LATIN AMERICAN TRADE BI-ANNUAL - US-Mexico logistics modernized since NAFTA

By: | at 07:00 PM | Channel(s): International Trade  Logistics  

Rail, warehousing, show greatest improvements; Crossborder trucking remains illusiveBy Peter A. Buxbaum, AJOTThe supply chain in and out of Mexico has improved dramatically over the last ten years and the North American Free Trade Agreement is to be credited, according to a logistics executive based in Mexico City. Some two-thirds of total Mexican production is now exported, according to Alvaro Cordero director general of CSX de Mexico, an affiliate of the USrail giant, and 90% of those exports are destined for the United States.
“NAFTA has had a humongous impact on the Mexican economy,” said Cordero. “It’s caused some turmoil, too, as some companies and industries have disappeared. But it’s caused others to boom.”
The biggest improvement in crossborder logistics has been in the rail sector, according to Cordero. “Rail used to be government-owned,” he explained. “In 1997, the government privatized Mexican rail and split it into three companies.” TFM operates in the Laredo-Monterey-Mexico City corridor, while Ferromex, part owned by Union Pacific, operates in the Northwest part of the country. Ferrosur covers the South.
“The government rail company was a good franchise, but its assets were not in the best shape and its technology was outdated,” Alvaro commented. “After privatization, the companies invested a lot, mainly in updating technology but also in equipment and infrastructure. They also had to change the railroad industry’s mindset. Before, they were mainly satisfying a social need to provide low prices to move a lot of people. After privatization, they raised freight rates to a reasonable level and eliminated passenger service.”
Rail freight service in Mexico then started to boom, with growth well into the double digits for the first five years of privatization. “Everyone started using rail,” said Cordero, “including shippers of cement, chemicals, plastics, industrial goods, steel, and consumer goods. With that, new logistics and supply chains started to flourish in Mexico.”
Before rail privatization, most crossborder shipments were made by truck or van through Laredo. “Suddenly you could ship by rail in bulk to a transfer terminal in Mexico,” Cordero explained. “From there, you could continue in bulk or transfer from rail to truck. The railroads were running shuttle trains with one-hundred railcars at a time running direct through the border with twenty-four hour turnaround time. These were the new logistics alternatives that Mexican shippers and receivers were looking for.”
The new presence in Mexico of US retailers like Wal-Mart, Kmart, and J.C. Penney, and consumer goods manufactures like Procter & Gamble also had an impact on logistics in Mexico. “Wal-Mart changes the supply chain wherever it goes,” Cordero noted. “Retailers now operate huge distribution centers all around Mexico. Before NAFTA, most were on the US side of the border in Laredo. Now the DCs have moved closer to the customers.” Wal-Mart operates a distribution center in Mexico City; J.C. Penney has DCs in Monterrey and Guadalajara; and Hewlett-Packard and IBM have them in Tijuana and Mexicali, near the California border.
Not all rosyThe picture is not completely rosy, however. Some Mexican industries have disappeared as a result of NAFTA while the crossborder trucking situation may never approach what NAFTA’s framers envisioned. “The Mexican toy industry, among others, was washed away as a result of NAFTA,” Cordero said. “Before NAFTA, they were operating in a very protected environment. As a result, these industries were not prepared to face the competition that came with NAFTA. Once Mattel and others came into Mexico, the local toy industry couldn’t compete, and in a matter of a year it disappeared completely.”
Crossborder trucking has proved to be another trouble spot. NAFTA called for open borders within five years. But thus far US and Mexican trucks operate only within a few miles of the other side of the border. US truckers like Schneider National and Celadon, that had est

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Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum's work has appeared in such leading publications as [em]Fortune, Forbes, Chief Executive, Computerworld, and Jane's Defence Weekly[/em]. He was educated at Columbia University.