Pig Farmers May Top Truckers' Gains on Mexico Border Rule: Freight Markets

U.S. pig farmers, cheesemakers and wineries stand to gain immediately from a program to let Mexican trucks into the country beyond a 25-mile border zone. The trucking industry probably won’t be as lucky.

While U.S. goods subject to $2.4 billion a year in Mexican tariffs would be freed from the duties once a cross-border trucking agreement is implemented, carriers such as Con-way Inc. see fewer benefits to the companies hauling products between the two countries.

“We believe the system as it currently stands meets the need of the market,” said Gary Frantz, the communications chief for San Mateo, California-based Con-way. After 25 years in Mexico, the biggest U.S. trucking company by revenue isn’t counting on new regulations to boost profit, he said.

Negotiations now under way between the U.S. and Mexico on cross-border trucking mark the latest attempt under the North American Free Trade Agreement to speed the flow of freight, an effort stalled since 1995 by politics, union opposition and a tightening of border security after the 2001 terrorist attacks.

The talks are supposed to deliver on Nafta’s vision of making the U.S. southern border resemble the northern one, where Canadian drivers can haul cargo into the U.S. and take loads home. Mexican drivers in the U.S. now must stay within 25 miles (40 kilometers) of the border.

157 Trucks

Only 157 Mexican trucks took part in a pilot program to let drivers travel throughout the U.S. starting in 2007, when a record 4.88 million commercial trucks entered from Mexico. The trial project was canceled after less than two years, spurring Mexico to apply tariffs of 5 percent to 25 percent on U.S. products from pork to cheese to wine to toilet paper.

“Every month that the trucking issue goes unresolved, we continue to lose market share in Mexico,” Sam Carney, president of the National Pork Producers Council, said in a Jan. 6 statement.

U.S. pork exports to Mexico have fallen 11 percent since duties were applied on the meat in August, according to the Washington-based trade group.

The U.S. and Mexican governments may agree on a new trucking deal within weeks, paving the way to repeal the tariffs, Mexican Deputy Transportation Minister Humberto Trevino said in an interview.

Mexico is the U.S. pork industry’s biggest export market by volume. Through the first 11 months of 2010, Mexico sent $210.4 billion in products of all types to the U.S., 32 percent more than a year earlier, according to the U.S. Commerce Department.

Transfer Companies

Almost all U.S.-bound truck shipments are handed off on the Mexican side to so-called transfer companies. They shuttle trailers a few hundred yards across the border so long-haul carriers don’t tie up their own tractors during Mexican customs brokers’ checks on outbound cargo or U.S. security screening. In the U.S., a truck hooks up to finish the trailer’s journey.

Under the trial program being discussed by the bargainers, Mexican trucks could start south of the border and finish up in the U.S., provided the drivers meet standards such as learning English and the vehicles comply with U.S. environmental rules.

“It’s not going to be a program in which just anybody signs up,” said Alex Theissen, director of technical development for Femsa Logistica, which arranges beer shipments for Heineken NV’s Mexico unit.

Most trucks in Mexico, whether owned by U.S. companies or Mexican carriers, don’t meet the proposed air-quality requirements to cross the border, said Salvador Saavedra, president of the automobile industry sector of the National Manufacturing Industry Chamber, a Mexico City business group.

Diesel Fuel

Low-sulfur diesel fuel is available in only a few large cities, such as Mexico City and Monterrey, and the border area, Saavedra said. Keeping the draft rules would spur many companies to eschew the program rather than immediately invest to upgrade their fleets, he said.

“They need to negotiate a grace period for Mexico transport companies,” Saavedra said in an interview. “If they don’t, it will be practically dead on arrival.”

Persistent gridlock at the U.S.-Mexico boundary also means that the transfer-trailer system is likely to remain, said Martin Rojas, vice president of security and operations for the American Trucking Associations in Arlington, Virginia.

“I don’t think the operation is going to change that much in the short term,” Rojas said in an interview. “The border has a lot of delays that have nothing to do with the Nafta trucking.”

The prospect of a new cross-border trucking agreement, which the U.S. and Mexico disclosed on Jan. 6, hasn’t boosted truckers’ shares. The Standard & Poor’s Midcap Trucking Index has fallen 1.3 percent in 2011. The gauge has tumbled 40 percent in the past five years, compared with a 21 percent gain in S&P’s Midcap 400 Index.

Specialty Truckers

Trucking companies that specialize in international cargo may have the most to gain, said Steve Russell, chief executive officer of Indianapolis-based Celadon Group Inc., which serves the U.S., Canada and Mexico.

The theory behind cross-border trucking is that one tractor would replace three, Russell said in an interview.

“It takes time and coordination to transfer a load of cargo from one truck to the other,” he said. “The reality is that the efficiencies that would be achieved would be quite significant.”

Nafta trucking rules would help ease the burden on Sanmina- SCI Corp. for U.S.-bound shipments of the satellite-television and magnetic resonance-imaging gear manufactured in Guadalajara, said Luis Aguirre, director of the company’s Mexico operations.

Cost Savings

“You can reduce times, costs and administrative coordination from the way we do it now,” Aguirre said. He said San Jose, California-based Sanmina uses trucks to carry about 60 percent of its $1.2 billion in exports to the U.S. from Mexico.

U.S. truckers that want to take advantage of a cross-border accord also may able to reduce labor costs by hiring Mexican drivers, who earn about half of what their U.S. counterparts are paid, Femsa Logistica’s Theissen said in an interview.

Veterans of the inaugural pilot program for Mexican trucks such as Transportes Olympic SA CEO Fernando Paez aren’t so sure that the new effort will succeed where its predecessor failed.

Mexican truckers who master English and U.S. transportation law will be in high demand and command salaries close to U.S. pay scales, said Paez, whose company, based in Apodaca near Monterrey, was the first to haul a load into the U.S. under the initial cross-border trial.

That would negate one of the advantages cited by proponents of the rule change, he said. The industry will need assurances that a revived program wouldn’t collapse again, he said in an interview.

“We invested a lot of time and effort into it,” Paez said. “And then all of a sudden they said, ‘Well, no more.’”

To contact the reporter on this story: Thomas Black in Monterrey at tblack@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net.

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