Friday, August 10, 2001

The Federal Reserve Bank of Dallas and "The Road Most Traveled"

Conference considers how to alleviate NAFTA traffic


by James A. Cooley

The Lone Star Report
Volume 6, Issue 1
Copyright 2001

Texas is the main point of entry for U.S.-Mexico trade.

An average 205,000 vehicles a day cross the Texas-Mexico border, including 15,000 commercial trucks and 1,220 railcars.

This volume of commercial traffic is rapidly increasing. Laredo, for example, saw a 116 percent increase in truck traffic from 1993-99. More than 5 million trucks went back and forth at all of Texas’ border crossings.

The rising number of commercial vehicle crossing is directly tied to the increased trade between the two nations – with vehicles and trade both expected to increase. The challenge to the border region lies in more efficiently moving this flood of freight.

That was the general theme of an August 3 seminar in San Antonio, sponsored by the Federal Reserve Bank of Dallas. “The Road Most Traveled” was the name of the event. The obvious road for NAFTA traffic is Texas.

Several trade and transportation experts explained why this is so. More important, they offered ideas on making the task easier.

Various speakers highlighted geographic and business reasons that Texas is the pipeline to Mexico. Foremost is that much of the population and industrial capacity of both nations is still largely clustered on the Atlantic side. While trade routes exist on the Pacific side up through California, there is little industrial growth to support them in Mexico south of the auto facilities in Hermosillo.

Moving goods from east to west inside Mexico is hampered by a mountain range that splits the country, where two-lane roads remain the means of transit.

Moreover, not all trade traffic is the same. Laredo and El Paso are, respectively, the No. 1 and No. 2 busiest border crossings. However, roughly 80 percent of the truck traffic crossing at El Paso exclusively services the border region’s extensive maquiladora industries. This ratio is reversed for Laredo, the main route for moving freight into the Mexican interior.

As traffic to the interior grows, Laredo will get even busier than it is now. All told, a full 79 percent (by volume) of U.S. – Mexico trade goes through Texas – with 30 percent of all NAFTA traffic moving on IH-35, which begins at Laredo.

The genesis of all the trade traffic began years prior to NAFTA, when Mexico’s government decided to increase its role in the world economy. Exports became a top priority, and Mexico has seen a ten-fold increase (now up to $340 billion) in just 20 years. The largest trading partner is the U.S., accounting for 83 percent of exports. Of this, a full 32 percent remains within Texas.

Mexico is simply following the larger global trend towards greater international trade. Although world gross product (WGP) has increased six-fold since 1950, international trade has grown 17-fold. More than two-thirds of nations are moving towards more open borders and participation in world markets. This new cooperation, coupled with transportation improvements, has reduced “logistics” costs to a mere 10 percent of WGP.

Paradoxically, Mexico currently does a greater volume of trade with Japan than with all of Central And South America. The potential for trade growth increases here are prompting keen interest in transportation improvements between the hemispheres.

Cargo leaving Mexico is overwhelmingly shipped by truck, accounting for 72 percent of total volume. Increased shipping by rail is seen as critical. Both SH-130 and IH-69 are being planned with rail right-of-way from the start.

Improvements to border transportation needs fall generally into two areas: infrastructure and process. Primary focus remains on the former, through the building of roads and bridges, but big gains may be achieved by paying attention to the latter, as through more streamlined inspection procedures.

Of the infrastructure projects, the most important project to complete is IH-69, which could take one million heavy trucks a year off IH-35 while increasing safety and reducing pollution in Austin and San Antonio.

The obstacle to the project is a price tag estimated as high as $5 billion.

Attacking the bottlenecks in the border crossings themselves could make for less costly, but still effective, improvements. For instance, a truck may wait in line for over an hour to go through a primary inspection that takes mere moments. In all, a full 65 percent of vehicles are ready to enter the country after this primary inspection. Getting them faster to this stage would dramatically improve efficiency.

Several proposals were presented for making the process move more smoothly. At the top of the list is a paperless system. The customs process is still rooted in the same cumbersome paper-based process that has taken little advantage of the electronic age. The Customs Service also has electronic links to just two federal agencies out of 68 on whose behalf it enforces our laws.

Other items for improvement include:

• Using electronic transponders in the trucks and trailers to facilitate the “rolling” inspections of vehicles. The use of facial scanners could also assure that the assigned driver is actually the one behind the wheel. Those with a high volume of crossing could be allowed a greatly expedited crossing process.

• Putting weights stations on the Mexican side of the border to catch overweight vehicles before they cross.

• Incorporating vehicle inspection stations at all future crossings and retrofitting existing facilities to allow for this service.

• Increasing the use of bonded secure warehouses and sealed cargo containers to reduce the number of inspection that must take place at the border itself.

One of the biggest challenges is the “that’s the way we’ve always done it” mindset on both sides of the border. The crush of traffic has now forced all involved to realize that they simply can’t keep doing things the same old way.

A prime example: 43 percent of trucks moving back and forth across the border either had an empty trailer, or no trailer at all. Still, they had to wait in line to get across, slowing the process for those with loads.

Besides adding time to the line at the border crossing, these empty trucks also represented a tremendous waste of resources. There are now sharply increased attempts to arrange loads on both sides of the border to curtail the wasted trips.

Another example of inefficiency is the frequency with which transportation of trailers into Mexico is not done by the original trucks, but by drivers who come across the border and charge around $100 to haul the load across. The reason is that Mexican Customs requires the licensed brokers on their side to inspect all cargo before it enters the country. This may take considerable time to accomplish, and the original driver can’t afford to wait around.

A solution is the creation of secured “trade zones” on the Mexican side, where cargo can be stored pending final inspection. This would allow the original U.S. driver to finish hauling his load into Mexico itself; it would also eliminate the need to pay a short haul transport.

Regarding the contentious topic of allowing Mexican vehicles into the U.S interior, a statistical comparison of Mexican truckers vs. the Canadian counterparts found that the Canadians had actually been more likely to be involved in fatal accidents. O

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