Roads to common ground

| July 15, 2009

Mexican border odThe past, present and future of U.S.- Mexican cross-border trucking


Little else in trucking incites the passion of U.S. truck drivers like the issue of cross-border hauling through the land ports in California, Arizona, New Mexico and Texas. Bring up the Bush administration’s cross-border trucking demonstration project in any truckstop across the land, and you’re sure to get an earful of opinion from either side of the issue. “They should stay on that side of the border, and we should stay on ours,” says F. Chapman, a Georgia owner-operator leased to Fuller Trucking. “You’re only going to take jobs away from Americans by opening the border to Mexican trucks.” It’s a common view, one promoted by a cohort of groups from the Teamsters union to the Owner-Operator Independent Drivers Association.

Kevin Robinson, a Tennessee-based company driver for Falcon Transport who has family in the borderlands in Texas, is decidedly less concerned. “It doesn’t matter,” he says of allowing Mexican long-haul trucks and drivers access to the U.S. interior market. “Somebody’s going to bring [freight], and somebody’s going to take [freight].” Robinson notes the interconnectedness of the U.S. and Mexican economies, with the multiplicity of American corporation-owned assembly facilities south of the border, known as maquiladoras and part of a longstanding Mexican government-sponsored program of incentives for assembly plants in the border areas. Car and truck parts and other goods and raw materials cross southbound; new cars, new trucks and other durable goods come back north, feeding into the economic engine of the entire continent.

Roger Creery, executive director of the Laredo Development Foundation, says the cross-border trucking issue’s practical component is in making international trade moved by truck “a little more seamless,” a definite area of interest for trucking, manufacturing and other businesses on both sides of the border.

But, Creery adds, many people have lost sight of that practicality. “Has this become more of an emotional issue than it is an economic issue?” he asks.

With tempers running hot, the cold reality is that, as low participation in the Bush cross-border demonstration project suggested all along, few companies north or south of the border have the on-hand cash and the will to really do cross-border long-haul. The processes and infrastructure in place today for moving loads across the border is likely to remain relatively unchanged for years to come, whether any cross-border program begins anew or not.

When President Obama signed into law the $411 billion appropriations bill shortly after taking office, he effectively ended the demonstration project, spawning near-instant retaliatory tariffs on a variety of U.S. agricultural and manufactured products worth an estimated $2.4 billion to U.S. exporters. Even more quickly, the parties to the ongoing political back-and-forth over the notion of a U.S.-Mexican border open to international long-haul broke into action.

Philosophical free-traders used the Mexican tariffs to pronounce the U.S. government’s end to the project a travesty of economic justice. “Mexico has been the grown-up in this dispute,” says Dan Griswold, director of the libertarian Cato Institute’s Center for Trade Policy Studies. “They’ve followed the rules and waited patiently for the U.S. to do the right thing. And now their patience has worn out. It’s time for the U.S. to live up to its international commitments and set a good example instead of a bad example.”

Griswold echoes the words of the Mexican ambassador to the United States, who in a March 18 Wall Street Journal editorial pled Mexico’s case for the tariffs by invoking the dispute’s history: “This was never about the safety of American roads or drivers. It was and has been about protectionism, pure and simple. Back in 1995, the U.S. unilaterally blocked the implementation of the North American Free Trade Agreement’s cross-border trucking provisions, just as they were about to enter into force. In response, and after three years of constant engagement, Mexico had no alternative but to request the establishment of an arbitration panel as allowed under NAFTA. A five-member panel, chaired by a Briton and including two U.S. citizens, ruled unanimously in February 2001 that Washington had violated the trucking provisions contained in NAFTA, authorizing Mexico to adopt retaliatory measures.” Which they didn’t in much measure, but presumably retained the right to do, though longtime opponents of the demonstration project continue to call the tariffs themselves illegal.

“The administration should put their foot down on the tariffs,” says Todd Spencer, OOIDA executive vice president. Spencer and his organization, along with many of its member owner-operators, have long been opposed to opening the border to long-haul cross traffic for reasons of safety and the disparate standards and economics of freight movement on either side. Spencer argues the illegality of the tariffs but is quick to address what he calls actions that amount to “economic treason” by pro-big-business interests on this side of the border: “We believe that the seeds of those tariffs didn’t start in Mexico City. They started in our U.S. Capitol with those economic interests who have been wringing their hands about their inability to tap into those lower-cost Mexican drivers for a long time.”

The import tariffs and the procedures for freight entering Mexico from the U.S. seem to bear him out. Trade into Mexico is anything but free, according to Rolando Quintanilla, former Indy racecar driver and president of Quintanilla International, based in Laredo, Texas.

While the customs procedure for northbound goods is fairly free and seamless from a duty perspective, the southbound process is not, he says, involving a complex set of tariffs and classifications that many along the border characterize as cumbersome, at best.

Quintanilla’s company prepares loads for importation to Mexico at its Laredo, Texas, facility in the transport-centric Milo Industrial Park. They do the same for northbound goods in Nuevo Laredo on the other side of the border.

“Northbound is easier because there are no tariffs,” Quintanilla says, a situation that predates the latest round of retaliatory tariffs. “I don’t think you’ll ever really get to a truly free-trade scenario, because there’s too much to lose in terms of competition – Mexico has to protect their domestic commerce as much as their international companies.”

That so many U.S. drivers are willing to offer perspective on the cross-border issue might seem strange when you consider that very few indeed have actually driven a truck across the border. One who has is Gerard Gaona, manager of the Ragar Transportation terminal on Nafta Boulevard in Milo Industrial Park, mere blocks from Quintanilla International’s location. From here Ragar outfits 65 leased owner-operators with freight bound for the interior United States.

When Gaona was a boy growing up in Laredo, “my dad had a transfer company [called Go Trucking] here in town,” he says. When he was old enough, Gaona moved loads southbound to Mexican customs. Go was one of several U.S. firms that dominated the southbound transfer business into the 1980s. Paid on a per-trip basis, the going rate could be as high as $70 a load, Gaona says, if it was for a good customer. “You were bobtailing back,” he says. “Fuel was 22 cents a gallon, and it took an hour and a half to cross and come back” – the good old days.

Today, he says, “the rate is cheaper to move cross-border than it was in the 1970s. Now these guys get paid as little as $50, taking a load both ways.” The round-trip could be done in eight hours, Gaona says, “if they’re lucky.” The current cross-border system in Laredo is dominated by transfer companies using Mexican drivers in local tractors to shuttle freight from yard to yard across the border, Gaona says. The inefficiencies in the larger process, with three carriers and three trucks involved in most international moves, are selling points commonly referenced by the free-traders whose voices are loudest in support of opening the border to north-south long-haul traffic.

But while they pine for fast, seamless cross-border freight movement, critics see threats in cheap labor coming north: Just as Mexican drivers came to dominate the transfer business, if a border open to long-haul traffic comes to fruition might Mexican drivers come to dominate those movements as well?

In some sense, U.S. drivers already see a fair amount of competition from these drivers on their lanes.

The first driver in the pilot program to make a delivery across the border in 2007 was rolling for a base pay of only 21 cents a mile, according to our story on the subject in the December 2007 issue; with meal allowances and other perks adding to that, his employer, Fernando Paez of Transportes Olympic, told Truckers News’ sister magazine Overdrive, his pay was closer to 30 cents a mile. That’s not far off some U.S. company driver wages, nor was that driver new to U.S. lanes, as Olympic had been hauling for years via its U.S. sister company deep into the interior.

Mexican driver Javier Ocampo, resident of Nuevo Laredo, hauls for between “25 and 30 cents per mile,” he says, in the U.S. today for Quintanilla International, which subcontracts Mexican drivers for long-haul routes in the U.S. from its Mexican parent company, Transportes Quintanilla. Rolando Quintanilla describes the business situation for Mexican firms with U.S. long-haul subsidiaries along the border as one of opportunity, cross-border demonstration project or not. There’s a “loophole,” as he characterizes it, that allows those firms to use their parent company’s drivers with temporary visas (which they have for their cross-border drayage service) to run long-haul routes in the United States for the U.S. subsidiary.

“The Mexican driver can drive in the U.S. today,” Quintanilla says, if he’s in an American truck and “if he’s on a temporary visa, as long as the load is an international load – the origination or final destination is Mexico. A lot of American companies have tried to take advantage of this and buy these Mexican carriers. Obviously, they’re trying to get an advantage in the pay of the driver. But they can’t do that. Well, they can, but when they do they’ll have a discriminatory practice. They’re using a Mexican driver and paying him less than a U.S. driver – that’s discriminatory.”

Quintanilla points to lawsuits against American companies allegedly engaging in such practices, such as a 2006 suit against Celadon and its Mexican subsidiary Jaguar Transportation – the suit was reportedly led by protesting drivers. Celadon declined to comment for this story.

“Our Mexican drivers running in the states are paid by a Mexican entity,” Quintanilla says. “They are contracted by a Mexican entity and subcontracted to our U.S. entity. They still get the same benefits in Mexico as if they were driving in Mexico.” To top the government health and housing programs Mexico requires its employers to pay into on behalf of its employees, the carrier then pays these drivers like they would any other U.S. driver, in their view.

“For us,” Quintanilla says, “it’s that we would rather have a Mexican driver because he’s been with our company for many years. This is a kind of graduate program, learning to run other lanes rather than just the Mexican lanes.”

Ocampo is a veteran, with the company for 27 years. He’s hauled as far as New Jersey, Pennsylvania and other northeast U.S. states over the past five years in Quintanilla International company trucks, American-market trucks conforming to EPA emissions requirements and painted in an eye-catching bright base yellow with professional black lettering and striping. The trucks are hard not to admire and hard to miss, as is the presence of both Mexico and Texas plates. Ocampo says he routinely gets pulled over on any new lane but has encountered no major problems from American law enforcement. Though my conversation with Ocampo was conducted through a translator, he says he’s able to communicate effectively in the English he knows and seemed to understand me as I spoke, if he couldn’t communicate his thoughts to me effectively in English. He says he doesn’t feel as if he’s taking away American jobs by driving in the United States.

While Ocampo has no great desire to become an American citizen or to even live on the U.S. side of the border, Quintanilla is looking into the possibility of helping his company’s U.S.-lane drivers get their immigration status as part of the program.

“I don’t pay much attention to the news,” says Dart Transit’s Kevin Smith, the company’s Texas short-haul operations and sales manager. “I feel like a lot of it’s agenda-driven by groups who are out to protect their own interests, quite frankly.”

When Smith was first tasked with assessing expansion of freight opportunities into and out of Mexico last October, the outcry from cross-border-trucking opponents was so loud “we went down [to Mexico] expecting the worst” in terms of equipment quality and other safety concerns. But, Smith reports, he returned “pleasantly surprised about the equipment and the drivers there,” which he deems on par with most in the U.S. from both standpoints.

Dart has since established a subsidiary in Mexico to arrange the Mexican legs of trips that now amount to about “80 loads a week through Laredo,” Smith says, “100 loads a week through El Paso” and some intermodal through Otay-Mesa. Dart interchanges its trailers with Mexican carriers on the other side, providing “door-to-door” service, Smith says. As with most moves, there are typically three tractors involved, including a border dray tractor.

Monterrey, Mexico-based Jose Lopez manages Dart’s business on the Mexican side. He says the current cross-border system is more advantageous than an open border for several reasons. “For U.S. carriers, it doesn’t make sense to take their tractors to Mexico,” he says. “Operational costs in the U.S. are so much higher than we have in Mexico.” He says the average driver in Mexico might make $1,000 a month and will be paid on a per-trip or percentage basis. While he cites the market freight rate from Nuevo Laredo to Monterrey, Mexico, as $250 – for a distance of about 160 miles – a driver might only walk away with 10 percent of that, about 16 cents per mile. “U.S. drivers can make up to $70,000 a year in teams. If you think of your costs, it doesn’t make sense that you’re paying that much money to a driver to run in Mexico when you can just hire a service to remain competitive. If you use your own assets, you can’t remain competitive.”

Economies of scale in turn limit Mexican firms’ willingness and ability to operate north of the border. “The biggest Mexican companies already own trucking companies in the U.S.,” says Lopez, but “a huge company here might own 1,000 tractors. Their monetary power is not the same [as that of large U.S. carriers].” To compete along the lane between Monterrey and Chicago, for instance, “they would have to have clients in Chicago to get a load back – you have to have a sales force to get those clients. They would have to invest in infrastructure – create operational centers and trailer stops.” U.S. insurance, he says, is yet another added expense for a Mexican carrier. He says these facts can help explain in a broad way the marginal participation in the cross-border demonstration project. “Nobody was willing to do all of that” for a program that, as feared, has turned out to be temporary, at least for the participating Mexican carriers.

Both Quintanilla and Gaona echo that sentiment, finding there the “common ground,” as Gaona calls it, that might allow trucking industry stakeholders to move beyond political invective and to a final solution to the current cross-border dilemma. “We can’t do without Mexico because Mexico’s one of our biggest customers,” he says, “so let’s stop badmouthing them and reach an agreement. It’s up to our government to reach a common ground so we can all stay in business.”

For trucking companies, the “common ground” might well be that the costs and risks involved for any company operating on the opposite side of the border are prohibitively high, and the need for high levels of security at the border further complicates the picture.

On an elemental level, driver Javier Ocampo notes that friends of his with Transportes Olympic, one of the Mexican carriers involved in the demonstration project, complained they weren’t making the money they needed in cross-border long-haul due simply to the lengthy wait times at the border. Though Mexico has no formal log-book requirement for long-haul drivers, any driver on his way to the border is required by his company to keep a log that conforms to U.S. standards. “They get to the border and by the time they get across the border they’re out of hours,” Ocampo says, “and are waiting [on the U.S. side] through the following day.”

The exploding drug-cartel violence along the border and fears of a swine flu pandemic had added to those wait times in May, Quintanilla said, further complicating the attractiveness of true cross-border long-haul.

At press time, U.S. DOT Secretary Ray LaHood had suggested that a new cross-border project or paradigm could be in place by the end of June, and Mexican trucking association Canacar had announced it and 4,500 member carriers were suing the United States for $6 billion in relief for NAFTA violations. During his visit to Mexico in April, President Obama said attention to disparate emissions and labor standards should necessarily be a part of any new cross-border project.


Cross-Border Timeline
Sept. 1982 – U.S. President Ronald Reagan signs Bus Regulatory Reform Act of 1982, which put a moratorium on all international carriers operating in the United States but which also immediately lifted the moratorium on Canadian carriers.

Dec. 1992 – North American Free Trade Agreement signed by presidents of the United States, Canada and Mexico.

Jan. 1994 – NAFTA takes effect, mandating lifting of the moratoriums on Mexican and U.S. carriers engaging in cross-border long-haul operations on the U.S. southern border by Dec. 18, 1995.

Dec. 1995 – U.S. President Bill Clinton signs the ICC Termination Act of 1995, extending the moratorium on Mexican carriers operating in cross-border long-haul in the United States.

Feb. 2001 – NAFTA arbitration panel finds United States in violation of NAFTA’s trucking provisions, authorizing Mexico to take retaliatory measures in the form of tariffs.

March 2002 – Safety requirements beyond those applied to Canadian carriers are adopted by U.S. Congress relative to Mexican carriers applying for long-haul authority in the U.S.

Sept. 2007 – After considerable preparation, negotiation and controversy, first truck crosses the border under the authority of the U.S.-Mexican cross-border demonstration project, which eventually included 26 Mexican and 10 U.S. carriers.

March 2009 – U.S. President Barack Obama signs the fiscal-year 2009 omnibus spending bill, effectively ending the demonstration program, to which Mexico responds with tariffs on a basket of U.S. goods worth $2.4 billion to U.S. exporters yearly.


Southbound
Cross-border project still alive on the Mexican side of the border

Cross-border demonstration project participant Plastic Express, based in City of Industry, Calif., is no newbie to hauling in Mexico. They’ve “been delivering bulk plastic resin across the border into Tijuana and Mexicali since the early 1980s,” says Tom McKellar, company general manager for operations, “through an arrangement with the Mexican state of Baja California.” The nature of the material hauled – “it doesn’t do well when being transferred,” McKellar says – necessitates special handling.

McKellar says the cross-border program represented to Plastic Express an attractive way of expanding into Sonora and other Mexican states.

“The program is ongoing in Mexico,” he says, adding that the expense of operating there has been minimal compared to what he’s used to in the U.S., estimating licensing fees to be around $500 per tractor-trailer versus $3,000 or so in the U.S., not including Federal Highway Use Tax.

For insurance, things get even easier. “It might cost around $10,000 a year to protect yourself with a $10 million policy in the U.S.,” he says. In Mexico, the operative figure for equivalent coverage would be $1,000. “The litigious nature of the U.S. makes it this way,” he adds.

With 22 trucks continuing to operate in the demonstration project, McKellar says his company has had “zero serious problems. We’ve not had an incident that has made me leave my desk and go someplace. We had a fender bender not long ago, and that was it.”

Though heavy international carrier involvement in the CTPAT program and the attendant proliferation of its heavy security requirements has cut incidents of cargo theft in border areas, most carriers and U.S. drivers still look at the potential of operating in Mexico warily. Dart Transit’s Texas short-haul manager Kevin Smith says he’s shy of sending a driver into a land where Napoleonic law – in essence, you’re guilty until proven innocent – is the rule of the day. “I rented a car and took it into Mexico one day,” Smith says. The rental agency didn’t mince words. “They told me, ‘If you have an accident, your best bet is to walk away from the car as quickly as you can and get across the border.’ There’s a big hesitancy to put our driver into that situation.”

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