Across the Border: Opening salvos in a Mexican transportation feud

Jan. 6, 2006
Mexican carriers are crying foul over a recent decision by a federal judge awarding courier company FedEx the right to use trucks carrying more than four

Mexican carriers are crying foul over a recent decision by a federal judge awarding courier company FedEx the right to use trucks carrying more than four tons of cargo on Mexican highways. This legal victory for FedEx opens the door for UPS and DHL to the same right. The decision will be appealed.

Previously, courier companies were not allowed to haul cargo on federal roads. Mexican carriers consider it an exclusive right. Couriers had to outsource for services when the payload was bulky and had to be carried by truck from an airport on a federal highway.

The new bout between couriers and motor carriers is part of an ongoing legal battle that has lingered for years. With the victory in hand, FedEx wasted no time and is now offering its new "Point to Point Mexico" delivery service for any tonnage — and the cargo will move mostly in the company's own trucks.

Tirso Martinez, the new president of the National Cargo Carriers Chamber (Canacar), the Mexican trucking association, says the ruling was based on a legal loophole, a phenomenon that fills Mexican laws. "As long as the entry of cargo trucks to and from the U.S. remains undefined, there is no such thing as international transport," he asserts. As a result, the service foreign companies are providing is cabotage." Martinez is referring to the transportation chapter in the North American Free Trade Agreement (NAFTA) which bans Mexican carriers from transporting cargo on U.S. roads. Up to now it's been clearly understood that cabotage in Mexico was strictly reserved for Mexican carriers.

Martinez explains that in the FedEx case, when merchandise is transported by air from abroad into Mexico, once it passes through Customs it becomes a Mexican load. "It is at that moment the cargo becomes Mexican and the property of a final user at some point in Mexico. Then, that is cabotage and is not a legal load for FedEx."

This is the major argument presented by Canacar and other transportation chambers in their appeal, which seeks to legally define cabotage and international traffic.

"If the same truck that starts its route in the U.S. crosses the border and finishes its route in a Mexican city, that is international traffic. But as it is now, the trailer is unhooked at the border, dragged across the bridge, and once it Mexico, it is hooked onto another truck. That is cabotage and not international traffic." Martinez argues that foreign investment in cargo transport has to be cancelled since it violates Mexico's constitution by fostering monopolies, and as long as the U.S. government does not implement the NAFTA transportation chapter, it is clearly illegal.

Another transportation leader, Elias Dip, who runs the Teamsters-like National Confederation of Mexican Carriers (Conatram), is fuming over the decision.

"It's outrageous that Mexican authorities are obeying NAFTA down to the letter in terms of transportation, despite the fact the U.S. refuses to comply," claims Dip. "I don't know who our legislators are working for — the rights of Mexicans or the interests of the U.S."

Individual carriers — backed by the chambers — are taking aim directly at FedEx and other major carriers, including Contract Freighters Inc. (CFI-Mex); Swift and its Mexican partner Transmex; TRIAMSA, owned by Maersk Sealand; and Jaguar, owned by Celadon.

A habeas corpus suit is to be filed by Mexican company Autofletes La Ceiba, and more than 60 other carriers. It echoes a previous legal battle won by Mexican carriers a decade ago, when the clause allowing what is known as "neutral investment" went into effect in 1992. Neutral investment allows a U.S. firm to invest in a Mexican cargo company as long as management remains in the hands of Mexican owners.

The Mexican carriers filing suit to stop FedEx have lost, or stand to lose, cargo contracts as couriers build up their road fleets. Separately, Canacar, Conatram and a number of other chambers will be filing suits early this year.

"How is it possible," asks Dip, "that foreign companies are authorized to make partial transport when in the U.S., Mexicans are not allowed to do so? At least Swift is working through a Mexican carrier, but companies like DHL, FedEx and UPS directly affect rights of national truckers."

According to the Economics Secretariat, between 1999 and the first half of 2005 direct foreign investment into 12 Mexican carriers was only $635,000, with most of it happening in 2002.

Leonardo Gomez, president of the National Association of Private Transport, an organization created in the late 1990s to represent companies in that situation, defends the decision as one that allows both for company growth and renewing trucks on the road, as the average age of a unit is eight years old.

"All legal investment in the nation must promote more efficient services," claims Gomez. How can we refuse foreign investment when the cost of financing in Mexico is extremely high when compared to the U.S.?"

Gomez is a supporter of the "neutral investment" law. "It's something to use to our advantage, just as other transportation sectors have, like the railroads. Neutral investment is like the stock exchange," he continues. "You buy stock in a given company and even if you aren't on the board of directors, you get profits. So, what's the problem?"

Miguel Angel Bres, of Mexican carrier Transporte TDR, realizes that "those of us not participating in foreign investment are at a disadvantage against those who do. Let's face it, foreign trade comes thanks to American companies in Mexico."

For now, FedEx will take advantage of the ruling. But, looking to the long run, a legal war has been declared.