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.
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.[PAGEBREAK]
It's a different story at the Mexican border.
Looking down at the U.S.-Mexico border at places such as Laredo and Juarez, and you'll see millions of square feet of warehouse space. Almost every one of the 8,000 to 12,000 shipments crossing that border every day comes off a truck.
“Most southbound loads will stop at a Customs warehouse on the U.S. side before entering Mexico for inspection,” says Ryley. “There's usually a transhipping arrangement with a Mexican carrier or a U.S. carrier's Mexican affiliate.”
Ryley says the quantities and descriptions of cargo are checked, and the Mexican Customs brokers are not very tolerant of mistakes.
“The fines are disproportionate to the crime,” he says. “Even small issues can cause the freight to be confiscated. In the case of large mistakes, the Mexican Customs brokers can lose their licenses or even be thrown in jail.”
It often takes a day or more to clear a load, so it's very inefficient to try to run the same truck across the border to the destination. And that is before all the other impediments, such as language, permitting, insurance and immigration issues.
Most loads are driven across the border by transfer carriers that do nothing but wait in line to get into the other country. It's the same north and south bound. Once the load is in Mexico, or the U.S., a domestic carrier takes it to its destination.
If you're a Swift or a Schneider, you can rate cross-border transportation from door-to-door for your customer, using your domestic assets in either country and your customs brokerage services at the border. It can be a seamless transaction to the customer. But where does that leave carriers without the necessary Mexican infrastructure?
“Still very much in the game,” Ryley insists. “Small carriers and even owner-operators can be very competitive on a cross-dock movement where the freight comes off the trailer before crossing the border. That carrier is one link in the distribution chain, hauling to or from the U.S. address to the border for furtherance into or from Mexico. Non-asset 3PL logistics providers, like Transplace and other companies, make the movement seamless to the customer. The owner-operator can be very much a part of such a supply chain.”
Crossing borders is not something you do casually as was the case in the past.
Schneider's Wahba says there's help available at almost every step of the journey, but you need to ask for guidance before problems arise.
“Our company has all those resources internally, and while we don't often need them, they are indispensible at times,” he says. “For smaller carriers, third parties can help with the e-Manifest and ACE filings, permitting, special clearances like Department of Agriculture and others.”
As overseas transportation costs and Chinese labor cost continue to rise, many expect near-shoring to bring more manufacturing to the NAFTA region. That's where future growth potential lies.
For more details on Canadian trucking regulations, see www.truckinginfo.com/canada.
Move that trailer for me
Point-to-point movement of domestic freight by foreign-based motor carriers, commonly referred to as cabotage, is against the law in both Canada and the United States.
Both countries have nearly identical cabotage rules that from 40,000 feet appear straightforward, but are in fact very complex. One in particular causes no end of confusion, anxiety and expense: trailer repositioning.
To over-simplify, foreign carriers are not allowed to shunt or reposition trailers dropped in the U.S. or Canada. For example, a U.S. carrier can drop a loaded trailer it has brought into Canada and pick up a different loaded trailer it plans to haul out of Canada. It cannot, however, move an empty trailer from one dock to another, or to a different shipper located across town or across the street.That is considered cabotage.
Both the American Trucking Associations and the Canadian Trucking Alliance are strongly in favor of modernizing some parts of the cabotage rules, particularly the repositioning rules.
“We're not talking about wide-open cabotage, but I think if anyone were to take a step back and look at the situation and see ... restrictions on something as simple as re-positioning an empty trailer, they would realize that this is an area that is crying out for reform,” says David Bradley, president of the CanadianTrucking Alliance.
There's hope that the current round of Canada-U.S. negotiations on a perimeter security agreement might get the ball rolling. In the meantime, be careful what you ask your drivers to do while on foreign soil. Penalties range from fines to equipment forfeiture.
Next page: Mexican Cross-Border Pilot Growing Slowly[PAGEBREAK]
Mexican cross-border pilot program growing slowly
The Department of Transportation's Mexico cross-border pilot program remains in legal jeopardy due to opposition from the Owner-Operator Independent Drivers Association and the Teamsters union, and there are still too few carriers participating to prove that the regulatory system will work in the long run.
As of Feb. 21 there were 10 Mexican carriers participating in the pilot program that was set up to test how well the rules work.That's up from the seven carriers participating last September. More carriers have applications pending.
In the past three months, the carriers have had no reportable crashes, and they appear to be meeting the regulatory requirements, which are similar to and in some respects stricter than U.S. requirements.
But the Federal Motor Carrier Safety Administration, which runs the program, has a way to go before it reaches its target numbers.
The agency estimates it needs at least 46 Mexican carriers in order to reach its target of 4,100 inspections over three years. So far there have been 558 inspections.
One issue still in flux is enforcement of “cabotage” rules, which prohibit Mexican carriers from hauling freight between points within the U.S.
The agency is monitoring cabotage manually, but it intends to switch to an automated system once there are enough Mexican carriers in the program to justify the expense.
The agency has enlisted the help of its Motor Carrier Safety Advisory Committee, which has reached out to the Mexican federal motor carrier safety agency and will regularly review aspects of the program over the next couple of years.
Meanwhile, the pilot program remains in legal jeopardy. OOIDA and the Teamsters have opposed cross-border trucking ever since it was established under the North American FreeTrade Agreement in 1994.
They have asked the U.S. Court of Appeals in Washington, D.C., to stop the program. Oral arguments were heard last December. A decision could come in March or April but may take longer, says Joyce Mayers, an attorney for OOIDA.
With reporting from Oliver B. Patton, Washington Editor