The ongoing trade dispute between the US and China (and more recently with Turkey) has understandably pushed the lingering NAFTA negotiations into the recesses of the public’s attention.
Yet for those with a vested interest in North American ground freight, the latest developments in the NAFTA talks – which have seen the US set Canada aside to negotiate separately with Mexico – should be watching those discussions very closely.
While the pivotal debate is focused on rules of origin for autos and the associated labor provisions that will allow US labor to compete at a more equal level with their Mexican counterparts, there are subtler aspects of the US-Mexico relationship that could have a profound effect on the price and availability of ground freight in North America.
When NAFTA was signed in 1993, it liberalized not only trade across North America, but also how goods were moved. Specifically, it was intended to eventually allow Mexican truck drivers to be able to haul loads deep into the US.
That level of free movement, however, is still quite limited on America’s southern border. For years, trucking labor groups concerned about the impact the move might have on employment and business in the US trucking industry, fought the move that would allow Mexican truckers to access US highways, noting their trucks were not up to the safety standards set out by America’s relevant governing bodies. As a result, Mexican truckers were forced to transfer their loads to American truckers at rally points within a few kilometres of America’s southern border.
That changed in 2015 when the US began permitting licensed Mexican truckers to transport their loads into America’s heartland. While American truckers may have lamented the change, it was a welcome initiative to shippers who have witnessed a deterioration in ground transport reliability within North America and increasing ground freight rates due to an ongoing driver shortage.
But the renegotiation of NAFTA has the potential to change the policy once again. Whatever one’s politics with respect to labor competition within the trucking industry, a move to prevent Mexican drivers from accessing the US will only exacerbate an already challenging driver shortage within the industry.
It’s difficult to say which way the policy might go as part of a new NAFTA and the topic has seen scant discussion in public forum, leaving ample room for speculation. However, unnamed sources close to the NAFTA negotiations told Bloomberg last November that the US had asked that a new NAFTA exclude Mexican truckers from access to the US
Much has changed in the negotiations since then. It’s quite possible a renegotiated NAFTA could further relax access to US roadways for Mexican drivers. In this scenario, freight rates could see a decline as could transport times. Conversely, a tightening of access could mean even higher freight rates and lower accessibility of drivers.
Logistics managers who rely heavily on ground freight to transport products, will want to take this into account when planning ahead for 2019. Increased rates will inevitably create budgetary pressures and fewer drivers could mean a greater reliance on the spot market where rates are even higher.
Working with a forwarder that has an extensive ground network can assist in planning ahead and being prepared for supply chain disruptions or delays, limiting operational impact, revenue loss and unexpected expenses.
Of course, most businesses are hopeful NAFTA is successfully renegotiated in a manner that leaves the core tenets of the agreement unaltered and allows for relatively seamless business continuity.
But when it comes to supply chain management, it’s always prudent to hope for the best while planning for the worst.