Posts Tagged ‘North American Free Trade Agreement’

Trade Treaty Took Effect This Week

July 3, 2020

The USMCA trade agreement took effect on July 1, replacing NAFTA.

An analysis published in Railway Age magazine credited NAFTA, formally known as the North American Free Trade Agreement, with providing traffic growth for U.S. railroads and said the new treaty, known as the United States-Mexico-Canada Agreement presents similar opportunities.

Kansas City Southern CEO Pat Ottenssmeyer said USMCA modernizes NAFTA and could spur robust economic growth.

USMCA has provisions for agricultural market access, digital trade, financial services, and regulatory policy that Ottensmeyer said could benefit American workers, farmers and ranchers.

The treaty might be timely as many businesses are rethinking their supply chains in the wake of the COVID-19 pandemic.

Industry observers and shippers have suggested in recent comments that there may be a move away from being so reliant on China as a supply source.

However, Ottensmeyer said railroads also face challenges in taking advantage of USMCA because of what he termed “misalignment of government policy across North America, such as the current situation caused by the lack of coordination of ‘essential services’ in the three countries, could potentially result in the underperformance of existing, well-established supply chains.”

Ottensmeyer said better coordinated health and safety initiatives combined with effective security practices could provide “a path for the continent to emerge as an even stronger force in global manufacturing and logistics.”

U.S. Railroads Expect to Benefit From Increase in Auto Maker Manufacturing Capacity in Mexico

March 10, 2016

With U.S. auto makers seen as likely to increase vehicle production in Mexico and that is likely to be good news for U.S. railroads.

Although many of those vehicles will be built for export markets that do not include the United States and Canada, analysts expect U.S. railroads to see increased traffic in parts used to make vehicles as well as the finished vehicles.

Larry Gross, who is president of his own consulting business, told Trains magazine that a substantial number of the vehicles being built in Mexico are expected to move north by rail.

train image2Railroads also could benefit from hauling parts destined for the Mexican assembly plants.

Although this might seem to be a boost for railroad intermodal business, Gross said the complication is that moving the parts would involve two railroads working together which often do not work well together.

Nonetheless, some agreements have been worked out, including one involving BNSF and Ferromex (Ferrocarril Mexicano, FXE) to move auto parts in containers between Chicago via El Paso, Texas, to an assembly plants near Mexico City at which Volkswagen builds engines and General Motors assembles engines, transmissions and Chevrolet and GMC pickup trucks.

The latest figures, which are from 2014, show that $73.5 billion in exports and imports moved by rail from Mexico to the United States.

Most of this traffic – more than half of which was vehicles and parts – was interchanged at gateways in Nogales, Arizona; Lardeo, Texas; and El Paso.

The statistics show that trucks handled about six times the business handled by railroads.

Trucks are not the only competitor for the railroads. “There is potential competition from ocean movement of vehicles, particularly into the East Coast,” Gross said. “How smoothly rail can flow across the border will be a key factor.”

Mexico is the third largest U.S. trading partner behind China and Canada. Auto production in Mexico began to accelerate after the 1992 adoption of the North American Free Trade Agreement.

Auto analyst Jim Gillette said that auto production in Mexico is expected to soon reach three million vehicles per year.

Auto makers are eyeing markets in South American and Europe for the vehicles they build in Mexico.

The Wall Street Journal recently reported that Ford Motor Company plans to open a new assembly plant in the Mexican state of San Luís Potosí in 2018 that combined with an existing factory near Mexico City would have a production capacity for 500,000 more vehicles annually.

The WSJ report said that three-quarters of Ford’s production would still be in the United States. More than a year ago General Motors said it would double its manufacturing capacity in Mexico.

A wide range of brands, including Fiat, Lincoln and BMW, are built in central Mexico.

Lower labor costs are often cited for moving production south of the border, but U.S. companies have also said that the quality of the work of the Mexican assembly plants has met and sometimes exceeded domestic U.S. quality standards.

A Detroit Free Press report said that despite the increase in production in Mexico about two-thirds of new vehicles built in North America will be assembled in the United States.

The report said that the rise in production in Mexico is expected to come at the expense of auto manufacturing in Canada.