CANAMEX Corridor opens new options for trade with Asia

The CANAMEX Corridor of Innovation initiative has been working in recent years to plan improvements to public and private shipping, rail, highway and inspection facilities through a multistate cooperative of Arizona, Nevada, Utah and Idaho. Now, most truck and freight train traffic in Arizona goes east and west. CANAMEX (aka "Smart Corridor") has the potential to free up north-south trade in North America and more efficiently reach out to the Far East. CANAMEX can expand trade to more markets by easing bottlenecks, according to experts at Arizona State University and the W. P. Carey School of Business. Stepped-up trade with China, Japan and other Asian nations has made Los Angeles-area ports so busy that CANAMEX planners are looking south for easier access to the Pacific trade routes.

The topic of international trade these days mostly conjures thoughts of expanding Asian markets and Middle Eastern oil, but one route to prosperity in the global marketplace runs right through Arizona: It is the Canada-American-Mexico Corridor. The CANAMEX Corridor of Innovation initiative has been working in recent years to plan improvements to public and private shipping, rail, highway and inspection facilities through a multistate cooperative of Arizona, Nevada, Utah and Idaho. Now, most truck and freight train traffic in Arizona goes east and west.

CANAMEX (aka "Smart Corridor") has the potential to free up north-south trade in North America and more efficiently reach out to the Far East. CANAMEX can expand trade to more markets by easing bottlenecks, according to experts at Arizona State University and the W. P. Carey School of Business. Stepped-up trade with China, Japan and other Asian nations has made Los Angeles-area ports so busy that CANAMEX planners are looking south for easier access to Pacific Ocean steamship lines.

One route runs through Guaymas, Mexico, which is on the Gulf of California, about 200 miles south of the Arizona-Mexico border city of Nogales. A recent Arizona Department of Transportation report, "Logistics Capacity Study of the Guaymas-Tucson Corridor," concluded that the Port of Guaymas, "with some minor improvements, such as the acquisition of additional container-moving equipment, is ready to start a container service comparable to other Mexican regional ports, such as the Port of Mazatlan [much farther to the south on Mexico's Gulf of California coast] and Ensenada [on the Baja peninsula]."

CANAMEX appeal growing

"The problems caused by the congestion of the ports of Long Beach and Los Angeles have caused companies to look for other alternatives such as the corridor between Guaymas and Tucson," says J. Rene Villalobos, associate professor of industrial engineering at ASU's Ira A. Fulton School of Engineering and a co-author of the Guaymas-Tucson corridor study. Although the CANAMEX Corridor may not be a household name among the general public, Villalobos says people in international business are familiar with the corridor, a concept started in 1995.

Despite the surge in fuel and transport prices, trade with Asian partners still makes sense, Villalobos says: "The increase in transportation prices certainly makes places that are close by more attractive for trade. However, the transportation costs with the Far East countries are still very competitive because of the prices offered by the steamship companies. It depends on the commodity."

Improvements to border-crossing facilities in Nogales and to the infrastructure of Guaymas are vital, according to Arnold Maltz, associate professor of supply chain management at the W. P. Carey School of Business and a co-author of "Logistics Capacity Study of the Guaymas-Tucson Corridor." That study says the main limitation of Guaymas' port capacity is the lack of quay cranes, which are land-based cranes that lift cargo to and from ships.

"This precludes the Port of Guaymas from being able to offer efficient turnaround services to modern container ships that are not geared with their own cranes," the study states. "In order to provide this service we believe that at least two quay cranes are needed, since just one quay crane would not provide enough capacity to make the loading and unloading of containers from the vessels more expedient."

The exact capacity and characteristics of the quay cranes and related issues, the authors state, are a suitable subject for a future study. The Mexican government is providing funds for follow-up studies, Villalobos says. Although Guaymas has adequate rail and highway connections through Mexico to Arizona, the study says the Port of Guaymas lacks a regularly scheduled container service, which railroads need to utilize the corridor's potential.

"While the analysis of the requirements to attract a major shipping line to the port was beyond the scope of this study, we believe that the geographical position of Guaymas may be an issue to attract, in the short term, a company to provide direct service to Asia," the authors wrote.

"We believe that the railroad companies are indispensable for the creation of an economically feasible container corridor between the Port of Guaymas and Arizona. Thus, these companies must be encouraged to take an active role in the activation of a container service in the Corridor."

New ports eyed for China trade

"It has always been my understanding that the issues at Guaymas are facilities," says Tracy Clark, an economist with the Bank One Economic Outlook Center at the W. P. Carey School. "They have been working on those issues. L.A. is close to maxed out. If there is an alternate port with good land transport connections, it will be used ... There [is] not enough capacity on the West Coast as a result of the ramp-up of the China economy."

The study says improvements also will be needed for the Nogales inspection compound, known as the Mariposa Port of Entry, which every commercial motor vehicle entering the United States at Nogales must go through. Upgrades also will be needed for railroad inspection procedures on the U.S. side of the border.

The study says the maximum number of trucks that can be processed daily at Mariposa POE under current operation conditions is around 1,500. "Considering a current demand of up to 1,300 per day: It can only serve 200 trucks extra per day" before waiting times would be significantly increased, the study states.

"Due to inspection time requirements and railroad operations in Nogales, currently only up to eight trains per day can cross the border, which means only one additional northbound train per day can send through the corridor." The study found no significant point of congestion along Mexico's Federal Highway 15, which links Guaymas and Nogales, but a segment of Interstate 19 that connects with Interstate 10 in Tucson is at capacity or near capacity during rush times.

CANAMEX Corridor initiatives might warrant some cautious optimism for trade within North America and an easing of the U.S.-Mexico immigration issue, although trade with Asia is expected to continue to accelerate despite higher petroleum prices. "CANAMEX is a route to expanding markets, not shifting trade between areas," Clark cautions.

"Asian trade will continue to expand because of rising standards of living in China and continued low cost. Asian trade in high-value, low weight/volume items like computer chips goes by air, and has to go to Asia because that is where the assembly plants are located. Asian trade in low-value, high-weight/volume stuff [the things made out of the computer chips] goes by boat or not at all. The biggest barrier to expanding trade with Asia is the lack of port capacity, not fuel prices."

Clark says Mexican employment was hit hard as China became the low-cost producer. "I suppose that energy prices or wages in China might rise enough to help Mexico regain some of that lost business. However at current energy prices and wages China is still cheaper," he says.

A 'borderless economy'?

Many Mexican workers who lost jobs at maquiladoras — manufacturing plants near the U.S. border which assemble finished goods out of U.S.-supplied parts and resources — are among the millions now working low-wage jobs in the United States. Mexican-government incentives for the maquiladora program, initiated by the then-ruling Institutional Revolutionary Party (PRI) around 1968, have expired, prompting many Mexican workers to cross into the U.S.

One of the stated goals of the CANAMEX Smart Corridor organization is "facilitating provision of professional services in the region through common registration and licensing, which contribute to the creation of a 'borderless economy.'" How can the CANAMEX goal of a "borderless economy" be squared with the controversy over illegal immigration? "You can't have it both ways," Maltz says.

"But what CANAMEX is about is encouraging development in Mexico, which will make the opportunities greater down there and thus decrease the attraction of illegal crossing. ... This is on the table for many companies right now. Mexico claims to have regained some business, and Motorola has made Nogales a major manufacturing center."

"There is some tension there," Clark says of the immigration issue and CANAMEX goals, "but just as with the fear that bombs will be imported through a port facility, inspection is the answer. We will never have borderless [trade] in the same sense we do between states. I don't think illegal immigration will prevent either trade or somewhat freer movement of goods, although it may delay things just as 9/11 fears set things back at the Canada-U.S. border."

And, although most of the CANAMEX emphasis has been southward, there are issues involving our neighbors to the north. "There are transportation challenges on the Canadian side," says Dawn McLaren, research economist with the W. P. Carey School of Business.

"I've heard from some shippers that it is better to use the old quota system than NAFTA because of the bureaucracy involved." McLaren describes the CANAMEX Corridor as a "fairly new" concept. "The difficulty is that Mexico borders the southwest United States, and the industrial areas of Canada are in the east [Ontario]. As Alberta comes onto the map with the oil sands, however, that could change quite a bit."

Although second only to the Saudi Arabian reserves, Alberta's oil sands, formerly known as tar sands, are thick and require special extraction and refining methods. Still, oil sand has come to represent about half of Canada's total crude oil output. "As the technology to extract oil from the sands is developed, it becomes more important," McLaren says. And, although Canada and Mexico export more oil than they use, she notes, "Neither Mexico's nor Canada's oil is of the grade found in the Middle East."

Regardless of such complications, the development of the CANAMEX Corridor will aid the flow of oil and other resources and products, which could unify and strengthen the North American economy, including its balance of trade with Asia. "In my opinion, the existence of an efficient CANAMEX Corridor would make the production and acquisition of some products from Mexico more attractive than getting those products from China," Villalobos says.

"Also, very often products produced in Mexico are either based on U.S. raw materials or are finished in the U.S. For every dollar that Mexico imports, around 55 cents are from the USA; for every dollar that China imports, about 8 cents come from the USA. Thus, if the [logistical] efficiency of the Corridor increases, it should, in the mid to long term, have a positive impact [maybe minor] on reducing the U.S. trade deficit."

Among the CANAMEX goals:

• About $4 billion worth of highway improvements are planned and programmed, including the Hoover Dam bypass, which is under way.
• Smart Process Partnerships in which all five CANAMEX states — Arizona, Utah, Idaho, Nevada and Montana — create efficiency and savings for government, businesses and individuals.
• Telecommunications access for rural areas where broadband is lacking.
• A shared Information Technology System (ITS) that could be used by everyone from freight shippers to tourists.
• Accelerating access to e-government services for business registrations and license renewals.
• An interoperable Digital Signature program for CANAMEX states to coordinate a single set of standards for secure electronic commercial transactions.