Truckers fret over NAFTA “renegotiation” talk

John D. Schulz, Contributing Editor -- Logistics Management, 3/14/2008

WASHINGTON—Is the North American Free Trade Agreement (NAFTA) dying? Both Hillary Clinton or Barack Obama have made campaign promises to “renegotiate” the 14-year-old trade agreement that generally has resulted in a boom for U.S. trucking and railroad interests.

Since NAFTA was adopted in 1994 under the first Clinton administration, it basically created open trade, free of duties and tariffs, among the U.S. Mexico and Canada. But both Democratic candidates have sounded a protectionist tone during their campaign, threatening to renegotiate NAFTA and other free trade agreements to make them more favorable on labor and environmental grounds.

It’s hard to tell whether this is merely campaign rhetoric or an actual threat to NAFTA existence. One thing is for sure. Any talk of renegotiating NAFTA makes truckers nervous.

ldquo;Since 1993, when the other Clinton signed the agreement, we’ve been in favor of NAFTA and free trade acts in general and that hasn’t changed,” ATA President and CEO Bill Graves told Logistics Management. “Free trade is generally good for the American consumer and we support that.”

It also has been good for the U.S. trucking industry. Some companies, such as Indianapolis-based Celadon and Con-way’s CFI unit, garner more than 40 percent of their revenue from the lucrative north-south trade in and out of Mexico.

Celadon, in fact, reports that more than half its total revenue (51 percent) comes from crossborder movements in and out of Canada and Mexico. Except for CFI, Celadon does more north-south business than the next four to six carriers in and out of Mexico combined.

Celadon generated $502.7 million in operating revenue during fiscal year ended June 30, 2007. It has grown significantly along with the growth of NAFTA trade. To show its growth rate, Celadon has $414 million revenue in 2006 and $399 million in 2005. Much of that growth was because of north-south Mexico trade.

Celadon is not alone. Trade using surface transportation between the United States and its NAFTA partners Canada and Mexico was 4.9 percent higher in 2007 than in 2006, reaching an annual record of $797 billion, according to the DOT’s Bureau of Transportation Statistics.

Last year, total truck trade between the U.S. and Canada and Mexico reached $554 billion. To put that figure in perspective, total truck trade between the U.S. and Canada and Mexico was $265 billion, or less than half today’s amount, just 13 years ago. Electronics, machinery, nuclear reactors and parts and motor vehicles made up nearly $280 billion of U.S.-Canada-Mexico truck trade last year, or about half the truck total amount.

Unlike the overall U.S. world trade imbalance, the NAFTA trade is nearly perfectly balanced between imports and exports. For a country with roughly a huge and growing trade imbalance, that’s important. Largely because of this country’s thirst for oil imports, the U.S. ran a trade imbalance of $763.6 billion in 2006, up from $716.7 billion the year before.

Some trucking executives, already fretting over record-high diesel prices that have trimmed margins in a shaky economy, prefer not to fret over NAFTA’s future, despite what politicians are saying.

“It’s hard to determine if this is just political posturing,” says Pitt Ohio President Chuck Hammel. “Will it really change at all? It’s out of our control. It’s like worrying about the price of diesel fuel.”

NAFTA has other challenges as well. Specifically, the Mexico-U.S. crossborder trucking provisions are under fire from Congress, which has voted to cut off all funding for a pilot program that has allowed a small number of Mexican-domiciled truckers to operate in this country.

As an example of Congress’s acrimony over that program, Sen. Byron Dorgan, D-N.D., recently told Transportation Secretary Mary Peters she was “arrogant” in going ahead with the pilot program that has not been popular with safety advocates, the Teamsters union or carriers from either country.

The program was supposed to open the door for carriers to operate freely on both sides of the border. That has not happened. The pilot program allows up to 100 carriers to apply for authority from the other country. So far, only 16 Mexican carriers (with a total of 55 trucks) have sought operating authority. Similarly, only five U.S. carriers (with a total of 45 trucks) have received authority to operate throughout Mexico.

That’s because carriers realize Congress could eliminate the limited one-year demonstration project at any time. If a Democrat wins the White House, that is almost a certainty.

U.S. and Mexican governments have established two groups to provide oversight for the demonstration project. The first, a bi-national group, will provide continuous monitoring of the project and identify and resolve any implementation issues as they arise. The second, an evaluation group composed only of U.S. representatives knowledgeable with the issue, will be tasked with measuring and evaluating the results of the demonstration project. But that has not been enough to satisfy safely advocates, environmentalists and labor groups nervous over unsafe Mexican trucks.

For their part, Mexican carriers feel discriminated because they perceive their fleets have to meet a higher level of safety requirements than U.S. carriers. So neither side is terribly happy. Combined with the political uncertainty, carrier executives on both sides of the border say privately, the demonstration project is demonstrably a loser,

Considering only five of the more than 700,000 interstate trucking companies and approximately 400,000 intrastate companies registered to operate in the U.S. have applied and only 45 of the 8 million large trucks registered in the United States are actually operating in Mexico, the numbers speak for themselves.

Any changes to NAFTA would further dilute interest and would probably mean less north-south trade among the three NAFTA nations. That’s because some business currently in Mexico could conceivably move to either Asia or Latin America, hurting U.S. truckers even more.