The Economic Impact of Transborder Trucking Regulations

John T. Jones

• Publisher: Routledge
• Year: 2014
• eBook ISBN:
  9781135678371
• Topic: Commerce
• Subtopic: Commerce Général

Estimates the economic impact that past U.S. transborder trucking regulations have had on the number of inbound trucks, inbound truck load characteristics, and the infrastructure along the U.S. international borders. Rooted in economic theory and tested with historical data John T. Jones' study provides policymakers with possible outcomes for the transportation issues involved in the North American Free Trade Agreement.

CHAPTER 1

Introduction

Within a relatively short period of time, the trucking industry has evolved from a quasi-competitive structure to one of a complex system of sophisticated networks fraught with diverse competition. Truckers compete directly, and in many instances cooperate, with railroads and the airline industries in the transportation of freight. In the early 1920’s trucking firms were small mom-and-pop organizations. Today, many trucking firms operate thousands of trucks and have annual earnings measured in billions of dollars. Technological advances, undreamed of in the past, such as satellite tracking systems, are common in today’s world of interstate trucking.

The U.S. domestic trucking industry was once viewed by government officials as an industry with competition so fierce that it was considered destructive and that federal regulations were needed to correct this perceived market imperfection. As such, the U.S. domestic trucking industry was one of the most heavily regulated. Now, still viewed as highly competitive but less than destructive, the U.S. interstate trucking industry is practically free of federal regulations. Ironically, transborder movements of goods by truck are still heavily regulated.

Trade between the U.S. and its contiguous neighbors, Canada and Mexico, is transported mainly by trucks. Based on cargo value, approximately eighty percent of U.S.-Mexican trade (Maltz, Giermanski, and Molina 1996, 8), and an estimated seventy percent of U.S.-Canadian trade (Department of Transportation 1994, 16) is transported by truck. With increased emphasis on free trade, attention is quickly focusing on international trucking. In the days of heavily regulated domestic movements, transborder trucking, trucking across international boundaries, had been only a minor concern of Congress. Since the beginning of federal trucking regulations in 1935, transborder trucking regulations were subsumed in domestic policies. With deregulation in 1980, debate over transborder trucking policy has intensified and has become the centerpiece in discussions of international freight transportation.

Prior to 1980, barriers to entry took the form of transborder regulations at the northern and southern borders of the U.S. The regulations restricted foreign trucks from transporting goods into the U.S. Since 1980, the northern and southern borders have followed divergent paths concerning truck entry policies. After 1987, the U.S.-Canadian border has maintained minimal truck entry regulations. Truckers from the U.S. or Canada need only to satisfy safety standards in order to transport freight across the U.S.-Canadian border. At the present time, transborder trucking is heavily regulated between the U.S. and Mexico.¹ U.S. laws prohibit Mexican motor carriers from transporting goods inside the United States. Mexican motor carrier movements are limited to commercial zones along the international border. The commercial zones are allowed by the Surface Transportation Board, an agency that replaced the Interstate Commerce Commission in 1995 (Spychalski 1997), to facilitate the exchange of trailers and cargo between Mexican and U.S. truckers. A Mexican trucker carrying imports into the U.S. must stop within the zones and exchange cargo with a U.S. carrier, which then transports the cargo the remainder of the trip through the United States. Mexican local laws prohibit U.S. trucks from entering Mexico. As a result, U.S. exports to Mexico must also be interlined at the border within the U.S. commercial zones.

The divergent path of truck entry regulations would have converged with recent negotiations for free trade. The recently signed North American Free Trade Agreement (NAFTA) explicitly addresses the issue of transborder truck entry and harmonizes entry regulations. Under NAFTA, after a seven-year period, transborder trucking between the U.S. and its contiguous neighbors would have been essentially free of entry barriers. Mexican truckers would have been allowed to transport goods directly into the U.S., and U.S. truckers would have been able to do the same in Mexico. The laws already in place that prevent foreign truckers from conducting domestic transport in the U.S. (cabotage) will remain in place. Foreign truckers entering the U.S. will be prohibited from transporting goods domestically in the U.S., and U.S. truckers will be prohibited from transporting goods domestically within the neighboring countries (Schulz 1993, 28). Despite signing NAFTA, the truck entry component of the agreement has been delayed indefinitely by the U.S.

Given the attention deregulating transborder trucking has received from Congress over the years, little has been written in the economics literature on the issue (Pustay 1989, 252). One possible reason for this apparent void is the general lack of data on transborder movements of goods by truck. In this book, data from various government sources will be used to design a panel data set to econometrically measure the effects that past transborder regulations have had on the trucking industry. The results of this study will provide policymakers information for further negotiations and implementation of trade agreements, such as NAFTA. It will also fill a void in the economic literature by providing econometric estimates of the effects of transborder trucking regulations.

Looking at the U.S.-Mexican and U.S.-Canadian borders and the number of trucking related establishments that locate there may provide information to the effect of transborder trucking regulations. Comparing the number of establishments under the SIC 421 (local trucking and courier services), 422 (warehousing and storage), and 473 (transportation services) between the U.S.-Mexican and the U.S.-Canadian borders reveals some interesting results. The U.S.-Mexican border (a more regulated environment) has more establishments for the transference of cargo per dollar of trade than the U.S.-Canadian border (a less regulated environment). Over time, as regulations fell so did the number of establishments located along the border. This provides evidence that resources are being allocated away from productive means toward the borders during periods of increased regulations.

Table 1-1 below compiles the totals and totals adjusted for trade (real dollar value of imports and exports) for the number of establishments within the commercial zones around the land ports of entry along the two borders. To obtain these totals the size of the commercial zones around each port of entry was first estimated. The total number of establishments under SIC 421, 422, and 473 located within the counties that most closely approximates the commercial zones were summed for each border and their totals reported in Table 1-1. The table contains the universe of establishments under SIC 421, 422, and 473 located within the commercial zones around each land port of entry along both borders for the years 1997 and 1991.

Table 1-1: Total and Total Adjusted for Trade of the Number of Establishments along the U.S.-Mexican and the U.S.-Canadian Borders

Source: Department of Commerce. Economics and Statistics Administration. 1977 and 1991. County Business Patterns.

^aSIC 421 denotes Local Trucking and Courier Service; SIC 422 denotes Public Warehousing and Storage; SIC 473 denotes Arrangement for Transportation of Freight and Cargo.

The U.S.-Canadian border has more establishments under SIC 421 (Local Trucking and Courier Services) than the U.S.-Mexican border for the years 1977 and 1991. The U.S.-Canadian border had a total of 1,664 establishments for the year 1977, and 2,108 establishments for the year 1991. The U.S.-Mexican border had only 730 establishments in 1977, and 1,338 establishments in 1991. However, the U.S.-Mexican border had more establishments under SIC 473—Arrangement for Transportation for Freight and Cargo than the U.S.-Canadian border. For the years of 1977, the U.S.-Mexican border had 227 establishments, and in 1991 the U.S.-Mexican border had 524 establishments. The U.S.-Canadian border had only 126 establishments in 1977, and 263 establishments in 1991. In 1977, the U.S.-Canadian border had more establishments under SIC 422 (Public Warehousing and Storage) with 105 establishments compared to 83 establishments along the U.S.-Mexican border. This was reversed in 1991. The U.S.-Mexican border had more establishments in public warehousing and storage in 1991 with 260 establishments, compared to the U.S.-Canadian border with 187 establishments.

Comparing the rate of change in the number of establishments along both borders from the year 1977 to the year 1991 reveals that the U.S.-Mexican border has experienced the greatest rate of increase for all three types of establishments. The rate of increase ranges from a low of 83.29 percent, for trucking and courier service establishments, to a high of 213.25 percent for public warehousing and storage establishments (the rate of increase for establishments that arrange for transportation for freight and cargo, SIC 473, is 130.84 percent). The U.S.-Canadian border shows a rate of increase ranging from 26.69 percent for local trucking and courier service establishments to 108.73 percent for establishments that arrange for the transportation for freight and cargo (public warehousing and storage establishments shows a rate of increase of 78.1 percent). These changes were occurring during the period in time when regulations were increasing along the U.S.-Mexican border, and the U.S.-Canadian border was under going deregulation. The changes in the number of establishments along the U.S.-Mexican and the U.S.-Canadian borders may merely be reflecting a greater need for border agents due to increases in the volume of trade, and not due to the change in regulations. In order to get a clearer picture, the number of establishments need to be adjusted for the volume of trade.

To adjust the total number of establishments for the real dollar value of trade, current dollar values of imports and exports (measured in millions of dollars) were added together for the U.S.-Mexican border and also for the U.S.-Canadian border for the year 1977 and again for the year 1991. The summed values give the total nominal dollar value of trade crossing each border for each year. The real dollar value of trade was obtained by deflating the nominal dollar value of trade by the U.S. GDP deflator index. The deflated numbers give the real dollar value of trade in one hundred million dollar units. Then, since approximately 80 percent of all international trade between the U.S., Mexico, and Canada is carried by trucks, the real dollar value of trade was multiplied by 0.8 to get an approximate real dollar value of trade carried by trucks. The total number of establishments in each category were divided by this number to get the total number of establishments adjusted for trade.

When the establishments are adjusted for trade, the U.S.-Mexican border shows the greatest number of establishments for all three categories. In 1977, there were 5.36 establishments for local trucking and courier services for every one hundred million dollars of trade crossing the U.S.-Mexican border. Along the U.S.-Canadian border, there were 2.09 establishments for local trucking and courier services needed for the same volume of trade for the same year. For each one hundred million dollars of trade, there were 0.61 warehousing and storage establishments located along the U.S.-Mexican border in 1977. The U.S.-Canadian border shows 0.13 establishments in warehousing and storage for the same time period and the same level of trade. Most striking of all the results is the difference in the number of establishments for arranging transportation for freight and cargo. Along the U.S.-Mexican border there were 1.67 establishments per one hundred million dollars of trade in 1977. Along the U.S.-Canadian border there were 0.15 establishments for the same level of trade in 1977. These results suggest that transborder trucking across the US.-Mexican border requires more border agents to facilitate the transference of goods than was needed along the U.S.-Canadian border in 1977.

Comparing the number of establishments per dollar of trade along the U.S.-Mexican border from 1977 to 1991 shows that the number of establishments in all three categories have decreased. Though the U.S.-Mexican border shows a decrease, the number of establishments is still greater than the number of establishments along the U.S.-Canadian border in 1991. The rate of decrease ranges from a low of 6.56 percent for warehousing and storage, to a high of 45.33 percent for local trucking and courier services (establishments in the arrangement for transportation for freight and cargo decreased at a 31.14 percent rate). This decrease in all categories of establishments along the U.S.-Mexican border may be explained best by the easing of tension between the U.S. and Mexico and by gains in efficiency from innovations in transborder trucking technology. Mexico has recently reduced the barriers on foreign truck entry. In 1990, Mexico’s former president, Carlos Salinas de Gortari, took steps to clean up Mexican Customs along the U.S.-Mexican border. The Mexican government reduced the power of local unions who controlled the border. The method of “mordida,” or bribing local officials to ensure international cargo would pass through Customs unabated, has been eliminated (Bowman 1991, 90). Today, Mexican officials allow, on a limited basis, U.S. carriers access into the Mexican border region to drop off trailers so Mexican truckers can haul the cargo the remaining distance into Mexico (Department of State 1994; Molina and Giermanski 1994, 51). Telecommunications and direct computer linkages between shippers and Custom’s officials at the border have reduced the paperwork necessary for transborder shipping and increased the speed in the transference of cargo. These factors are most likely the cause of the reduction in the number of establishments used to facilitate transborder trucking along the U.S.-Mexican border from 1977 to 1991.

In 1977, the U.S.-Canadian border had 2.09 establishments for local trucking and courier services per one hundred million dollars of trade. In 1991, the U.S.-Canadian border had 1.68 establishments per one hundred million dollars of trade. This is a 19.62 percent rate of decline in the number of establishments involved in local trucking and courier services from 1977 to 1991. As seen before, the U.S.-Mexican border shows a larger rate of decline in this type of establishment with a 45.33 percent rate of reduction. The reduction in the number of trucking and courier service establishments along both borders is partially explained by gains in efficiency due to the easing of entry barriers and partially by the Interstate Commerce Commission (ICC) redefining the size of the commercial zones in 1977. The ICC adopted a population and mileage formula to determine the size of commercial zones (Interstate Commerce Commission, 1976). Commercial zones prior to 1977 were defined on an individual basis. The new method of defining the commercial zones increased the size of all previously existing commercial zones. The increased size of the zones also allowed foreign trucks to transport international freight short distances across the U.S. border without government interference. International trucks were permitted to drop off freight on the U.S. side of the border so domestic U.S. trucks could haul the cargo the rest of the distance into the U.S. Prior to this action, local trucking and couriers were needed to dray cargo across the border. Because Mexican and Canadian truckers could transport freight directly into the U.S., these specialized truckers were no longer needed and their numbers were reduced. Also, prior to the Motor Carrier Act (MCA) of 1980, the ICC started to liberalize the interpretation of the requirements for entry into the U.S. interstate trucking industry. More foreign truckers were awarded authority. This allowed the foreign truckers to perform direct-line services to receivers in the U.S. The foreign truckers completely bypassed the local trucking and courier service establishments at the border. The liberalizing of entry regulations by the ICC, and the expansion of the commercial zones together reduced the demand for interlining services, and the number of local trucking and courier service establishments decreased.

Between the years 1977 and 1991, the U.S.-Canadian border experienced a 47 percent increase in the number of establishments for arranging for transportation for freight and cargo. This is a relatively large percentage increase. Investigating this phenomena further, it was found, from 1977 to 1986, the number of establishments per dollar of trade had remained fairly constant at roughly 0.15 brokers per one hundred million dollars of trade. Between the years of 1986 to 1991, the variation in the number of establishments per dollar of trade increased. The higher variation has highs of 0.22 establishments per one hundred million dollars of trade in 1988 and again in 1991. The lows reached a minimum at 0.17 establishments per one hundred million dollars of trade in 1986. The average number of establishments for arranging for transportation for freight and cargo per one hundred million dollars of trade over the years from 1977 to 1986 is 0.153. The average number of establishments per one hundred million dollars of trade for the years 1986 to 1991 is 0.195. The year when the increase appears to have occurred is 1987. The year 1987 is when Canada enacted the Motor Vehicle Transportation Act (MVTA). This Act allowed easier entry into Canada by U.S. carriers. A possible explanation for the greater number of establishments for the arrangement of transportation for freight and cargo at the border after 1987 is an increased demand for services to fill empty backhauls. Canada allowed U.S. trucks to enter their county in 1987, but the MVTA did not affect the ban on cabotage in Canada. Once a U.S. carrier entered Canada to drop off cargo, unless the carrier had prearranged a load coming back to the U.S., the carrier would have to travel empty until safely back in the States. Empty backhauls are costly. Border agents who arrange for the transportation of freight and cargo located along the border could secure a load for the returning truck as soon as it crossed the border. This would reduce the cost of traveling empty the entire trip back into the U.S. The increase demand for the services to fill empty backhauls will be directly related to the cost savings to the truckers. The longer the trip back into the U.S. for the returning trucker the stronger the demand for, and profits to, the firms already at the border performing such services. The increase in profits would attract more transportation brokers to the border, and therefore, increase the number of establishments under SIC 473 along the U.S.-Canadian border.

In all three categories of establishments, the gap between the difference in the number of establishments per dollar of trade between the two borders has narrowed over time. This suggests the number of establishments needed to facilitate transborder trucking across the two borders are moving closer together. The convergence is mostly due to the U.S.-Mexican border’s declining number of establishments per dollar of trade. This is occurring because of the easing of transborder regulations between the U.S. and Mexico.

By studying the changes in the number of trucking related establishments along the border, we will be able to measure the impact that transborder truck entry regulations have on the allocation of resources. Comparing the number of border establishments between the two time periods and...

Table of contents

• Cover
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Tables and Figures
• Foreword
• Acknowledgments
• Chapter 1 Introduction
• Chapter 2 History of Motor Carrier Regulations
• Chapter 3 Structure of the Trucking Industry
• Chapter 4 Transborder Truckload Size
• Chapter 5 Analysis of the Allocation of Resources
• Chapter 6 Conclusion
• Appendix: Definition of Standard Industrial Codes
• Bibliography
• Index