There’s less interest on the part of Mexican truckers than many people think,” adds Derek J. Leathers, chief operating officer of truckload giant Werner Enterprises, which generates about 10 percent of its annual revenue from Mexican operations. Before joining Werner, Leathers spent four years running the Mexican division of truckload and logistics giant Schneider National Inc.
As for how much volume we’re talking about, an estimated 2.7 million loaded trailers crossed into the United States from Mexico in 2009, according to the U.S. Bureau of Transportation Statistics. About 1.2 million loaded trailers entered Mexico from the United States that year, according to data from private research firm Transearch.
Winners and losers
The agreement has yet to be finalized, and the details remain sketchy. The pact must still pass industry and congressional muster, which promises to be a significant challenge. At the very least, there will be U.S. lawmakers concerned about the safety of Mexican drivers and the environmental worthiness of Mexican vehicles—not to mention the cost to taxpayers of a proposal by the Federal Motor Carrier Safety Administration to partially foot the bill to equip Mexican rigs with electronic on-board recorders to monitor a vehicle’s movement and location.
If and when an agreement is signed, one clear winner would be U.S. producers whose exports have been curtailed by tariffs imposed by Mexico in retaliation for its carriers being denied access to U.S. markets. As part of the accord announced in March, the Mexican government will reduce the tariffs by 50 percent when a final agreement is signed, and suspend the remaining 50 percent when the first Mexican carrier is granted operating authority. The tariffs have been levied on 89 U.S. import products valued at about $2.4 billion a year.
Among the losers could be Mexican customs brokers, about half of whom own drayage companies that move freight between Mexican and U.S. trucks for line-haul service into either country. Because the agreement allows Mexican truckers to operate beyond the commercial zone and haul freight directly to U.S. destinations, the need for those drayage services would diminish, if not disappear, experts say.
For the most part, however, it’s likely to be business as usual along the border. U.S. carriers operating southbound to Mexico will continue to drive to the commercial zone and tender their trailers to their Mexican interline partners for the line-haul, largely out of concern for their drivers’ safety within Mexico. The same business model is likely to prevail on the northbound routes, with Mexican truckers turning over trailers to their U.S. counterparts for movement into the U.S. interior, the experts say.
There are a host of reasons why Mexican truckers would be loath to enter the U.S. market. For one, the liability exposure in the United States would be too great for many Mexican truckers to tolerate. “They are scared to death of our tort system,” says Schmidt, noting that the costs of obtaining insurance coverage—if Mexican carriers can obtain coverage at all—combined with the risk of being hit with a massive jury award in the event of an incident would be enough to keep many Mexican truckers out of U.S. commerce.
Then there’s the expense. Mexican carriers looking to expand into the United States would face significant upfront costs for labor, maintenance, facilities, and equipment. The typical Mexican trucker has a fleet of six trucks, hardly enough to justify the kind of capital investment needed to play in the world’s biggest economy, experts say. In addition, the agreement bars Mexican carriers from accepting loads moving between U.S. points, thus keeping the intra-U.S. market off-limits to competition with U.S. carriers.
The debate goes on
In the meantime, the debate over easing restrictions on Mexican truckers continues. The agreement’s opponents—chief among them the Teamsters union and Owner-Operator Independent Drivers Association, the trade group representing the nation’s independent drivers—have warned that cheaper Mexican labor will undercut U.S. driver wages and siphon off jobs. Leathers of Werner says the argument is a red herring, contending that any labor cost advantage enjoyed by Mexican drivers will be more than offset by their companies’ higher costs of capital and equipment, as well as the increased liability exposure.
Schmidt of Con-way Truckload adds that should Mexican drivers enter the United States with more frequency, they will, over time, demand wages that are comparable to U.S. drivers’. Schmidt compares that possible scenario to what has occurred over the years at Mexican “maquiladoras,” plants in Mexico where raw materials imported on a duty-free basis are assembled into goods, which are re-exported back to the United States or another destination market. At Mexican “maquilas,” Schmidt says, rising labor costs have forced businesses to relocate deeper into Mexico to procure inexpensive labor.
Lana R. Batts, a partner in transport advisory firm Transport Capital Partners and vice president of government affairs for the American Trucking Associations in the 1980s and early 1990s, says the Teamsters have little to fear from Mexican drivers jeopardizing their livelihood. Batts adds that union concerns that the agreement will give Mexican drug lords and other unsavory characters an open supply chain into the United States are unfounded, noting that border security is not disappearing and that the situation will be no worse than if there were no agreement.
“I have no idea why the Teamsters would waste their political capital on this issue,” says Batts. Teamster officials did not return a phone call requesting comment.
Jim Giermanski, president of transport security firm Powers Global Holdings and a veteran observer of the Southern border trade scene, says the agreement could actually stimulate the U.S. economy and increase jobs by creating new demand for maintenance services, truck yards, and equipment.
Despite that, Giermanski says the agreement will have little competitive impact on the marketplace. The one exception, he says, could be the creation of regional hub-and-spoke operations linking Mexico with U.S. border cities, notably in Texas.
Kyle Alexander, director of strategic carrier development for Transplace, a Frisco, Texas-based third-party logistics service provider with significant Mexican exposure, agrees that open access for Mexican truckers could, in the near term, trigger new opportunities for shippers building a distribution presence on the southern border.
“It will open up this unique economic zone between Texas and Mexico to a level that has never existed before,” Alexander says. Opportunities for long-haul service, he adds, will take at least three to five years to develop, if they come to fruition at all.
Thanks, but no thanks
The issue of open access for Mexican truckers into U.S. markets has been on the table since the North American Free Trade Agreement (NAFTA) took effect back in 1994. In fact, NAFTA stipulated that qualified Mexican carriers should be allowed full freedom in U.S. commerce no later than January 2000. However, legal and administrative roadblocks—mostly driven by safety and environmental concerns—have kept them out.
The reality, though, is it has never been a freedom that Mexican carriers crave. One trucking industry source noted the Bush administration “literally had to beg” Mexican truckers to participate in a 2007 pilot program that gave a limited number of Mexican truckers entry into U.S. markets. Mexican carrier participation fell way short of the 100 trucking concerns the U.S. government hoped for, the source said.
“This notion that this agreement opens the floodgates is absurd,” said the executive, who requested anonymity. “However this develops, it will be evolutionary, not revolutionary.”