A cure for West Coast congestion

Mexico is now allowing free transit of containers from Pacific Rim nations to the U.S. On December 1, a new law went into effect opening the Mexican ports of Lazaro Cardenas and Manzanillo to container traffic. The one catch in the new law is that transit is only permitted through Mexico via railroad.

The alternative plan has already sparked interest among some major shippers. Japanese automaker Toyota, for instance, is seriously considering moving some of its freight through Mexican ports rather than through the Port of Long Beach, Calif. (see bottom). With Long Beach saturated with cargo traffic and the attendant long lines at U.S. Customs there, merchandise is being stalled — a problem that would be greatly reduced if some of those containers crossed into the U.S. by rail.

Previously Mexican ports were closed to this sort of cargo movement. For many carriers, Mexico was an unattractive alternative since its Finance Secretariat required a $90,000 refundable bond for each transported container. Now a green light has been given to railroad companies Transportacion Ferroviaria Mexicana (TFM) (www.tfm.com.mx), a partner of Kansas City Southern, and Ferromex (www.ferromex.com.mx) to haul containers to the border cities of Laredo and El Paso, Tex. The only money imposed on the two railroads is a warranty of $55,000 for the operations.

"This year an agreement was signed among several governmental agencies for development of intermodal corridors," says Fanny Angelica Euran Graham, an official with Mexican Customs. "To reach this accord we worked with the Mexican Secretariat of Communications and Transportation, as well as users, to facilitate the entire process. Some corridors have been established through new taxation rules managed by the Finance Secretariat.

"Basically," she continues, "this benefit-is limited to merchandise transported by railroad under the international traffic lanes running from Lazaro Cardenas to Nuevo Laredo, from Manzanillo to Ciudad Juarez, and from Manzanillo to Nuevo Laredo."

Immediate response has been enthusiastic both from railroad operators and port officials.

Carlos Porraga, logistics manager for TFM, notes, "This is an opportunity we have been insisting on for a long time. We have experience dealing with internal Mexican intermodal operations. However, this is the first time we are doing so on such a large scale and are already working with major shipping companies like Maersk, CP Ships and APL." He believes the international traffic will develop slowly.

Juan Paratore, port operator of Lazaro Cardenas, points out that to date Lazaro Cardenas, which opened for business just a year ago, is handling 8,000 TEUs monthly. According to Paratore, in just a few years the port will have a flow through of 200,000 containers a year. "With a 16 kilometer long ocean front, we have the capability of building new docks as needed."

However, not everyone is happy about prospects for the new international traffic. Oscar Moreno, who manages legal issues for Mexico's National Cargo Carriers Chamber (Canacar) (www.canacar.com.mx), sees the move as representing "an unfair trading practice." He asks, "What kind of intermodal transport is it establishing a corridor allowing participation only by railroads?"

There is heated dialogue between government officials and truckers who want an immediate answer to their demands for being entitled to a share of the container business. A response, however, may be a long time in coming.

Customs official Euran Graham says truckers were left out of the law because it would be physically impossible to control movement of containers on the road. Awarding truckers the intermodal benefit could bring a surge in contraband since many containers would never make it to the U.S. and would remain in Mexico without having paid import duties.

"We have full control of railroad operations," says Euran Graham. "We have established links with Mexican railroads. They feed us information electronically and we can be certain the railroad will neither take a detour nor stop on its way so that cargo may be removed from it. We believe we can substitute the individual warranty for each operation for a global bond fee and have the railroad companies be responsible to us and make sure the cargo is going to leave the country, on time and untouched."

Canacar's Moreno, however, believes this measure — which he says benefits only the railroads — is contrary to Mexico's Federal Competition Law and that the General Customs Administration Office "must make an extension of the permit to extend to road carriers. The next move they make must benefit road cargo carriers."

It is highly unlikely that will happen any time soon, says Euran Graham. "Road trucks were excluded for simple motives. There are shipments containing sensitive cargo that may only be transported by rail. Obviously we can't have the control over trucks that we have over railroads. With trucks, we have absolutely no confidence that what enters the country is going to leave. We are working with road carriers to define a set of controls that may allow us to ease up on present restrictions as we define them. We must have a responsible individual or company whom we can hold responsible for containers in transit."

On the other hand, Moreno demands the Federal Competition Law be obeyed and "do what it is supposed to do. That is, to promote free market access, in this case for road carriers. Customs is going to have to crack open this oyster."

The Long Beach dockworkers strike in 2002 helped lead to this changing of Mexican law. This measure permitting controlled transit of containers from Mexico's Pacific ports to the U.S. border did not come easily, as the Long Beach strike wreaked havoc with shipping companies.

Alternatives were immediately sought, with Mexican ports eyed as a possibility. Carlos Miranda of TFM says the strike presented an opportunity for them, and in response to it the railroad used its Manzanillo-Nuevo Laredo line to serve automobile manufacturer Nissan's Smyrna, Tenn., plant, moving product north to the U.S. facility. The move was a successful textbook case study. "Nissan was able to continue with a seamless operation," says Miranda.

"As the strike continued at Long Beach, we enacted emergency measures to enable cargo stalled at Long Beach to be moved through Mexico," remembers Euran Graham. "Many restrictions were lifted so cargo could move to the U.S. under international traffic stipulations, just as we are doing now."

An objective view reveals that both carriers and ports were caught off guard by the sudden transportation opportunity the dockworkers strike presented.

"Truckers were short of trucks and Mexican Customs was unable to handle the load," reflects Euran Graham. "They were ill-equipped and that affected timing. Ports were not cleared as fast as we wanted. The emergency measures were valid for six months, which was the time it took us to clear up the ports."

Another problem facing users trying to move cargo into the U.S. through Mexico was costs. Presented with a chance to gain high-volume business, Mexican carriers responded by hiking their rates, effectively killing the goose that laid the golden egg.

"If carriers had provided good prices and good service during the rush, much of that traffic would have moved to Mexico," says Euran Graham.

In the long run, the dockworker's strike delivered an important lesson in how to manage international traffic in transit through Mexico.

"If railroads, Customs facilities and ports coordinate and support each other in providing good service — not making it overly expensive — we have an excellent opportunity to secure some of the traffic currently entering the U.S. through Long Beach," says Euran Graham. If nothing else, shippers now have the alternative of entering North America through Mexican ports and riding the rails into the U.S.