Greater expectations

As the "Big Four" LTL carriers increase their presence south of the border, they are raising the standards for LTL service in Mexico.

By Toby B. Gooley -- Logistics Management, 1/1/2000

What was once a rarity has become a necessity. What was once acceptable service no longer meets shippers' expectations. And what was once obtainable only in the United States and Canada now is becoming more widely available in Mexico.

That pretty well sums up the state of less-than-truckload (LTL) transportation in Mexico today. Although shippers in the United States and Canada take LTL transportation for granted, they cannot do so in Mexico, where availability of both service and infrastructure is limited. But rapid economic growth and soaring exports of Mexican products are increasing demand for both northbound and southbound service, including LTL transportation.

As a result, U.S.-based LTL carriers are finding Mexico to be a land of great growth potential and little competition. By working closely with carefully chosen Mexican carriers, say U.S. carrier executives, they are helping Mexico on its way to having the efficient LTL service that companies on both sides of the border need.

Mirror Image

The "Big Four" U.S. LTL carriers--ABF Freight System, Consolidated Freightways, Roadway Express, and Yellow Freight System--all are committed to offering LTL service in Mexico that mirrors their domestic U.S. service. To do so, they must provide the same kind of customer service, information systems, freight handling, and equipment that they offer in the United States.

That takes some creativity, because U.S. carriers can't just go in and set up wholly owned trucking operations. Under current Mexican law as well as the terms of the North American Free Trade Agreement (NAFTA), U.S. carriers are limited to 49-percent ownership of a Mexican transportation company. (NAFTA allows for eventual 100-percent investment.) They also are restricted to engaging in cross-border trade and may not perform any domestic transportation. Foreign carriers, however, may offer logistics services, including terminal, warehousing, inventory-management, and other similar operations.

In order to comply with Mexican law, ABF, CF, Roadway, and Yellow have all taken quite different approaches to their representation in Mexico. ABF in February of last year formed an alliance with MultiPack, Mexico's largest surface-package delivery firm. MultiPack has 335 offices, 25 major distribution centers, more than 6,000 employees, and about 4,000 parcel-delivery vehicles in Mexico. ABF transfers freight to MultiPack at six primary gateways in California, Arizona, and Texas. The U.S. carrier maintains sales offices in Mexico City, Monterrey, and Guadalajara, but MultiPack handles the physical transportation and distribution. (Not all of ABF's shipments to Mexico are managed by MultiPack at this point, but the companies are working toward that goal.)

ISO-9001--certified MultiPack has invested heavily in technology, maintaining its own fiber-optic communication lines and equipping its vehicles with satellite tracking equipment. The two carriers have integrated their information systems, so customers in either country can obtain real-time shipment information. "MultiPack ... has the technology and coverage in Mexico that nobody else has," says ABF President and CEO David E. Stubblefield. While noting that MultiPack's breadth of coverage is a real advantage, Stubblefield acknowledges that the carrier is oriented toward handling parcels and will need to make some operational changes to accommodate LTL shipments.

Consolidated Freightways has taken a completely different route, setting up a joint-venture company in Mexico as allowed under NAFTA. CF Alfri-Loder (CFAL) is 50-percent owned by the Alfri-Loder Group, a holding company owned by the Longoria brothers of Nuevo Laredo. The group has more than 65 years of experience in the automotive, food, transportation, gas, and real estate industries. That joint venture has formed Transportes CF Alfri-Loder, a Mexican trucking company that is licensed to haul international freight under NAFTA's provisions. The trucking company is 51-percent owned by the Alfri-Loder Group and 49 percent by CF but will become a 50-50 investment when NAFTA allows it in 2001. A separate service company owned by CF handles logistics projects but contracts out its transportation needs in order to comply with Mexican law.

CFAL is unique on several counts, believes Brian Hickert, CF's Mexico division manager. "To our knowledge, we are the first [trucking] company that actually is an international trucking company, that is set up just the way NAFTA was designed to work," he says. Another difference is that CF can boast single-source responsibility for its cross-border business, he says.

Roadway Express has adopted yet another tactic for offering LTL service in Mexico. The company operates five of its own LTL terminals within Mexico but contracts with Nuevo Laredo-based Autotransportes Especializados GM Express SA de CV to handle pickups and deliveries as well as linehauls in Mexico. Roadway has purchased two dozen Mexican-built Kenworth tractors, which its Mexican partner operates as a dedicated fleet on Roadway's behalf. The vehicles are equipped with satellite tracking for security and to improve equipment utilization. Drivers in the dedicated service, meanwhile, hold commercial drivers licenses and are trained and authorized to handle hazardous materials, in-bond shipments, and double trailers.

For Roadway, having control over both service quality and the flow of information between it and its Mexican partner is a top priority. The carrier strives to provide identical levels of service, shipment information, and access to data online and via telephone in Mexico as it does elsewhere. "What we have tried to do is model our Mexican operation after our Canadian and U.S. operations to provide a consistent North American service," explains Sandra Scott, international trade and customs advocate at Roadway. The carrier, she adds, is looking to provide that consistency not only between countries but also within each nation.

Similarly, Yellow Freight System is working closely with a Mexican partner, Fletes Mexicanos de Chihuahua, to handle its pickups, deliveries, and linehauls within Mexico. That carrier operates 20 Mexican-built Kenworth tractors on Yellow's behalf, serving both U.S.-based Fortune 500 companies and leading Mexican companies, says Yellow Corp. President, CEO, and Chairman William D. Zollars. Except for the required consolidation and deconsolidation at the border, he adds, Yellow's Mexico subsidiary, Yellow Mexicana, operates much like its parent organization. To ensure that the company is responsive to its Mexican clients, however, all of the subsidiary's managers are Mexican nationals.

Overcoming Challenges

Finding the right partners and employees is critical to the U.S. LTL carriers' success in Mexico. Their knowledge of local business practices, laws, language, culture, markets, and customers is essential if the U.S. carriers are to build a loyal customer base south of the border. Even the strongest partner, however, cannot eliminate the problems that make offering LTL service in Mexico an ongoing challenge.

The first issue is a general lack of knowledge in Mexico about LTL operations. All of the U.S. carriers have had to provide some training to their partners and employees to ensure that their knowledge, operating methods, and use of information technology meet the U.S. carrier's standards. ABF, for example, brought managers from MultiPack to its in-house training facility in Arkansas to learn about company procedures and policies, then arranged for them to visit the carrier's Dallas distribution center to view the day-to-day operations, says Stubblefield. Yellow Freight,

meanwhile, has its Mexican sales and operations employees work on the U.S. side of the border for a while so they have an opportunity to work within the parent company's system, says Michael J. Smid, senior vice president--operations.

The need for training goes both ways: To educate their counterparts up north, for example, CF Alfri-Loder made a training video about the Mexican market, documentation requirements, and operational procedures that was distributed to CF's U.S. and Canadian sales force, says Commercial Director René Alí Garza López.

Lack of "LTL-friendly" handling facilities also has been an issue. "In reality, there isn't a true LTL infrastructure in Mexico. Most LTL [freight] will go to a warehouse and then a separate delivery gets set up," ABF's Stubblefield observes. ABF is addressing that problem by helping MultiPack develop facilities that have the right equipment to handle LTL shipments. Roadway and CF Alfri-Loder, by contrast, have acquired their own purpose-built terminals in order to guarantee efficient handling and manage growth. CFAL, for example, built a new 20-door terminal in Nuevo Laredo last year, while Roadway has moved its Laredo, Texas, terminal twice in the last four years to accommodate fast-growing shipment volumes.

Even as the carriers work to develop their own infrastructure, they still must overcome their Mexican customers' lack of familiarity with LTL practices. Shippers and receivers, for example, often do not have docks or the necessary equipment for handling LTL freight. That situation is changing for the better, as more companies modify existing facilities or build new ones with LTL in mind, says Roadway's Scott. "We've been in Mexico for 10 years. Ten years ago, LTL service was virtually unknown to the Mexican market, but now [receiving docks] are becoming more and more common," she says.

But customers in Mexico still have a lot to learn about how carriers handle LTL freight, says Yellow Freight's Smid. "Many customers still think in terms of buying a portion of a trailer, and we've had to take that into account in our pricing. They're not accustomed to paying so much per 100 pounds," he explains. "Initially, we were spending about 90 percent of our sales calls on selling the concept of LTL. Now that's down to about 50 percent."

Virginia Ibañez Flores, CF Alfri-Loder's Nuevo Laredo terminal manager, agrees that carriers must educate their customers in Mexico. Customers often don't understand the customs-clearance process and sometimes expect cargo to cross the border and be delivered within a few hours, she says. The concept of breaking down a trailer's contents at a hub and redirecting it to other destinations also is new to many Mexican companies, Flores adds. "They don't understand that we have to consolidate freight before we send it on to Monterrey."

This lack of experience with LTL procedures is one reason the Big Four all employ bilingual customer-service representatives to smooth the way for shippers in both directions. CF, Roadway, and Yellow, moreover, have shipping information, rates, and shipping documents in Spanish on their Web sites, making it easier for customers in Mexico to get the information they need prior to shipping.

Maintaining security is another challenge for LTL carriers in Mexico. There's no denying that theft and drug smuggling are serious problems there, and small lots of cargo that are handled several times are prime targets for both. All four U.S. carriers carefully monitor and protect their own facilities and work closely with their Mexican partners to minimize risk. For these carriers, 24-hour security, careful screening of employees, in-vehicle satellite tracking, and close cooperation with national and local government agencies are the norm. Some go even further; Yellow Freight's Mexican partner, for example, also uses two-driver teams and sticks to the more secure toll highways to enhance security.

Another continuing hindrance to the LTL carriers' efficiency is the issue of customs clearance, particularly for southbound cargo. In Canada, notes ABF's Stubblefield, the use of sufferance (bonded) warehouses speeds the flow of LTL cargo across the border. Motor carriers and customs brokers rent space in those facilities, where Canadian customs officials are on site to clear in-bond cargo as needed. But Mexican law requires payment in full of duties and other charges by a Mexican customs broker before a shipment may cross into Mexico, so in-bond truck shipments are not allowed. Stubblefield says he and other carrier officials have emphasized to Mexican authorities that in-bond transportation and clearing up customs bottlenecks at the border would be the most effective way to speed cargo across the border, but political pressure prevents any movement in that direction, he says. "A lot has to do with the strong political influence of the [Mexican] brokers at the border. They have a lot of power and they don't want to give it up."

As long as in-bond ground transportation is prohibited, shipments must continue to wait until each one individually clears both U.S. and Mexican customs. That situation prevents carriers from offering expedited ground service to and from Mexico. The only way to do so is by air, because Mexico allows air freight to be cleared at the destination airport. The demand for such service clearly is there: Roadway Express last year expanded its Time-Critical Service to include shipments from Mexico to the United States, and CF now offers its PrimeTime Air expedited service to and from Mexico.

Enormous Potential

Despite the continuing frustrations carriers experience, the outlook for LTL transportation in Mexico is encouraging, carrier representatives agree. All four of the U.S. LTLs foresee continued steady growth in tonnage and revenues, which are averaging in the 20-percent range on a year-to-year basis these days.

A concern for the long term is whether or not the United States and Mexico will allow free access by each other's motor carriers as provided under NAFTA-an event that has been put on hold due to safety concerns and pressure from U.S. labor groups. If free access were granted, would that improve efficiency for LTL carriers? Carrier representatives have said that although it sounded attractive in theory, they did not believe it would make much difference to their companies.

"I don't envision ABF as being interested in running trucks in Mexico," says Stubblefield. "I'd like to be able to consolidate direct trailers to Monterrey, Guadalajara, and Mexico City and clear them at destination. But who would dray it? ... I don't think the border opening would really change things. I think we'd probably still use U.S. drivers to the border."

"We think the border should be open, but as far as the way we do our business is concerned, we don't see it having much of an effect," agrees Roadway's Scott. Besides, she adds, when it comes to doing business in another country with a very different business culture, greater efficiency doesn't necessarily guarantee success. "You have to look at the cost, the manpower, and the relationships we've invested in down there. You build your business around the customers' needs and whatever processes are in place."

The "Big Four" in Mexico

The four largest United States-based LTL carriers"ABF Freight System, Consolidated Freightways, Roadway Express, and Yellow Freight System" all offer a wide range of services to and from Mexico. Here's a brief overview of their service highlights.

-�ABF Freight System: Single through freight bill; real-time shipment tracking; dedicated trailers for through-trailer and maquiladora services; partner Multipack has 35 major distribution centers and 335 facilities in Mexico; bilingual operations and sales staff; hazardous-materials service; payment in U.S. dollars or Mexican pesos; six U.S. gateways in Texas, Arizona, and California; satellite tracking of vehicles in Mexico. Web site: www.abfs.com/mexico

-�Consolidated Freightways: Eight terminals in Mexico with service to more than 50 cities; bilingual Mexico Help Desk (800-624-9585); satellite vehicle tracking; real-time shipment tracking; single through freight bill; CF Direct online shipment information; CF PrimeTime Air guaranteed expedited and emergency service; eight U.S. gateways in Texas, California, and Arizona; bilingual operations and sales staff at border. Web site: www.cfwy.com

-�Roadway Express: First motor carrier to participate in U.S. Customs' AES export-clearance system at Mexican border; operates five terminals in Mexico; bilingual "Border Ambassadors" proactively represent shippers and shepherd shipments through to destination; International Hotline (800-468-5739); QuikTrak voice and online shipment information; E-Z Export simplified documentation package can be completed online; single through freight bill; Time-Critical air guaranteed expedited service; managed returns, freezables, and exhibit services; automated voice-response system available in Spanish. Web site: www.roadway.com

-�Yellow Freight System: Uses three U.S. gateways in California, Arizona, and Texas; six terminals in Mexico; maquiladora service; scheduled daily deliveries to border terminals and five major interior cities; eight terminals in Mexico; bilingual operations and sales staff at border; Spanish-speaking customer service at 800-610-6525; online shipment tracking; widest array of online bilingual export/import and domestic documentation; hazardous-materials service; expedited service guarantee from Mexico to United States. Web site: www.yellowfreight.com/services/mexico.htm