Ladies and gentlemen, thank you for standing by. Welcome to the Talking Freight Seminar on borders and trade. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. If you have a question, please press the 1 followed by the 4 at any time during the presentation. At that time, your line will be accessed from the conference to obtain information. I would like to now turn the conference over to Jennifer Seplow. Please go ahead, ma'am.
Good afternoon and good morning to those of on you the west. Welcome to the fourth seminar in the Talking Freight Seminar series. My name is Jennifer Seplow and I will moderate today. Today's topic will focus on borders and trade. Please be advised that this seminar is being recorded. I would like to turn it over to Roger Petzold of the FHWA Office of Interstate and Border Planning to give some opening remarks.
Okay. Thank you, Jennifer. I want to take this opportunity to welcome all of you to today's session of talking freight. As Jennifer said, today is a fourth session of this web-based seminar. As you're aware, the Talking Freight Seminars are jointly sponsored by the FHWA office of Freight Operations and the Offices of Planning. The talking freight web seminars are part of an overall freight professional development program to advance the state of Freight Planning practices. The seminar series provides a convenient, no cost way for transportation practitioners to broaden their freight knowledge. Seminars are held approximately monthly. Today's topic is borders, borders and trade, which is a topic vital to both national and international economies.-- Report that there are over 135 people registered for this session and there are many more of you at different locations. Again, another great turn out. Let me give you a little background on trade issues. Between the United States-- Canada and Mexico, are the United States' number 1 and 2 trading partners respectively. In our shared border figures very prominently. In 2001, surface modes of transportation carried over 540 billion dollars in trade across Canadian or Mexican border, which represent over 89% of total NAFTA-related trade. In addition to being major trade hubs, the border areas contain communities where people live, work, shop, and access public services, among others. All trade flows across our borders in large numbers, so do people. In it 2001, over 330,000 people entered the U.S. from Canada and Mexico by either a personal automobile or by foot. Quite simply, the border areas are major metropolitan areas that have unique commuting appearance as people regularly live on one side of the border, work and shop on the other side. Also, many people commute back and forth across the international borders. A city, region or state does not have to be located at the border to be effected by the border. A very large-- large amount of trade that crosses other border either originates or is bound for part of the United States that is not at or near the border. And our speakers will discuss this. Quite simply, the borders are a vital part, are vital to the nation, borders that operate efficiently, that are facilitated the flow of trade and positively impact national economic development. Conversely, borders that are clogged cause bottle necks, delay and cost money. We are privileged to have today two expert speakers to present recent research results that they have conducted. Our first speaker will be Dr. John Taylor from Grand Valley State University in Michigan. Dr. Taylor will present the results of his study he conducted for FHWA and the Michigan DOT on the cost of delay at the U.S.-Canada border. Our second speaker, Dr. John McCray for the University of Texas at San Antonio will discuss past, present and future impacts of the U.S.-Mexico trade. Again, I want to it you for all dialing in today and bearing with us in getting started. We hope that this session is useful to you and we look forward to hearing your feedback. I'd like to turn the session over to Jennifer, who will introduce the speakers.
Thank you, Roger. As Roger mentioned today, we have two speakers, Dr. John Taylor and Dr. John McCray. Roger did give a brief bio on each of them. I'll go into a little more detail. Dr. Taylor is an associate professor in the Seidman School of Business at Grand Valley State University in Michigan. His extensive background on U.S. Canada border issues and trappings policy issues. He has authored several articles on international and transportation policy issues and has also been the principal investigator on arrest-- a key study-- conducted for various government agencies. Dr. McCray is an associate professor, and interim coordinator of international business research projects in the college of business at the University of Texas at San Antonio. He is best known for the development of rivers of trade, which is-- in 1989 developed the first description of the specific highway corridors that transport between trade between U.S. and Canada and U.S. and Mexico. His more recent work is the study of the growing trade flow between U.S. and China. He has published several manufacturing in Mexico. Before beginning the seminar, I would like to address the requests that we have been receiving for the presentations used during the seminars. They are now available on line on the Office of Freight Management website. I will send out an e-mail after the seminar with the web address. Now I'd like to go over a few logistical details prior to starting the seminar. For those of you who have participated before, you probably know what I'm going to say, but I'll go into it again today. Today's seminar will last 90 minutes with 60 minutes for the speakers and final 30 minutes for question and answer. If during the presentation, you think of a question, you can type it into the small text box underneath the chat area on the lower right side of your screen. Please make sure that is the smaller text box, not the lost-- large box for the chat. Presenters will be able to answer your questions during the sessions, but I will use some of the questions during the chat box to started off the question and answer session during the last half hour of the seminar. Those questions not answered will be posted to the LISTSERV which will be discussed momentarily. Also, if at any time you would like to zoom in on the slide on your screen, click on the magnifying class with the plus sign. As I mentioned, there will be a 30-minute question and answer session after both presenters have spoken. The operator will give you instructions on how to ask a question. If we run out of time and your question has not been answered, I would encourage you to post your question to the fright planning LISTSERV. If you have not already is provided on the slide on your screen. Both presenters will be on the look out for questions posted to this LISTSERV that relate to today's presentations and we'll answer your questions as quickly as possible. Finally, I would like to remind I that the session is being recorded A file containing the audio and the visual portion of the seminar will be posted to the talking freight website in the next day or so. To access the recorded seminar, please visit talkingfreight.WebEx.com-- and then choose the session you would like to view. Due to the size of the file, recorded files are for downloading only and cannot be saved to your own computer. We encourage you to direct others in your office to access the recorded seminar. Now, let's begin with Dr. Taylor and his presentation on U.S.-Canada trade. Dr. Taylor, in just a second, I'm going
to turn the presenter role over to you. Okay. I think everybody has the presentation up.
Dr. John Taylor:
I'm going to talk about some research that we've done that was funded by the U.S. Department of Transportation, the Michigan Department of Transportation and the New York State Department of Transportation. The objective of the research really was to try to figure out what, at least do a preliminary estimate of what the cost of the border are. We looked at two categories of costs, really. Uncertainty and actual transit time-related kinds of costs at the borders themselves and then other kinds of trade policy costs that relate to bilateral trade relationships and agreements and so on between the U.S. and Canada. I'll explain those two categories a little more fully. Then we also looked at what some of the causes of problems are at the border, what are some of the causes of delays and uncertainty at the border. One of the short to medium term solutions and long-term options including a look at external perimeter kind of strategy for the U.S.-Canada border relationship. So I'm going to address those issues as we move forward. I'm going-- just waiting for a page down here. Is it frozen?
Seems to be. You may want to try switching to the second presentation.
Okay. Let's see. How would I bring that second one up?
You click on the tabs at the top that says the name of your presentation.
Oh, I see, yeah.
Okay. I apologize for, this brief technical delay here.
Let's see. I have a drop down box that lists each of my slides. Can I try-- Try doing that. That worked.
There you go.
Okay. I just-- to give people a little bit of perspective about the U.S.-Canada border, I just wanted to show a couple of pictures before we get into the details. This is the Ambassador Bridge between Detroit, Michigan and Windsor, Ontario. Windsor is directly to the south. We always have to be careful about reports that talk about north and south directions and so on because here, going south is going into Canada, directly south. This, by the way, is a navigable waterway, ocean going ships pass under this bridge-- bridge as they come up the saint Lawrence seaway through the Great Lakes system, here moving from Lake Erie on up into Lake St. Clair and up through the St. Clair River where those ships will encounter the Blue Water Bridge, which crosses between the cities of Port Huron, Michigan and Sarnia, Ontario before exiting out into Lake Huron and you up into lake Michigan where the Mackinaw Bridge is and up through the Sue Locks and into Lake Superior. So both these bridges, this one and the Ambassador Bridge are on navigable waterways. If I back up for just one second, you can see the kind of traffic flows that have become pretty common on the Ambassador Bridge, which is the busiest commercial crossing in North America, and what we have found over the last year or so, actually since 9-11 is that this is on the Detroit side, but on the, I believe on the Windsor side, these trucks are backing up several hours, many days of the week, not all day, but several hours of the day, sometimes all day, back two, three, four miles, creating a lot of problems on the city street, which leads to this bridge on the Windsor side. So that gives you a little bit of perspective maybe. The study that we did involved a lot of secondary literature review. We looked at about 750 newspaper articles on border crossing issues, some 45 reports that had been done over the last seven, eight years on border crossing issues on the U.S.-Canada border. We visited 7 of the key crossings, ranging from, oh, Champlain to the peace bridge to the Niagara crossings, to the Michigan crossings, North Dakota and on out to the Washington, the key three or four crossings between Washington and British Columbia. We also looked at a lot of traffic data going back to 1984 annually and then monthly dated pre and post-9-11. And we were able to look at primary inspection type data, you might call it back-up data. I'm going to refrain from calling it re-- delayed data. We're looking at back-up times, whatever those times are and people can make their own judgments about whether those are delays and not delays and so on. We got this data from Canada customs. To the best of my knowledge, it's the first time anyone has used this data from Canada customs. That was a key part of our information for this study. We also did 173 personal interviews of organizations ranging from the various trade associations, whether they be carrier ones or manufacturer or exporter ones, broker associations, interviewed a number of manufacturers that cross the border. Some of the bigger ones, some of the very small ones that often times are the ones that encounter more of the problems frankly. Big carriers, small carriers, LTL, truckload, for hire, private, to try to get a good mix. And then with all that information, we tried to develop categories of border costs, what are the different kinds of costs that relate to the border, relate to trade policy on the U.S.-Canada border. Then we tried to estimate at a high, medium, low kind of range what those costs might appear to be. Then we looked at some of the causes of the problems and some of the border management options, short and long-term. Just briefly, the extent of trade and traffic, as was mentioned earlier, of course U.S. and Canada are each other's number 1 trading partners. Total trade in-- 235 billion of that moved by truck in the year 2001. If lieu at the traffic levels as very briefly. Truck traffic is up dramatically since 1984. Also up since 1995. Auto traffic is kind of interesting. It's up only 24.9% since 1984, and it's down 11.8% since 1995. That kind of surprises a lot of people. The reason for that is that in 1995, we had kind of an abnormally high kind of peak in the traffic flows that causes due to the strong Canadian dollar, due to high cigarette taxes in Canada, high gasoline prices that drove a lot of Canadians to shop in the U.S. for those goods and other goods in general. So we had a spike in traffic levels in '95. Of course since 9-11, we have seen declines in traffic levels that are due to the inspection process and due to, just the actual transit times, but more importantly the uncertainty over those transit times, and a lot of perception that there is always problems at the border when it's not necessarily the case. So that's kind of the trade and traffic situation. Let me just talk briefly to some prior studies that have been done on the costs of the border, or estimates that have been made by trade associations or, or political groups, or politicians. Of course there was a pre-9-11 study that was done by Battelle and transportation groups that looked at 6 major crossings and looked at actual transit times to cross the border in its entirety, didn't break that down by primary inspection or secondary processing, and didn't attach a cost. That study came up with some estimates of what was considered to be delays over and above normal crossing times. There was a very interesting study of good information, very detailed, and of course what suffers when you have the detail, though, is the breath, and this study looked at a couple of days of data at each crossing. But a very good study that looked at the extent of delays. The rest of these are kind of out of the back pocket, kind of estimates, guesstimates and so on, with out a lot of support. The exporters association estimates the U.S.-Canada border costs about 6% or adds about 6% to the cost of goods in Canada. Former Prime Minister Mulroney is quoted as saying that the border is costing about Canada 30 billion a year in costs. There was some testimony in front of the Windsor Chamber of Commerce were believed to be in the range of 2-3% of NAFTA trade levels. Then there is a U.S. manufacturers report that estimated border crossing costs at up to 13%. Of course it's hard to tell what up to 13% might mine exactly, but those are some of the studies we're aware that that tried to get at overall costs of the border. Before we look at the detailed costs that we, we came up with, I want to look at a couple of macro indicators of a border impact, and one of those deals with freight rates on the border. Cross-border freight rates are-- cross-border freight rates are a good indicator of course costs on the border. There are other factors that go into those cross-border freight rates, certainly, but one of the key ones is costs that are encountered at the border. What we found is that cross-border freight rates are averaging about 10-20% higher than U.S. Domestic rates after comparable move, comparable distance and so on. And that's, you go back into the early '80s there, is academic research were 30-60% higher than comparable U.S. rates. When you look at how that translates, rates are 10-20% higher today than domestic U.S. rate, we estimate that to mean about 1.59 billion dollars, U.S., in higher freight costs to companies on cross-border moves as compared to purely U.S. domestic moves. So that's one indicator of a border impact. You see, in fact, many of the carriers, especially LTL carriers have a surcharge that's built in that they charge, or try to charge at least on every, in the case of one carrier we know of $20 canned can. One of the biggest LTL Canadian carriers. The second one I want to look at is some analysis we did on what happened in the nine months prior to 9-11 as compared to the nine months after 9-11. So we compared the same nine-month period. We compared October pre-9-11. October to post-9-11 November, until we got up to a cumulative number. We looked at a couple of variables. Number one, we looked at impart-- imports from Canada. Has there been an impact, U.S. buyers, purchasing agents decided to buy a little bit less from Canada than they did pre-9-11. If you compare the nine-month period, we found that imports to the U.S. from Canada of merchandise declined 10.8%. That's interesting when you consider that auto production during that time was up about 4.8%. Industrial production varied from, oh, around 5% down, U.S. industrial production to 2-3% down during each comparison period. So what we take from this, and the line represents actual truck flows which were down about 2% by considerably less than the flows in trade. We attribute that largely to trucks that keep moving, just not as full. But what this tells us is that industrial production was down 2-3%. Auto production was up 5%, but imports from Canada were down by 10%. Which suggests some kind of border impact over and above what you might get from lower economic activity, and we think some of this impact is due to the security measures on the border and the uncertainty, and actual transit time and uncertainty about that transit time that, that's the norm now. And it's both the case of actual transit time and actual uncertainty, but maybe more importantly, just perceptions in buyer's minds about what's going on or what might go on in the future that we think is causing them to shy away. When we look at detailed cost estimates and translate some of this into a productivity hit in the U.S. economy and the translates into additional cost in loss productivity benefits because we're not taking advantage of some of the benefits we could have been getting from Canadian sourcing. So those are a couple of macro indicators of costs in impact. I want to look now at some of our detailed cost estimates. I'll look at a couple of tables here momentarily, but in total, we estimated 10.3 bill dollars, most likely level at our midrange level, $10.3 billion of U.S. of costs due to the border and U.S.-Canada bilateral trade policies. Now, that represents about 2.7% of U.S.-Canada trade in 2001, and it represents-- if you back out some of the non-truck related costs in this number, primarily personal traveler costs, we get back to something like 9.6 billion,-- some where are in that range. That represents 4.02% truck based trade. Either transit time and uncertainty costs or trade policy-related costs. Of that total number of 10 billion, about 4 billion 6 it relates to transit time and uncertainty costs and about 6 billion relates to various trade policy costs, like customs administration, brokerage costs and so on, which I'll get into here in a second. Let's look at this in a little more detail. Transit time and uncertainty costs are summarized in this table. We broke this down into carrier-related costs and manufacture-related costs. And if I could just find my little pointer here. There we go. These carrier-related costs, we had five categories. The two most important probably, primary inspection, inspection costs and 24 million, which I want to come back to, secondary yard processing costs, 755 million, then several other categories of costs, and then for manufacture-related costs, those related to lost sourcing benefits and some extra inventory carrying costs at the border, some personal traveler costs. Let me come back to this primary inspection transit time cost here with my next slide. We, the way we got at this is we got the data, this data from Canada customs that they elect, that shows, they collected every day. They collected at 20 or so major crossings and they collect data for trucks and for cars, separately, in each direction of travel. And they indicate, they have an inspector that goes out and estimates and it is an estimate, estimates the transit time, the back-up time, so to speak, for each direction of travel for cars and for trucks and they do this 6 times a day from about 6:00 a.m., to oh, something like midnight, basically across an 18-hour period. So they have a data point every 3 hours. That all goes into a national archive. We got access to that archive and we used May 1 to August 31 of last year, a year ago summer as our sample. We used that to the next-- extrapolate out across the total number of trucks crossing the border at those times and came up with our total estimate of, of actual back-up hours. Then we used a cost number of $150 an hour for unplanned, basically this is unplanned back-up kind of time, and it's costed out a little higher level than just straight operating hourly costs for a truck. In total, we come to $324 million. Secondary yard processing costs were an even bigger kind of cost than primary. Today, still about 20-40% of trucks, depending on the actual crossing location, depending whether they are going into Canada or the U.S., about 20-40% of trucks go into secondary. The average time in the secondary based on interviews of many, many, many drivers and time spent on many secondary processing areas both on the Canadian side and on the U.S. side is around 1 to 2 hours. We used a range low, medium and highest mats for secondary costs. Many, many, many trucks will be in there five hours, six hours, eight hours, 10 hours. It's not hard at all if you walk around and talk to drivers sitting in their cabs to find drivers that have been there six, seven hours any time you go to one of these secondary processing yards. Less than truckload carriers almost always go in because even when they are on automated systems like CT pad or fast, or the fax systems for being able to clear up primary inspection processes such as PAPS going into the U.S. and PARS going into Canada where the driver faxes ahead his documentation, even when that's all done, if they have more than five consignments on the truck, they automatically are not allowed to clear at primary and they move into secondary, and made only have to deal with the customs office and that-- not with brokers if they are on one of those systems. But those that are not on the various pre-clearance kinds of systems that are out there actually have to walk around to broker offices and that can take a lot of time. So in total, we estimate $755 million of secondary processing costs. Let's see. Let me move back just one second here to some of these other costs. Carriers assume a certain amount of border crossing time, and when they do that, it might be, let's say, two hours. If it actually only takes an hour, in many of those cases, not all of them, when we estimate our percent of the cases, that becomes wasted, lost time that can-- cannot be recouped because the routes have been planned well ahead and really can't recoup that time. We estimate that lost time cost at $416 million. We've got detailed tables that back each of these figures up. Many carriers were making three crossings a day. Those carriers made routine crossings from terminal to terminal. After 9-11, that's dropped to a couple of times a day. We estimate that cost-- there are other costs in this category as well related to what happens when you miss a business that's shut at 5:00 p.m. and you got to put the product in storage overnight and so on, so forth. Driver documentation fax time, drivers do spent-- spend a lot of time preparing documentation, faxing ahead and so on. We estimate that time at $250 million. Carriers sub total billion 8. Then for the manufacturers, I was talking earlier about the reduction in sourcing from Canada and the fact that that has a productivity hit. We estimate that productivity hit at a billion 5 at our most likely level. That's due to U.S. manufacturers no longer getting the benefits they have a 10% better price from a Canadian supplier or a better quality. And instead turning to a U.S. supplier that just to have the certainty for going that benefit. We estimate that lost benefit at a billion 5. This is-- the other costs we see for manufacturers, and that's a small amount of extra inventory that's put into the flow on cross-border moves. It is not a major increase in inventory, but it's enough, we believe, to generate about $450 million a year in extra inventory carrying cost and this fluctuates up and down a little bit, depending on when you take a look, when you take the snapshot of what's going on, but there clearly is some extra inventory in the system, and often times, it's not necessarily known by the top management, but when you get down to the trenches and talk to people in the trenches, it's clear that there is some extra inventory in the system. We also too a look at personal travel costs and costed it out auto at $159 million when we looked at their total back-up time costed out at a lot smaller number. Jumping ahead to our other major category, general border costs, these relate to in the case of carriers, general border administration, which we estimated at 200 million, Cabotage costs, primarily effecting Canadian carriers that cannot make point to point moves in the U.S., except for under certain circumstances and many, many Canadian carriers told us this is a very significant problem for them. I've got several examples in the report we did for Michigan DOT and New York DOT. Everything from LTL operations to private fleets that aren't, that have to end up retaining for-hire carriers in the U.S. to make moves that they would have been able to move if it weren't for these Cabotage restrictions. If most of you that might not know, these Cabotage reserve direction carries and these are implemented primarily today through the immigration laws that don't allow a Canadian driver to make a move point to point in the U.S. except under limited circumstances. Cabotage is even effecting intermodal operations, Canadian pacific from Montreal and Toronto to Detroit, for instance, carriers in Canada, trucking companies will decide to put their trailer on the train in Montreal, train takes it to Detroit, they want to send a diver from their Windsor terminal over to Detroit to pick up that trailer and drive it to, let's say, Lansing, Michigan. Immigration says that's illegal from the move to wholly a U.S. domestic move and Canadian driver can't do that. So it's having a significant impact on an opportunity to get freight off the road and onto the trains. It's an area that really needs to be addressed still in U.S.-Canada transportation policy. We also looked at manufacturer-related costs. We believe there are still about $460 million of brokerage fees being paid on the U.S.-Canada border in both directions. Which is a very significant number, we think. Duties, border fines, fees, we estimate at billion 6. The biggest part of that is certain products where there are dumping duty, soft wood lumber being one of them. And then customs administration costs for manufacturers is the biggest number at-- of all which we estimate at 3.29 billion. A lot of time going into origin work, which would be one of the primary ones, just the general customs administration, taking care of forms and so on. We believe federal inspection services staffs between the two countries, it's costing about 570 million. So in total, we've got $6.3 billion in general border related costs, transportation policy, trade policy-related costs, and about 4 billion in transit time costs. Now, before I run out of time here just briefly, what are some of the causes of long transit times at the border at primary inspection points and at secondary? Well, the number one cause continues to be not enough inspection booths in place, and generally the booths are there, but they are not staffed and not open. That continues to be the number one problem. There are some crossings where at certain times there are not enough booths and there need to be more booths, but it's not uncommon, I just saw two weeks ago going into Canada, trucks backed up three miles on I-75 in Detroit, night about 10:00 p.m., going into Canada, and out of their 10 primary inspection booths at the Ambassador Bridge in Canada, only two of them are open. That's often the case going into the U.S.. Ingress roads continue to be a problem with traffic lights, egress roads, for instance, again at Windsor as you come off the Ambassador Bridge, there are 10 lights, traffic lights on the road. It takes that-- those trucks out to the expressway out. The expressway does not come up to the busiest commercial crossing in North America. U.S. exit checks are an increasing issue with customs, immigration, Homeland Security now staff, checking cars and vehicles as they exit the United States. And causing some congestion on plazas. Generally crossing roadbed capacity is not the major cause of problems. There are exceptions, certainly. Out in Calais, Maine comes to mind. In Detroit, if traffic were to return to the growth rates that we experienced through the '90s, certainly sometime in the next 10 to 15 years, we're going to need another crossing at Detroit-Windsor. Same, same can be said probably for Buffalo. But right now, the problems are more related to the primary inspection booths. Other problems relate to broker locations that are often a long ways from parking spaces. Hours of operation of brokers and quite often they are open around the clock now, but the quality of the staff at night, the capabilities of that staff, their certification levels and so on may be lacking and drivers may have to wait until the morning to get, actually get things done even though the office is open. Inadequate attention to processing PAPS and PARS faxes that allow the truck to clear at primary inspection. Many, many stories we hear of truckers that faxed ahead as they are supposed to, but the broker has not gotten to the paperwork, so they get to the primary inspection booth and have to go into secondary anyway because the paperwork has not been processed. And this is not-- this is a small percent of the cases, but it's still significant at least in the minds of the truckers. Poor documentation preparation, uneducated drivers are other issues. Just quickly, what are some of the short-term solutions? Certainly increasing FIS staff levels, a process that's clearly under way, but the critical thing is going to be getting those staff into the booths so that we don't have empty-- empty booths and at the same time have trucks backed up and cars backed up. More participation in CT pad, which is the fast is part of. Expanding plazas, so that the frequent-- and fast in the case of trucks, so that those participants can actually get to their lane. On the U.S.-Canada border especially in the east where we have bridges and tunnels and so on, the plazas are often very short, so you don't get to your dedicated lane for NEXUS or FAST till you're the next one of maybe four or five cars, vehicles back in the line. Possible use of off-site secondary inspection areas, instead of having that done right on the plaza, it's interesting that at Windsor, the secondary inspection area for Canada customs is a couple miles down the road, something that U.S. Customs has not been willing to do in the past certainly. Joint facilities, there is another joint facility that just opened at a small crossing in the last few weeks. I want to jump ahead quickly so I can finish this up, just-- to some long-term issues. Clearly we're on a path to increasing investment, increase in roadbed crossing peace-- capacity, increasing investment in plazas, major increases in FIS staff at the major border crossings, and also along the rest of the 5,000 some-mile border, increasing investments, increasing border patrol staff, and so on. Well, these-- is there an alternative? Consider that these costs represent about 2.7% today of the trade, and much of the, the customs processes really were designed to collect duties that don't exist anymore. Consider that we're generating a fair amount of congestion especially on the Canadian side, and that's causing pretty major problems in the communities that are-- our speaker referred to a little bit ago. These are border communities, often times houses right down on some of the streets that these trucks are I'd dolling on and so on. And you got to wonder about given the level of interaction across the border how much security can there be? We spent an average of about 30 seconds per car, about 75 seconds her-- per truck, only a small percentage of the trucks have their doors opened, and in fact, GAO issued a short memo a few months ago about how easy it is for people to just walk across the border, especially out west where there are border parks at Blaine, for instance, and sow got to wonder about the level of security really and the fact that most border crossings are unstaffed along the 5300-mile expanse of the border. And we're looking at new security measures to beef this up. They are going to be costly, potentially dramatically impact congestion and delays. There are a number of new security problems. It looks like Canadians are going to be exempted from the entry check system, but that's always out there as an issue. U.S. Customs has proposed rules for advance notification. They have trimmed those. They have still not issued final rules and just delayed it again here recently, but there is concern in the auto industry certainly about any kind of advance notice requirement on the U.S.-Canada border where items often leave a plant that's 5 minutes away from the border and leave in a just in time move to go into a car a couple hours later on the other side of the border. There is a new law in place that requires advance notice on food imports coming into the U.S., including from Canada. All these things are a potential problem. It's unclean-- unclear if security can be significantly enhanced, which leads me to something that's a very hot topic in Canada, which is the possibility of some kind of external perimeter strategy. Really the fundamental question is are Canadians willing to consider some harmonization in im-- immigration rules and probably in some other areas in order to give the U.S. confidence and, and this approach would say, let's really put the security checks on the external border at boards and airports where people first enter the U.S. and in effect, de-emphasize the U.S.-Canada border much like Europe has gone. They have gone to a customs union, a political union to a much greater degree than would be between U.S. and Canada, but something like that would be implemented slowly. It would rely a lot more on random inspections maybe at the border. You would still probably have inspection booths, post audits, severe fines, intelligence-based inspections and so on, and might let you pretty much take down the border to a large extent, and make it a little bit more like the European union borders internally. The potential to save 10 billion could actually increase security perhaps by freeing up resources for higher risk priorities. This is off the-- all debatable, of course, but this kind of approach to the U.S.-Canada is getting a lot of attention in Canada. You got to remember that Canada traditionally was very opposed to something like that because they were fearful of loss of national identity. That seems to have turned around now. A number of the premiers are interested in this kind of concept, and to hang up is now much more of course in the U.S. where we've got much higher security concerns and also the issue of how you deal with the Mexican border comes into play. So this is just some food for thought maybe. We can have some discussion about external perimeter kind of strategy and how it might play out, and with that, I'm going to turn it over to Dr. McCray who is going to talk about the Mexican border and how that's being impacted by trade-- trade from China. Thank you.
Thank you, Dr. Taylor. And thank you to those of you who posted questions in the chat area. We will get to those after. If you could excuse me just a second, I'm going to set this up for Dr. McCray and then we'll turn it over to him. Okay. Dr. McCray, go ahead.
Dr. John McCray
Oh, good. I see myself as the speaker. This is John McCray. My background, I actually started off years ago looking at the maquiladoras which-- when there was economic trouble in Texas and then the free trade agreement came along and I started studying trade, and as they said defined the rivers of trade, the highway corridors over which trade flows. So I'm going to bring you from where John left you off in the cold north of Detroit, kind of down through those corridors, how the corridors look towards Canada and Mexico, and then speak a little bit about the border and U.S.-Mexico trade and how we see some of these trade patterns on the southern border shifting, and the growing trade with China and how that's impacting seaports and might impact our transportation policy in the U.S.. Okay. Okay. Jennifer, are you on the next line? No. You actually have control of it right now. You might want to switch back to your, the second version of your presentation. Okay. Okay. Do you see the second slide? Go ahead. So as I said, we'll go over the trade corridors, U.S. Mexico trade. How these patterns are shifting. China, which has become a dramatic new world trade power, the seaport-- seaport impact, which turns how the to be much more concentrated than border trade and some policy considerations. So let's take a look at the highway corridors, and come from where John left you off in Detroit to the north-south corridors with Canada. Are you frozen up right now? Yeah, my cursor is just dancing. Yeah, I see that. I apologize, everybody, for this. I think it just might take a second to load. See if you can switch back to your other version of it. No. I get the same thing on both versions. Can you put your slides up by chance? Yeah, let me do that. We're going to have to go through this way. I apologize, everybody. No problem. Let me turn it back over to you now. Okay. Yeah, can we go to the second two slides, please. You actually have control, so if you click on the arrow, you can do that. I hit the arrow, but that didn't do anything. I'll take control of it, if you want to tell me when to switch slides, we'll do it that way. Okay. If you switch to the second one-- okay. There we go. No problem. When we look at U.S. highway trade corridors between the U.S. and Canada, we see that there's one large east-west west corridor, U.S. 80 basically goes from-- and 94 takes that to Detroit. Virtually all of these roads seem to lead to Detroit, and the concentration there, as John explained, is in Detroit, which is the largest port on our northern border. Okay. Can I switch it? Let's switch. There we go. Now when we look at the next slide, we're looking at the total U.S.-Canada and U.S. Mexico trade corridors, and here two trade corridors show up. One primarily east and west is that same interstate 80 from San Francisco over to Chicago and then 94 to Detroit. But the main corridor over which, for example, automotive parts and auto oh automobiles travel is from Detroit down to Laredo. And that's interstate 35 between Laredo and Dallas, and then 30 and 40 up to Nashville and 65, 71 and 75 up to Detroit. Most all auto manufacturing that we see in the U.S. is located pretty close to this highway corridor. Next slide? Yeah, it's already up. Nope, you moved too fast. Go back one. Yeah. Now we'll talk about the southern border. As John pointed out, the major border on the north is Detroit and the largest NAFTA border. But the largest border in the south is Laredo. I'll talk about that a little bit more when I talk about the nature of U.S.-Mexico trade and how Laredo is different from most of the other ports. You can see here that the major corridor going into Mexico is I-35. South of San Antonio about 80% of all heavy trucks are going to or coming from Mexico. These corridors have gotten considerable amount of transportation planning and transportation studies. There have been several studies like the I-35 corridor study and ports of plains corridor study. Probably the most interesting these-- things in these studies is they often follow let us say more political boundaries than where the trade might actually go. Okay. Now the next slide. Now, can you flip-- there we go. So now let's talk a little bit about U.S.-Mexico trade and what has driven this trade because you need a bit of a background to understand the trade to kind of figure out what's going on now. Before 1978, you really had little U.S. trade with Mexico and not much concern about that trade. We never, for example, built a free way to the border to, to improve trade or let trucks trade, simply because we didn't have that much trade with Mexico. Then in 1980 and '81, there is terrible peso-- there is collapse in the world price of oil, which basically Mexico was exporting oil to finance an import substitution policy and it just wasn't working. So in that period from '81 to '86, Mexico starts to negotiate to join the GATT, now the world trade organization, and in 1986, they do join the world trade organization. Now, what's important about this is that it is the GATT. If-- GATT/WTO entrance that changes the U.S.-Mexico trade relationship forever. It was the GATT that set a foundation that once all three countries were in the GATT, Canada, Mexico and the U.S., then a NAFTA could be negotiate the. It would have been impossible to negotiate a NAFTA if Mexico was not a member of the GATT. You can also see that when Mexico and the U.S. and Canada initiate the free trade agreement in January 1994, there is a sharp uptrend of trade again, but I kind of call this the icing on the cake. And this goes on until October of 2000 when trade is fallen off, and generally, particularly at the beginning, we begin to associate that fall-off with U.S. recession. But now quite frankly, we are less sure: Turn our attention to the border trade flow itself. Okay. That's what we have as the next one here. Yeah, that one. If you just want to continue, I'll just talk the ones you got up. We'll just do it that way. So we begin to look at a couple different issues. One is the, would there be a, a significant modal shift in how trade is moving across the border. As you can see on the graphic, truck transportation just as in the case as the northern border that John mentioned, truck transportation dominates trade flow between the U.S. and Mexico just like it does between the U.S. and Canada, and from 1994 to 2001, all-- although there has been a slight loss in the share the truck carries, this is not very dramatic. So still today when we look at a given border crossing or at those national highway corridors, we see that most of the trade is moving by truck and moving over those highway corridors. One of the drivers-- we may have two slides that may be in slightly reverse order. We'll address the one that's up and talk about the next one. When we look at trade between the U.S. and next-- Mexico, one of the indicators that we always look at is Maquiladora employment. Maquiladora factories are in Mexico, and I'll show that slide next. Maquiladora factories account for a third to two thirds of the trade going across the border depending on whether you're in the west or whether you're at a place like Laredo. Maquiladora employment begin to fall off, we noticed, and then fell off steadily nearly 300,000 workers. Again, we thought originally that that would be associated with the U.S. recession, but we noticed that, that the stock market and other things that-- are picking up and Maquiladora workers has remained relatively constant at about a million 60,000. I think it's now about up to 1,080,000, but it's remained relatively flat. Okay. Now let's try the next slide. Next, yeah. When we look at the pattern of the trade across the border, this is now ground trade, rail and air, we notice that almost since the inception of NAFTA that U.S. imports from Mexico have exceeded U.S. exports to Mexico. The reason imports are almost always greater than export is because most of the trade crossing the U.S.-Mexico border is not the final consumers, but most trade is components going south to factories and more finished products coming north into the U.S.. Then as we can see in October of 2000, the trade between the U.S. and Mexico stops growing. Imports into the U.S. remain stable while exports into Mexico drop off pretty dramatically. Now I'm not sure why they are shifting trade patterns will come up or one of the slides we missed. Okay. Shifting trade patterns, so we went to look then at two product groups which would be typical for a growing importer and two things that have been dominant in the trade in the past from Mexico and indicators of the trade's growth. These are miscellaneous manufacturer products. Basically this is a lot of the things that you would find at a Wal-Mart store, and machinery of various types, this includes electrical machinery, but this turns out to be a very telling graphic because as it shows, it shows import of both miscellaneous manufactured goods and machinery from Mexico are flat while the imports to the U.S. of miscellaneous manufactured products and machinery from China has continued to grow. This is doubly important because the imports from China and these two product groupings have continued to grow right now our recession whereas Mexico has flattened out: So this led us to look more closely at China and here we were pretty surprised to find the dominance of China. Next slide: Here, you can see that China has become from almost with little trade from the west from 1978, or 1977 when China begins to open up to a situation today where I think it surprises most people to know that China now exports to the world than either Mexico or Canada. And China is becoming a real world power. And although in terms of trade-- and although that trade has a lot of exports and imports, with United States, we have a very large imbalance. As you can see, trade between the U.S. and China has been one where it started off very slowly in 1978 as China opened up, and then through a period of about eight years or so, it seemingly trade did not grow, but what was really happening inside of China, we find out, is massive new manufacturing zones like Chen Chen adjacent to Hong Kong, and special economic zones in places like Shanghai were being developed. Along with that, port infrastructure, was being dramatically improved. The combination of these two things has led particularly Chinese imports to grow very dramatically into the U.S.. Now, mind you, these imports have grown without China being a member of the W T O, which happened relatively recently in December 2001. So there is every reason to believe that this trade will continue to grow. It's also important here to note that we have one of the largest imbalances in trade with China of any of our partners. So there is a huge imbalance where we import in the range of 120 billion, but we only send China about 20 billion or so. Next slide. So that led us to look then, well what would be the seaport impact in the U.S., and it turns out that China trade, for example, particularly the imports are more highly concentrated than our border trade, particularly on the southern border where Laredo is our dominant port, but it doesn't command, say, 50% of on you-- all exports and imports, but this is exactly the case with China seaport trade with the U.S.. It really dominates the trade flow at LA/Long Beach, accounting for about 67% of the trade and $64 billion. Other major ports that have 1% or more of the trade are Seattle with 6 billion, New York with 5, Tacoma with 5, Oakland with 4, Savannah, Georgia with 3 billion, Norfolk, Virginia with 2 and Charleston, South Carolina with 1 billion. But clearly, the message here is that the impact of our growing trade with China, particularly imports, is dominated by flows to one port and that's LA/Long Beach. Next slide. Now, when we get back to kind of where we started when we compare China trade to Mexico trade, almost everyone, I think anybody you go out and talk to for lunch will say that Canada's our biggest trading partner, Mexico's right next to that probably, and mention Japan. But as it turns out, U.S. imports from China probably already exceed those from Mexico because as I showed, the imports from Mexico remain relatively flat while the imports from China are growing big-- vigorously, and at the end of last year, they were very close together. So if this trend continues, then we have every reason to suspect that some of the planning considerations that have been associated with the southern border and with the corridors, for example, planning for many more new bridges, much bigger crossings, larger highways to get to the border, and many of those same issues that John Taylor mentioned in the north, maybe they should get another look on the southern border because trade with Mexico may not be growing that dramatically and possibly transportation infrastructure planning needs to focus more on a few of these dominant seaports. Next slide. You should have one more slide. Very good. And so these are just some considerations. I can't really say these are the conclusions of a study, but they are certainly things that we would want to begin to think more about from a policy standpoint. Well established trade highway corridors and NAFTA, which we have known for sometime, are still very important. As John explained in the north and I explained in the south, these trade corridors take trucks to the border and that-- that's still absolutely necessary. Infrastructure at the port crossings themselves is also necessary. Justice-Mexico trade, although large with 98 billion of exports and 138 billion exports meanwhile, U.S. China trade with only 22 billion of exports but with 125 billion of imports is now growing very rapidly and this trade is very different because unlike Mexico where we send components out and we buy finished goods, it seems from China, we don't send much, but we buy an awful lot. Most U.S.-China trade arrives at three dominant ports, Long Beach with 64 billion, Seattle with 6.2 billion and New York with 2.5 billion. While transportation planning to accommodate trade has been concentrated on NAFTA trade, the trade corridors, the border, places U.S.-China trade is go-- growing dramatically and will likely create greater transportation planning emphasis on the dominant seaports that process that trade. Thanks.
Thank you, Dr. McCray. And we do apologize for the clarity of the slides. I know there was a technical issue there. We will make every attempt to get the PowerPoint presentation and post that to the FHWA freight management website and I will send an e-mail out when that is available.
Yeah, we missed one slide, so you might send me what you've got and let me look at it. Okay. There is a slide with Maquiladora factories shown in Mexico and we missed that one somehow.
Well, I will take a look through it and I will send a notice out to everybody. We're going to go now into some questions that some of you had typed in. There were several questions typed in for Dr. Taylor. If anybody has a question to type in for Dr. McCray, go ahead. Or otherwise after I read off a few of these question, we'll open up the phone lines for you to ask some questions over the phone. The first question we have for Dr. Taylor is have you heard about and/or investigated allegations that back up times as reported by Canada and U.S. Customs at the Ambassador Bridge are grossly understated because they record delays only from the time the trucks enter the bridge toll plaza and ignore all the time they spend waiting in line getting to the plazas?
They-- U.S. Customs and Canadian customs operate totally independently, so they are not-- I don't believe they are coordinating their reporting. In the case of the Canada customs back-up times, they are looking beyond that because they are looking, they are looking beyond the plaza because they are reporting, you know, at various points times of 90 minutes, two hours and so on, which clearly are the result of back-ups that go way beyond the end of the plaza. Now, there is no doubt of bias, I think, that understates the extent of the back-ups. And it is just an estimate, but it's the only-- in the case of Canada customs, it's the only source that looks at back-up times for both cars and trucks in both directions.
Okay. Second question, Dr. Taylor, it seems that your study focus order truck movement only. Did you look at the magnitude across border goods moving by rail? Maybe the 2% decline in truck flows between Canada is due to goods being moved more by rail and about the perception of delays by border crossings. Can you comment?
Yes that, and that relates to another question that was posted. We looked at the level of industrial production and auto production going on in the U.S., and then looked at imports from Canada. The imports from Canada are land moved imports, so they are both rail and truck imports. And we saw this drop-off of imports of about 10% coming from Canada, decline in industrial production might explain 3% of that. So we saw a net decline not due to the lower economic activity of about 7 points. And as I say, the imports from Canada are both those moved by rail and by truck. It gets tough then to compare those numbers to the truck flows. My main point goes to the industrial activity, auto production activity, and it not be-- really being down that much, but imports from Canada being down 10%. Some of that could be due to shifts to China, for instance, or other offshore sources. I don't think there's a lot of that, but when you look at why the truck moves are not down, actually if stuff was shifting to rail, you would expect the truck moves to be down by even more than, that's-- than the decline in total land-based imports were down by. So it's unclear there exactly what's going on. I don't believe there has been much of a shift to rail. We didn't look at rail as extensively because of the preliminary discussions with the primary rail carriers in the U.S.-Canada border indicated very minimal, minimal level of problems.
Okay. Dr. Taylor, we'll go with one more question that was typed in for you. Then we'll move on to Dr. McCray. Where is the recently opened joint crossing facility that you referred to?
If you want to-- I'll give you the details on that here momentarily. I just got to check an e-mail on that. So if you want to go to-- Okay. We'll move to Dr. McCray and come back. Here we go. I got it right here. It's at Oroville, Washington and British Columbia on the 49th parallel.
Okay. Let's see, I guess I'm not sure who this question is directed to. I'll ask and if both of you have an answer, we can go with that. How can long-range infrastructure planning-- this is actually for Dr. McCray. How can long range infrastructure planning include changes in global trade patterns? Major infrastructure and implementation has 10 to 20-year time horizons, but trade patterns can change dramatically in a matter of a few years.
That's precisely correct. Both John and I have worked on several of these border studies where the common practice in the U.S. is to project the traffic out 10 or 20 years, and in my professional opinion, that's about as good as anything, but there is no question about it, you cannot project the trade flow like you can, say, the traffic flow within a city like Dallas or within a city like New York. It's a totally different thing. The reasons for this are really quite interesting. If you want to forecast the trade flow between two nations, you not only need to forecast the economy of those two nations, but the relationship, the economies of those two nations will have with all of their major trading partners. This, this is why, for example, when you really try to forecast what's coming across the border, you almost invariably turn to somebody like the economist intelligence unit or McGraw-Hill or some of the very few organizations that forecast world trade, and you simply then take that world trade down.-- To the local level and more or less assume that's what's, what is going to happen. But we have seen very big changes on the border. Whoever came up with that question, it's an excellent question. You simply cannot forecast 20 years in the future across, say, a bridge at the border the way you can internal traffic in a city like Dallas. I agree, it's really, really tough, those forecasts going out that far.
Okay. I'll ask one more question for Dr. Taylor, then we'll open up the phone lines. Dr. Taylor, have you evaluated or do you have an opinion on the Canadian pacific proposal to convert its two-tube tunnel border crossing at Windsor-Detroit from railroad service to highway use as a means of relieving border congestion and inefficiency?
Well, as with any proposal there, are pluses and minuses. Each of the proposals for the Detroit-Windsor crossing, in terms of adding another crossing have pluses and minuses. It's a proposal that actually a friend of mine that's an ex-Michigan Department of Transportation manager came up with about 15 years ago, something I did a study on about 10 years ago for MD OT, and as I say, there are significant pluses. There are some minuses. There's a good deal of opposition among residents in Windsor. It offers the benefit of beg able to get something done fairly quickly, getting trucks off Huron Church. However, it is more in the center core areas of the two cities, and it's something that would just serve trucks and not cars. So there are pluses and minuses. I need to note that I was an investor in the initial transaction in the group that brokered the sale of the tunnel from Canadian national to the pension funds in Canada, so I have had-- I no longer have an interest, but had a past interest. Those are reply-- my thoughts. Pluses and minuses to each of the proposals.
Thank you. We are a little behind on time now and I apologize for that. We're going to open up the phone lines now for about 15 minutes of questions and answer. If you have typed in a question that hasn't been asked, I do suggest that you ask it over the phone. So Tammy, if you can give the instructions and open up the phone lines. Thank you.
Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a 3-tone prompt to acknowledge your request. Your line will then be accessed from the conference to obtain information. If your question has been answered and you would like to withdraw your relation-- registration, please press the 1 followed by the 3. If you are using a speaker phone, please pick up the hand set before answering your question. Once again, ladies and gentlemen, if you do have a question at this time, please press the 1 followed by the 4 on your telephone. I am showing no telephone questions at this time.
Okay. I'll ask another one that was typed in then. Dr. McCray, you talked about the policy considerations and infrastructure implications of trade growth in China. What can jurisdictions, agencies impacted by the major port activities you mentioned do to prepare?
Well, it's pretty clear that, that port authorities need, need to prepare for significantly more imports, and of course that creates the problem at the ports that they have a lot of empty containers that move back, and at certain times, there is some speculation that it may be cheaper to buy a container in the far east than it is to, to send it back there. Also, you have around the port, kind of, as John talked about in the north, around the port, whether it's a seaport or a border port, you have constrictions in the roads, the rail system. For example, in LA/Long Beach, probably the most important thing they did looking far over the horizon, planning for some of this growth clearly was to develop the Alameda corridor, which is a rail corridor that leads from the port of LA/Long Beach through Los Angeles out to the other side of Los Angeles. This was many billions of dollars. It took the cooperation of the state, the federal government, the port and the local communities along the way, but they got this done. If you can't move those large volumes on-- I'm afraid it's going to be very difficult to participate in some of the economic development related with this kind of port development. What I see in the sea trade different than what I've seen in the ground trade across the U.S.-Mexico border is this very, very high level of concentration in just one port location.
Thank you. Tammy, are there any questions?
Once again, ladies and gentlemen, if you do have a question at this time, please press the 1, followed by the 4 on your telephone.
We actually have a question from the room that we're in over at FHWA right now.
Yes, Dr. McCray this is Carl Sombremisana from MARAD. How are you?
I wanted to ask, this idea of concentration both on the land as well as on the water side, in your own professional opinion, do you think coastal shipping in any of let's say between Mexico, Canada and the United States might add a new dimension?
It very well might, Carl, but it's a hard play to see. Let me talk just a second about the China trade on both ends. On the China-- Chinese end, we see almost everything coming from Hong Kong and a few ports around Hong Kong in what the Chinese call the perfectly river delta, this is a huge manufacturing area, and more recently from Shanghai. I happen to have a graduate student here from China who was in the shipping business, and he says, for example, that most manufacturers there know the ship schedule, and what they are really looking for is they are looking to get a container loaded in, say, Shanghai, and it being delivered in LA/Long Beach where they know it will have fast service out of the ports. So I guess a long, kind of a long way of answering your question is if, kind of short sea shipping can provide a competitive service, I think it's got a good way to go. But it's got to kind of look at the whole logistics chain and make sure it's competitive. Because what I see driving, for example, on the Chinese side in the Chinese development, many of the ports just like in the U.S., they want to develop and they want these economic zones. But unless you've got direct daily shipments to a U.S. port, you're not terribly attractive. And so on our end, it's kind of the reverse. Unless you can move the container rapidly into the market, it's going to have some difficulty competing.
John, another question has to do with Mexico itself. Have you had a chance to see any growth in terms of the Mexican ports on the pacific side?
On the pacific side, the big growth has been in Manzanillo (?), without a question. Manzanillo (?),for example, handles the auto parts that come up to the newly established Japan auto areas in Guadalajara. On the pacific coast nothing quite looks like Manzanillo(?) than before. They have been developing that port. It's been very well developed. It has a toll road, free way access directly to Guadalajara, and so that's the biggest development I've seen in all the years that I've looked in Mexico. It also has, interestingly enough, I was in Mexico a while back, it also, they are working on direct rail connections from there to the yards on the north side of Mexico City. So it's-- I think at the margin drawn trade away from other pacific ports, and developed it's-- its own trade particularly to support the auto business.
Thank you. Thank you. At this point, I believe we are going to close this seminar. If you do have additional questions, Dr. Taylor and Dr. McCray's e-mail addresses are listed on the slide on the screen. You can send them questions. I would like to thank you all for attending the fourth seminar in the Talking Freight Seminar series. The recorded version of this event will be available within the next day or so on the talking freight web sites and an e-mail will be sent out when that is available. If you haven't done so already, I encourage to you visit the talking freight website and sign up for future seminars, as well as join the Freight Planning LISTSERV if you have not already done so. Thank you, Dr. Taylor and Dr. McCray for the very informative presentations. Enjoy the rest of your day, everybody.
Office of Planning
Office of Freight Management & Operations