Mexico seeks to lower age of its private fleets

Mexico seeks to lower age of its private fleets

It's been 10 years since the North America Free Trade Agreement (NAFTA) went into effect and all things considered, things have been running pretty smoothly — except for cargo transportation.

In fact, NAFTA brought about no major changes in the way merchandise is transported between the U.S. and Mexico. With usual delivery, cargo is taken to a Mexican border city where the trailer is unlatched and picked up by a “transfer” truck (usually an old rig), which takes it across to “the other side,” as Mexican border residents refer to the U.S. There, the cargo is picked up by a U.S.-owned truck, and taken to its final destination. For Canada-bound cargo, there are special permits allowing Mexican trucks to take the merchandise overland through the U.S.

This system is bound to continue as long as the Teamsters oppose the NAFTA provision on cargo transportation. The matter has been in the courts even before it was supposed to go into effect on Dec. 17, 1995.

Yet, there have been major changes in Mexican carrier mentality. It has been brought on by the conflict that has seemingly killed the possibility for Mexican carriers to do overland servicing within the U.S. as it has for U. S. carriers, who are not allowed on Mexican roads.

Prior to NAFTA, the prevailing mentality among both individual and fleet owners was one of milking a truck almost to the point where it couldn't run any more — and then fixing it to sell it for what it was worth. The result of this was the proliferation of old trucks on Mexican roads, which served as the main argument used by the Teamsters in U. S. courts, who have banned entry of these trucks into the U.S. (except for cross-border transfers, of course).

For the past year, both the Mexican National Cargo Chamber, headed by Leon Flores, and the Mexican government have been developing a plan to eliminate all old trucks. After announcing a plan on at least three separate occasions, it was officially launched at the end of April 2004.

The plan calls for all old truck owners to turn in their vehicles and through this special “junkization” (chatarrización) program truckers get large tax breaks. Too, there are special incentives by manufacturers to have owners buy a new or recent model truck and turn in the old rig, which will be junked. This, it is hoped, will get old trucks off the roads, cut down on pollution and increase productivity.

Financing for would-be owners of new units is available in two steps. First, there is financing the truck operator will receive for the purchase. Second, there is a special payment for the old rig so it can be junked. Loans range from $290,000 USD for small carriers up to $1 million USD for fleet operators. The plan applies only to trucks six years or older.

In a nation where the average age of trucks is 16 years, the plan looks good not just for truck owners, but also large truck manufacturers like Navistar and DaimlerChrysler, among others, who are avidly anticipating the plan since demand for their vehicles is expected to be great.

Most attractive in the financing plan are interest rates. Mexico is a nation in which banks charge interest rates that in the U.S. would be considered on par with loan sharks — in the range of 60% (yes, that's sixty percent). Cost of these new loans — depending on the borrower — will drop as much as 80%, which is attractive to all thanks to a government subsidy that underwrites the program.

Financing is available through the government's financing arm, NAFIN, and applications can be made directly with the associations of truck manufacturers.

The aim, according to Mexican President Vicente Fox — who announced the program last November and again in April — is to lower the average age of rolling trucks from 16- to six-years-old at most, and make overland transportation in Mexico faster, more efficient, less polluting and act as an economic stimulus to create jobs both in truck manufacturing and the cargo business itself.

It remains to be seen how owners of old trucks react to the program, which is the result of the pressures NAFTA has brought on the Mexican cargo industry, and indeed represents a change in mentality of trucking operators. LT

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June, 2004

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