Carriers see growth and revenue opportunity on our northern and southern borders
March 2013, TruckingInfo.com - Feature
Today, borders aren’t so much barriers as they are trade portals. Yes, security concerns and trade issues have thickened our northern and southern borders in recent years, but the volume of NAFTA-region trade increased substantially at the same time.
Despite a precipitous drop in activity during the recent recession, trade in inflation-adjusted dollars between the three North American Free Trade Agreement partners grew by more than $10 billion between 2004 and 2012. What's more, trucks moved the vast majority of the goods coming and going from the U.S. into Mexico and Canada.
Department of Transportation statistics show that monthly surface trade volumes between Canada and Mexico for November 2012 totaled $46.7 billion and $34.8 billion respectively, representing a 6.2% increase over the same period a year ago.
Trucks moved more than $56 billion worth of that trade, compared to rail and marine with a combined total of just over $24 billion.
North and south
The concept of near-shoring is responsible for a sizable portion of the increase in surface trade with Mexico, says Troy Ryley, managing director of Transplace Mexico.
“U.S. trucks don't have any opportunity to run freight in and out of China,” he says. “Near-sourcing is bringing manufacturing back to North America from China, and Mexico is seeing terrific economic growth as a result. And it's putting U.S. truckers on the road.”
When the freight is in the van, it doesn't really matter if it's goods being exported to Mexico or material bound for a maquiladora operation where factories import material and equipment on a tariff-free basis for assembly, processing or manufacturing. The growth in Mexican manufacturing has been good for trucking, and many larger carriers such as Swift, Schneider National, Celadon and others see tremendous growth opportunity there. Many now have Mexican operations so they can dispense with the interline agreements with non-owned business partners.
Looking north, trade volumes remain strong — Canada is the U.S.'s largest trading partner — but there has been a shift in whose trucks are moving the freight.
Traditionally, Canadian carriers have dominated the Canada-U.S. cross-border market. While that is still true, more American carriers are now heading north with good-paying freight.
A recent report from Statistics Canada showed that between 2004 and 2009, “the balance of truck-borne trade swung decidedly towards imports (to Canada), which may have switched the backhaul from the import to the export portion of a truck's round trip.”
In other words, a decline in Canadian exports (partially driven by the U.S. recession), a decline in Ontario's manufacturing output (again, partially recession-driven), and a significant swing in the exchange rate, meant that more goods were being imported into Canada than were exported. That put Canadian carriers at a disadvantage on cross-border trips. In many cases, carriers had to jack up their rates to service importing customers, because the revenue on the southbound loads was in decline.
U.S. carriers were more competitive vis-a-vis the ability to “backhaul” from a position such as Buffalo, N.Y., Detroit, Mich., Seattle, Wash., etc., than Canadians were in traveling to points deep in the U.S. to pick up northbound freight.
While that shift in traffic patterns is stabilizing and more Canadian carriers are reporting a return to previous volumes and revenues on north- and south-bound lanes, U.S. carriers walked through an open door in the latter years of the previous decade and found a profitable market that remains open today.
Canada's e-Manifest program and the U.S. ACE program mean trucks can drive through the border almost without stopping.
Changes in latitudes, attitudes
It's far easier to get freight into and out of Canada than Mexico. Electronic data interchange, pre-arrival inspection and security checks for drivers and carriers have rendered the physical northern border little more than a formality in most cases.
The American Automated Commercial Environment program (more commonly known as ACE) has been in place since 2008. The e-Manifest portion of Canada's Advanced Commercial Information program that applies to truckers came online late last year and is still in the learning phase.
Jonathan Wahba, vice president and general manager of Schneider National's Canadian operation, whose trucks make more than 1,000 crossings every week, says the two countries have harmonized the process and made it a much easier process for carriers overall.
“The two programs — e-Manifest and ACE — are quite similar in structure and process,” he says. “Both require much the same information, and it has to be submitted ahead of time so the inspect-or-release decision can be made before the truck arrives. High-volume, low-risk shipments, like much of what we haul, are rarely delayed. Some infrequent shipments or shippers get sent to secondary inspection, but overall it's better than the previous systems.”
Everything else being equal, a truckload shipment can sail through the border in a matter of minutes, deliver inland, reload and get back out again more or less seamlessly. Forwarding and consolidation are still common for less-than-truckload shipments, with logistics operations such as Evans Distribution in Detroit transloading Canada-bound freight from 40 to 50 trailers per week from carriers across the U.S.
Next Page: It's a different story at the Mexican border.