Opinion: Tips for US Carriers When Moving Their Business Into Mexico
With shipments of everything from new vehicles to avocados regularly crossing the border, Mexico has been the second-biggest trading partner to the United States for more than a century. And yet, uncertainty about the future of this relationship looms.
There are various reasons for this uncertainty. For one, trade tariffs being imposed on our southern neighbors threaten to shift the business dynamics of this long-standing relationship. Plus, the tenuous status of ongoing discussions to renegotiate the North American Free Trade Agreement keep many businesses hanging in the balance. (Update: U.S., Mexico agree on new trade deal.)
However, a longer-standing issue also puts pressure on the situation: restrictions and conditions required of U.S. fleet carriers to enter Mexico with their loads.
Templeton
U.S. trucking companies have traditionally been discouraged from hauling into Mexico unless they have a Mexican subsidiary, staffed with Mexican drivers and backed by a Mexican insurance policy. For this reason, U.S. carriers frequently transfer their loads at the border to a Mexican driver who finishes hauling the load into Mexico.
When it comes to U.S. imports, though, the opposite is true. Mexican truckers can operate within a trade zone, generally 50 miles from the border crossing, delivering their goods within the United States. In addition, there are a number of Mexican carriers that currently have authority to haul loads from Mexico into and throughout the United States.
There’s a good chance this could all change. Among the potential changes to NAFTA are an opportunity for U.S. fleets to expand their business into Mexico. According to American Trucking Associations’ chief economist Bob Costello, 50,000 jobs are needed to support NAFTA, including 31,000 drivers. This means $6.6 billion annually to trucking companies.
U.S. fleet carriers are more likely than ever to consider interlining with an existing Mexican trucking company, or creating a company division in Mexico, staffed by Mexican nationals who know the roads and understand how to protect loads and equipment. But in order to do so, they must consider the real ramifications, potential risks and liabilities when heading south of the border.
Here are the top three considerations for U.S. carriers when moving their business into Mexico:
Legal: Understand that Mexico’s justice system is different from the U.S. system. The Mexican government doesn’t regulate drivers or track motor vehicle records as we do in the United States. Instead, Mexico’s justice system in many cases sets a cap at recovery should a load, truck or trailer be damaged, stolen or get involved in an accident where liability is an issue. Claims adjusted by a Mexican adjuster or judge may not be what a U.S. carrier might expect to recover or reflective of the loss sustained.
Safety: The U.S. State Department issued travel warnings for most of Mexico in January, including all border states. With this level of risk, many Mexican insurance companies began requiring an armed guard to accompany loads from the United States to their delivery south of the border.
Insurance: Procure separate Mexican insurance coverage. Most U.S. commercial auto insurance policies cover loads hauled throughout the United States and Canada, but they exclude Mexico. Therefore, fleet carriers that enter Mexico must hold a separate policy for activity south of the U.S. border. Talk to your broker about adding a stand-alone Mexican insurance policy to your existing coverage. Know that costs may not be the same, as liabilities south of the border are greater.
Minimize the Trade Gap
In the last few decades, a trade gap has developed between us and our southern neighbor. About 12% of U.S. imports come from Mexico, costing us $318.6 billion. The same percentage holds true for U.S. exports to Mexico, but they bring in only $261.7 billion to our economy, according to the U.S. Census Bureau, Bureau of Economic Analysis, 2016.
Applying the above considerations could help close the $50 billion-plus trade gap between the United States and our southern neighbor.
Templeton is senior vice president and chief sales officer, Hub International Transportation Insurance Services Inc . He is a transportation risk specialist, certified professional insurance agent and a certified insurance counselor. Templeton serves on the Motor Carrier Insurance Education Foundation Advisory Board.
