The new free trade agreement between the United States, Mexico, and Canada promises greater efficiencies for shippers moving goods between Mexico and the US — on paper, at least. The proof will be in follow-up investment needed to improve actual transportation infrastructure and facilitate trade on the US-Mexico border, observers told JOC.com.
It may become easier to process goods through Customs under the United States-Mexico-Canada Agreement (USMCA), but actual transportation is another matter. Without investment in facilities and people needed to accommodate expanding US-Mexico trade at or near the Mexican border, shipments will continue to face costly transportation delays in times of peak demand and disruption at the border itself.
That’s simply a matter of moving increasingly high volumes of goods through existing crossings at a US-Mexico border vulnerable to freight surges, equipment imbalances, glitches in Customs information systems, and events such as last April’s migration crisis, which strained US Customs and Border Protection resources and reduced the number of truck crossings.
The USMCA could become law within weeks. The US Senate Finance Committee on Tuesday approved the trade deal in a 25 to 3 vote, taking it one step closer to Senate ratification and the White House. The revised trade deal was approved by the US House of Representatives in December, in a 385 to 41 vote.
US shippers and importers should be excited, said Jason Craig, director of government affairs for C.H. Robinson Worldwide.
“What we feel is important for supply chain professionals is the Customs facilitation chapter of the agreement,” Craig said in an interview. “In NAFTA [the 1994 North American Free Trade Agreement], there were only two or three pages on Customs facilitation, and in the USMCA there are more than 30 pages,” including a distinct process for resolving disputes.
“It’s that level of detail across the board that those in the supply chain business should be excited about,” said Craig. That includes C.H. Robinson, a $16.6 billion global logistics company with $11.2 billion in North American Surface Transportation revenue in 2018. C.H. Robinson has Customs brokerage operations at every major US-Mexico freight border crossing.
Automotive shippers should scrutinize suppliers
But the devil also is in the details, and Craig said US importers need to scrutinize supplier relationships to ensure they don’t run afoul of new USMCA labor requirements, especially in the automotive sector. The USMCA will require 40 to 45 percent of North American car parts be made by workers making at least $16 an hour, far above current Mexican wage levels.
On Dec. 16, Mexico increased its daily minimum wage 20 percent, effective Jan. 1, to 123.2 pesos, about $6.53 in US dollars, as detailed in a report in the National Law Review. In the commercial northern frontier zone along the US border, that wage will be 185.6 pesos per day, or approximately $9.94. That’s about $1.25 an hour in an 8-hour day.
The problem for US automotive importers will be determining whether second- or third-tier suppliers are compliant with the USMCA’s labor provisions, Craig said. “Those are the companies that may not understand what’s coming down the road.” And that means US parts purchasers will have to thoroughly vet several layers of Mexican suppliers, he said.
“Shippers should figure out within their own industry if there are any specific requirements tied to labor enforcement that would lead to increased administrative costs,” said Craig. “If you’re in the automotive world, there will be many more forms to fill out for upstream vendors supplying parts to manufacturers,” he said. “Shippers should be looking into that right now.”
Failure to do so could result in goods stopped at the border, which would just be the start of added costs, both in production and logistics and transportation, resulting from inaction.
Uniform rules for ports to speed goods
Craig hailed several provisions of the USMCA designed to speed trade in goods, especially rules requiring uniformity in Customs rules at ports. “In the past, different ports have had different requirements,” he said. “For example, a fumigation certificate being required in one port but not another. In USMCA, uniformity of procedure is explicitly outlined for all ports.”
Eventually, the agreement envisions a “single window” used by all three countries to track cross-border shipments in North America, in terms of Customs processing, he said. That system has yet to be developed, however. “Implementation is as important as the language in the free trade agreement,” Craig said. “That depends on resources, time, infrastructure, and labor.”
That brings us back to physical transfer of goods at the border, which is where trade gums up. There are only 88 US Customs lanes for trucks moving across the entire US-Mexican border, and that’s “not adequate,” said Brandon Fried, executive director of the Airforwarders Association (AfA). Fried recently visited Customs facilities in Laredo, Texas, and Nuevo Laredo, Mexico.
“There is insufficient infrastructure to meet the demand, and it’s got to increase over time,” Fried said. Building physical infrastructure on the border, however, is difficult and costly, and takes years to complete. More needs to be done on both sides of the border to create alternatives to those truck lanes, such as joint Customs facilities at airports or other locations, Fried said.
One example he mentioned is the joint US-Mexican Customs facility at Laredo International Airport, which since 2012 has housed both US CBP and Mexican customs officials with the Servicio de Administración Tributaria (SAT). The two agencies jointly perform inspections on US exports in a single facility, expediting deliveries to several airports within Mexico.
“The leveraging of technology is probably the number one focus right now,” Fried said. When he arrived at the border crossing in Laredo, Customs officials “took us up on a berm, and when you looked down what you see is this endless line of trucks,” Fried said. “There’s no physical way humans are going to be able to manage this without some sophisticated technology.”