Research

Trucks across the border: Direct shipping between the U.S. and Mexico stirs heated debate

In September, the U.S. and Mexican governments took a tentative first step towards the final goal of allowing unfettered shipping between the two nations — a measure agreed upon under NAFTA but delayed since 1995. Proponents say freeing up trucks to directly deliver goods in their neighbor countries will cut shipping costs by millions of dollars annually, reduce pollution and ultimately benefit consumers in both nations. However, the measure also has a long line of opponents on both sides of the border. Arnold Maltz, a professor of supply chain management at the W. P. Carey School of Business, and Dawn McLaren, a W. P. Carey research economist, examine the pros and cons of cross-border shipping.

2007-09-26

On Sept. 9, a lone Mexican truck passed through the international port of entry in Laredo, Texas en route to North Carolina, carrying a load of steel. Several days later, a U.S. tractor-trailer crossed into Mexico from Nogales, Arizona to deliver a shipment of plastic resin to Ciudad Obregon, 300 miles south of the border.

The shipments represented a tentative first step towards the final goal of allowing unfettered shipping between the two nations — a measure agreed upon under NAFTA but delayed since 1995. If the U.S and Mexican governments have their way, both nations may see more such incursions. Proponents say freeing up trucks to directly deliver goods in their neighbor countries will cut shipping costs by millions of dollars annually, reduce pollution and ultimately benefit consumers in both nations.

But this shipping utopia likely won't come to be, at least in the short term. The measure has a long line of opponents on both sides of the border, who have an equally long list of complaints. These include questions over the safety and cleanliness of Mexican vehicles and concerns that the nations' disparate regulations and labor policies will create an uneven competitive playing field.

The slow dance of the three trucks. In the meantime, most cross-border commerce is carried out via what some call a "three-truck dance." First, a Mexican vehicle drops off its shipment near the U.S. border. The goods are then picked up by drayage companies that specialize in the time-consuming hop across the border and through U.S. Customs. Once in the United States, the shipment is loaded onto an American truck en route to the final destination, or held in a warehouse until it can be picked up.

As trade between the United States and Mexico has grown under NAFTA, so has the stream of trucks carrying goods back and forth. Today, commerce between the two countries is worth an estimated US$330 billion and more than 70,000 trucks cross the border daily.

Tractor-trailers often idle in line for hours while waiting to reach the U.S. Customs checkpoint. All vehicles go through X-ray inspections and some are subject to more exhaustive inspections. The agents must be vigilant for everything from illegal drugs and stow-away migrants to unlicensed merchandise and invasive species of insects.

The inspections can delay shipments for hours or even days. As it stands, the process generates pollution, raises costs for shipping companies and exasperates producers and retailers.

"The delays at the border introduce uncertainty in the supply chain," said Arnold Maltz, a professor at the W. P. Carey School of Business who specializes in supply chain management. "You don't know whether it's going to be half a day or four days to get across the border. And that causes ripples up and down the supply chain."

This uncertainty, he added, triggers an assortment of "hidden costs," such as lost sales and the need for more inventory procedures. For produce, delays mean lost freshness and quality. "That's what drives everyone nuts," Maltz said. "It's that you don't know when you're going to get the stuff. If I always could plan for an extra half a day, that's a whole lot easier than not knowing whether it'll be a half a day or occasionally four days."

The long lines and delays are often attributed to U.S. Customs and Border Protection, which has not seen an increase in agents, facilities and budget to match the parallel boom in trade. The result is an agency that is "totally overwhelmed," according to Luis Ramirez, whose Phoenix-based consulting firm, Advisors Inter-National, specializes in border issues. Post-Sept. 11 security concerns have further strained the situation, he added.

"Customs and Border Protection went from charging duties and enforcing quotas to protecting the nation against terrorism," Ramirez said. "So their demands have dramatically changed." Some experts say that opening Mexican and U.S. shipping routes will be one step towards alleviating the chronic border congestion.

"What you will eliminate is that three-step process at the border where they have two transfers," said Maltz. "That's what will go away and that inevitably will make things cheaper."

A different point of view

The U.S. Teamsters union, however, argues that Mexican trucks threaten both U.S. security and jobs. In statements to the press, Teamsters President Jim Hoffa labeled the project a "foolhardy, dangerous plan." To support their claim, the union points out that Mexican truckers are not regularly tested for drug use, and no database tracks their driving records. Teamsters also cite conflicting labor policies and lower pay.

The teamsters are also supported by the watchdog group Public Citizen and the Sierra Club, which argues that aging Mexican trucks will put more smog in U.S. skies. Many in the Mexican trucking industry are equally dead set against the measure for different reasons.

A national organization representing 4,000 trucking firms and thousands more owner-operators, known as Canacar, says that U.S. shipping companies, with their massive fleets of modern vehicles, have an unfair competitive advantage. The group's leader, Tirso Martinez, has also argued Mexican trucks will face tighter inspections than their U.S. counterparts as a result of the safety concerns.

"We know that there's going to be a big difference between how Mexican trucks on U.S. soil are inspected versus how U.S. trucks in Mexican territory will be inspected," Martinez said in a press conference on Sept. 13. He suggested U.S. authorities would find reasons to hold up Mexican trucks, while Mexican authorities would give the green light to all U.S. vehicles. "That's why we're talking about a lack of equal conditions," he said.

Opposition followed by tragedy

These groups' vocal media campaigns were followed by a tragic accident in northern Mexico on Sept. 9 — the same day the Mexican steel shipment entered the United States. Twenty-eight died and more than 100 were injured when a truck carrying dynamite caught fire and exploded near Monclova, Coahuila.

Two days later, the U.S. Senate voted to remove funding for the pilot program that had allowed the Mexican truck to drop off its shipment in North Carolina. (Under the program, Mexican trucks would be prohibited from carrying hazardous materials such as explosives into the United States). The vote was part of a larger transportation-spending bill, which has yet to be approved.

The plan would grant provisional access to the United States to a total of 600 trucks from 100 Mexican shipping companies. Mexico had pledged to grant access to an equal number of U.S. firms. While in the United States, Mexican drivers would have to follow U.S. regulations and labor policies. All vehicles entering the United States would still be inspected by customs agents.

The pilot would last one year, during which authorities in both nations would monitor progress and address problems, ostensibly in preparation for a full opening. Some speculate that President George W. Bush may try to veto the entire transportation bill, but it is unclear whether his administration will be able to salvage the program.

Despite the program's uncertain future, the U.S. Department of Transportation is pushing ahead. It announced on Sept. 19 that two more trucking firms — one Mexican and one U.S. — had been approved for cross-border shipping. While some observers agree that certain concerns about the plan are valid, they add that others, such as complaints over Mexican trucks' conditions, are unnecessary.

"From a safety perspective, I'll tell you that, as the resident of a border state, the last thing I want is an unsafe truck operating anywhere," said Ramirez. "But if there are appropriate measures to verify the safety and security of the truck and the driver, and if it helps to facilitate trade and ultimately improve the situation for the consumer or end-user of whatever the product is, then why wouldn't we do it?"

Maltz said that Mexican trucking firms interested in shipping within the United States have indicated they would only use their best vehicles there. He added that the potential losses from having a shipment turned away would prevent companies from using older trucks that were polluting or dangerous.

Both Maltz and Rene Villalobos, an associate professor at the Ira A. Fulton School of Engineering, said that Teamsters' fears of being displaced by cheaper Mexican drivers were unfounded. "The teamsters in the U.S. are afraid of Mexican truckers using Mexican labor rates," Villalobos said. "But a lot of times the U.S. companies are more efficient than the Mexican companies because of their capacity."

"It's not clear to me who's going to be more efficient in the long term," he added. "What is clear, is that the general public would probably benefit in both countries from competition."

More measures required

Others, however, such as Dawn McLaren, a research economist at the W. P. Carey School, say that the program could unintentionally worsen border traffic. As greater numbers of unfamiliar trucks from the Mexican interior arrive at ports of entry, more time-consuming inspections could be required, she said. This could further strain the capacities of customs facilities that are already stretched to the limit.

"Part of the shipping cost isn't just unloading everything at a warehouse and then putting it back on a truck, but it's also stopping and being backed up at the customs crossover or being stopped for a full inspection instead of being allowed to go through," McLaren said. "I'm worried that our savings might be offset by an increase in the cost of having to deal with this effort."

Many experts and business advocates say that either way, U.S. Customs and Border Protection needs more funding, training and better facilities. They also note the need for longer hours of operation at border crossing points.

Infrastructure improvements have already begun at some ports of entry, such as in San Luis, Arizona. Ramirez said that many additional projects have been identified to help boost border efficiency from California to Texas. If implemented, the price tag would be well over US$2 billion. Other proposed solutions include looking beyond trucking and creating more incentives for shippers to send goods via air, rail and boats.

In the meantime, trucks still line up and wait on the border, and producers, shippers and retailers must wait with them until the political waters are right for a solution to advance. "I think for anyone that can sit down and look at the situation, you see additional drivers involved and longer lines at the border," Ramirez said. "I think we need to find a way to change the system and make it better."

Background on U.S./Mexico trucking

• NAFTA stipulates unrestricted shipping between North American countries. Trucks from neighbor nations were to be given access to border states by 1995, and regionwide by 2000. Canadian and U.S. trucks already deliver to cross-border destinations in Canada and the United States, but Mexican trucks have been excluded due to safety concerns.
• Bill Clinton's administration refused to open U.S. highways to Mexican trucks in 1995. Mexico appealed to a NAFTA arbitration panel, which ruled in 2001 that the United States must allow Mexican trucks to enter. The United States has not complied. Critics say the U.S. stance undermines NAFTA and discourages other nations from honoring trade agreements.
• NAFTA allows trucks from any North American country to deliver and pick up goods within the borders of neighboring nations, but point-to-point shipping on foreign soil is prohibited. For example, a Mexican truck can deliver a shipment from Mexico within the United States and return with goods to sell in Mexico, but it cannot pick up and then deliver shipments within the United States. The same rules apply for U.S. and Canadian vehicles.
• Currently, Mexican trucks are required to drop off U.S.-bound shipments within the immediate border zone. This is generally 25 miles from the international border, although the area is larger in Arizona. Likewise, U.S. trucks must drop off shipments in Mexico shortly after crossing the border.
• Since trucking firms don't want expensive, long-haul tractor trailers idling on the border, cartage companies often pick up shipments and drop them off on the other side of the border, for a fee. Cartage vehicles are generally older, and may emit more pollutants, causing environmental problems.
• The busiest point of entry on the southern border is in Laredo, Texas, where the lion's share of U.S.-bound trucks pass. Most produce from Mexico enters the United States via Nogales, Arizona, causing seasonal fluctuations in border traffic that have led to lengthy delays. Other major entry points are El Paso, Texas and San Diego, California.

Supply Chain Faculty