Supply Chain Expertise and Technology Blog by TMC, a division of C.H. Robinson

Bridging NAFTA’s Cross-Border Divide

North American Free Trade Agreement update

Remember when the North America Free Trade Agreement (NAFTA) was talked about all the time? Well, lately we’ve been getting a lot of questions about proposed changes to the way cross-border trade between Mexico and the U.S. is regulated. In light of these discussions, it’s a good time for a quick update on what’s going on. 

Here is a cliff note summary of the situation:

The Mexican and U.S. governments have announced their intent to create a new agreement allowing carriers based in either country to transport goods across respective borders as originally planned under NAFTA.

From what we understand, both governments are hopeful an agreement can be reached by June 2011. Carriers will have to apply for this type of operating authority, and it’s likely that the new arrangement will be limited to cross border traffic that does not involve household goods or hazardous materials. 

Domestically, the application process and implementation of the cross border trucking program will be handled by the Federal Motor Carrier Safety Administration (FMCSA).

All in all it sounds pretty straight forward, right? What’s the complexity here? Well, I guess it depends on who you ask.  But, in my personal view, part of the complexity has to do with the differences between respective carrier communities. Many of these disparities stem from government regulations in the two countries. Basically, Mexican carriers are being asked to function, comply, and operate as a U.S. carrier while on American soil.   It may sound reasonable, but it’s likely an adjustment for many – although certainly not all – Mexican carriers.  In the other direction, this assumes U.S. drivers are able to navigate Mexican roads and deal with any cultural issues that might arise. In my view, if these underlying policies aren’t in sync, the practical execution of this trade policy won’t work

Here are few examples that have come up in recent conversations with other shippers and carriers:

The Registration Process 

As mentioned, the FMCSA will create a process to support applications by Mexican and US carriers. There is a strong belief that application forms instituted by the FMCSA will be very thorough, requiring information about a carrier’s past operations, safety and other maintenance programs. It’s also likely that the criteria will include a carrier’s ability to comply with U.S. regulations. While many operators are prepared for this form-filling, I’m willing to bet that quite a few will find the process daunting. I encourage you to respond with your opinions.

 Updated Insurance

 Mexican carriers registering to operate under NAFTA in the U.S. will be required to obtain permanent insurance for bodily and property damage. As we in the industry know full well, there are standard requirements in the U.S. as to the type of insurance a carrier is required to maintain.

 Hours of service

Hours of service (HOS) rules and regulations is a hot issue in the U.S. While in the United States, Mexican drivers are subject to these rules and the carrier and driver must maintain proper records. The U.S rules govern how many hours of on-duty and off-duty time a driver has during a seven-day period. As such, the driver and carrier may have to maintain records of the driver’s hours prior to the individual’s entrance into the U.S.

 Equipment safety

U.S. DOT has specific safety regulations governing commercial motor vehicles. Additionally, the National Highway Traffic Safety Administration (NHTSA) regulates new equipment. This includes the brake types, vehicle lights, reflective tape on trailers, and details pertaining to the construction of commercial vehicles.

 Size and weight

Both federal and state governments have laws and regulations about the permissible size and weight of commercial vehicles. We are all familiar with the way these laws limit the gross weight of vehicles as well as how much weight a truck may carry on each axle. Federal size and weight laws apply in the interstate highway system. State size and weight laws apply on all other roads, and certain states have route restrictions based on vehicle type or cargo.

 The Tax Man

Motor carriers are subject to a complex network of fees and taxes imposed by federal and state governments in the U.S. A few examples include: Uniform Carrier Registration Plan, sales tax, hazardous materials registration fees, heavy vehicle use, fuel tax, and other registration fees.

 The above examples probably do not represent the whole picture. However, the devil is in the details and requirements such as the ones I have listed will likely drive much of the complexity should the legislation be implemented. The demands may not disrupt a deal, but I do think that these types of differences will make the process longer and more challenging.

 A couple of years ago, there was a pilot program where the U.S. allowed a pool of 100 Mexican carriers to enter U.S. territory. The pilot was eventually dropped for various reasons, but the underlying complexity of these moves was a contributing factor. Carriers must justify the investment they need to make in order to manage the process.

 Is this a fair assessment, or am I off base here?

 One final thought. Do we need to pay more attention to streamlining cross-border controls? Waiting for the appropriate documentation to be filed and the arrival of drayage transportation can delay a load bound for the U.S. by several hours. Finding ways to improve this process would benefit carriers and shippers on both sides of the border.

 If you have a different take on the proposed changes or can provide additional insights, we encourage you to respond! It is in all of our interests to find the best way forward.

 

- President, Managed Services
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