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February 17 2020

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4 The Journal of Commerce | Februar y 17 2020 Mark Szakonyi THE SIGNING OF the United States– Mexico–Canada Agreement ( USMCA) by President Donald Trump late last month brings much- needed clarity for multi nationals considering investing in factories that produce for North American markets. Mexico's sagging, stagnant economy needs a boost after expe- riencing a technical recession last year that saw gross domestic product (GDP) decline in the first three quar- ters, according to a Jan. 22 outlook from IHS Markit, parent company of The Journal of Commerce. Demand from the US — the destination for 80 percent of Mexico's exports — is cooling, with vehicle factories fore- cast to make 200,000 fewer units this year, bringing output to 3.7 mil- lion units, according to IHS Markit. With Mexico's manufacturing sector ending 2019 with its worst performance in the eight-and-a- half-year history of IHS Markit's Manufacturing Purchasing Manag- ers' Index (PMI) survey, it's not sur- prising that cargo volumes between the US and Mexico are falling. The value of freight hauled across the border fell 6.1 percent year over year to $34.4 billion in November, the latest month for which data is avail- able from the US Bureau of Trans- portation Statistics. But the signing of the deal "removes a very significant cloud of uncertainty for us, and there are fairly high expectations in Mexico that resolving USMCA is going to provide a boost to the economy in Mexico, which certainly would be a welcome occurrence for us," Patrick Ottenmyer, president and CEO of Kansas City Southern Railway, said during a fourth-quarter earnings call Jan. 17. The Class I railroad's network connects Mexico and the US. In a fourth-quarter earnings call Jan. 23, Union Pacific Railroad CEO Lance Fritz said the deal "does take a little bit of a headwind and turn it into a tailwind," but he noted the pos- itive impact on cross-border volumes would only be seen in the long term. The positive message the USMCA signing will send to foreign investors is needed now more than ever. The administration of President Andrés Manuel López Obrador is scaring away foreign investment by pushing policies that are friendlier to state enterprises, said Claudia Jañez, who leads the Latin America division of chemical company DuPont de Nemours. According to Mexico News Daily, Jañez said the 7.8 percent rise in foreign direct investment (FDI) to $26 billion in the first nine months of 2019, the highest ever, reflects deals struck up to a decade ago, not current conditions. While the revamped agreement could spur investment, the deal does little to address the delays and disruptions cargo owners face in moving goods across the US–Mexico border. USMCA, the successor to the North American Free Trade Agree- ment (NAFTA), does indeed stream- line paperwork needed for customs clearance and envisions a "single window" used by all three countries to track cross-border shipments in North America. Mexico has ratified the deal, but Canada has yet to do so. "What we feel is important for supply chain professionals is the customs facilitation chapter of the agreement," Jason Craig, director of government affairs for C.H. Robin- son Worldwide, said in an interview. "In NAFTA, there were only two or three pages on customs facilitation, and in the USMCA there are more than 30 pages," including a distinct process for resolving disputes. But USMCA isn't a spending bill, which means it won't directly contribute to the infrastructure investment cross-border experts say is necessary to accommodate rising volumes. Shipments will continue to face costly transportation delays in times of peak demand and disrup- tion at the border itself. "Infrastructure is a pain point," said Ohad Axelrod, co-founder and CEO of digital trucking marketplace Fr8Hub. "You look at the roads leading to the border from Monter- rey, and some of these sections are pretty horrible to drive." The more freight is moved, the worse the situ- ation is likely to get, he said. The leading concern among US– Mexico shippers is a lack of visibility at the border. Trucks can be tracked on either side of the boundary, but once freight is moving through Mexican and US customs and being transferred from truckload carriers to drayage drivers to a warehouse, visibility goes dark. "One of our biggest problems is when we have drivers arriving to pick up freight in Laredo and we don't even know if that freight has crossed the border," Ari Stern, logistics director at Sherwood Food Distributors, an independent meat distributor based in Detroit, told The Journal of Commerce in October. JOC email: twitter: @MarkSzakonyi Buen tiempo The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, February 17, 2020, Volume 21, Issue No. 4. The Journal of Commerce is published bi-weekly except the last week in December (printed 25 times per year) by JOC Group Inc., 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Subscription price: $595 a year. Periodicals postage paid at New York, N.Y., and additional mailing offices. © All rights reserved. No portion of this publication may be copied or reprinted without written permission from the publisher. POSTMASTER: Please send address changes to The Journal of Commerce, Subscription Services Department, 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Letter from the Editor The positive message the USMCA signing will send to foreign investors is needed now more than ever.

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