July 6, 2011 marked the resolution of a long-simmering NAFTA dispute between the US and Mexico over long-haul, cross-
border trucking. Although NAFTA came into effect 17 years ago, the trucking deal was still bogged down over two legitimate issues: (1) border security and (2) union and independent trucker opposition to the loss of high-paying jobs to lower-priced Mexican drivers (who earn about 1/2 of their US counterparts).
Businessweek (July 20-27, 2011) reports that transporting goods across the Mexican border is a complicated business, involving customs brokers, warehouses, and lengthy inspections for drugs and illegal immigrants. Under the current system, Mexican trucks haul their merchandise to the border, where a transfer truck takes it across. A US truck picks it up on our side. In time, a Mexican driver will be able to haul goods from any Mexican city straight through to Chicago or New York. To qualify for service on US roads, Mexican drivers will have to learn rudimentary English and US highway laws.
Is it a good trade-off? Businessweek strongly endorses the idea. With trade among Canada, Mexico, and the US at$1 trillion (triple since the start of NAFTA), the magazine writes: “US potato farmers, along with producers of pork, cheese, and other goods, can look forward to reduced Mexican tariffs with the resolution of the trucking deal. Higher wages and wider prosperity in Mexico are very much in the US national interest”.
US truckers will strongly disagree. While Mexican drivers will surely benefit, American drivers are loath to travel into Mexico. The country lacks the smooth roads, fuel stations, and accommodations available in the US–and has violent drug gangs to boot. In effect, the trade-off balances a more efficient supply chain with the disruption of workers in this industry. It’s no wonder the Obama administration announced the agreement with little fanfare.
Discussion questions:
1. Is the lower transportation cost good, or bad, for OM?
2. How does this change impact the supply chains served by the truckers?
Good article and the answers to your questions, in my educated and some would say expert opinion.
1. I don’t really see any lower transportation cost as far as rate of haul goes. Cost of operation is basically the same across the board, be it US, Canadian or Mexican trucks. The lower wages of Mexican drivers would be offset by increased costs of regulatory requirements in the US. Expediency would be enhanced using one truck instead of three to move the goods from manufacturer to destination. Security would be enhanced by having the cargo on one truck trailer combination from consignor to consignee. The cost of of the current procedure is approximately $150.00 to move a trailer from a holding yard on the Mexican side to a forwarder on the US side. Some claim that would cost jobs, yet that revenue would be shifted to the NAFTA carriers.
People tend to ignore that we have more than 1,065 Mexican carriers permitted to operate across the entire US since 1982. We’re arguing here what might amount to 100 trucks maximum.. And with 4.5 million loads of freight crossing our southern border annually, 100 trucks will not be noticed.
2. I don’t forsee any impact for at least a decade or more, if then
Porter,
Thank you for your thoughtful and excellent analysis.
Barry
As an owner of a trucking company you overlook an important factor. My cost for compliance with federal regulations. Mexican firms will not have this burden and therefore are afforded an unfair competitive advantage. I will be running for Texas State Rep on the platform EVERY truck must comply with Texas Regs (the same as current ones) and will have State DOT officers waiting by the border to place out of service all violators. If the federal government [sic] cannot protect American business the States will have to do it on their own.