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July 20 2020

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34 The Journal of Commerce | July 20 2020 Mexico Trade and Logistics Special Report www.joc.com THE COVID-19 PANDEMIC and result- ing economic fallout are casting a long shadow in Mexico, obscuring what would otherwise be considered encouraging news: the July 1 imple- mentation of a new trade deal with the United States and Canada. Mexico's economy absorbed mul- tiple blows in March, April, and May, according to Carlos Pasqual, senior vice president of Global Energy & Interna- tional Affairs at IHS Markit, the parent company of The Journal of Commerce. "Mexico is going through three crises at the same time: the COVID- 19 pandemic, the US and Mexican recession, and the collapse of oil prices," Pasqual told JOC Uncharted in late June. "We've seen impacts throughout the economy. "We're probably seeing a bit of a recovery already, but industrial activity was down 29 percent in April year over year," Pasqual added, citing information from Mexico's National Institute of Statistics and Geography. Construction and manufacturing activity dropped 38 percent and 35 percent, respectively, in April. IHS Markit expects Mexico's gross domestic product to contract 10.7 to 10.8 percent this year, he said. Additionally, the pandemic has yet to peak in Mexico, Pasqual said. According to data from Johns Hopkins University, Mexico had recorded nearly 257,000 confirmed cases of the coro- navirus disease 2019 (COVID-19) and more than 30,600 deaths as of July 6. That mortality rate, along with the continuing spread of the coronavirus in the United States, makes jump-starting Mexico's economy more difficult. The economic ruin is overshadow- ing the implementation of the United States–Mexico–Canada Agreement (USMCA), which officially replaced the 1994 North American Free Trade Agreement (NAFTA) July 1. "This should be a wonderful moment for North America," said Patrick Ottens- meyer, president and CEO of Kansas City Southern Railway (KCS). "We've removed a cloud of uncertainty." But most companies are focused on issues of survival in the midst of the COVID-19 crisis and resulting recession, not the opportunities the agreement creates. KCS has not seen any significant delays or problems at the US–Mexico border, and "the fact that volumes have been declining quite rapidly is a factor," Ottensmeyer said. The total value of US–Mexico cross-border rail shipments dropped 67.3 percent year over year to $2.3 billion in April, according to the latest data from the US Bureau of Trans - portation Statistics (BTS). KCS has improved its technology and processes to speed cross-border freight, including closer links to US and Mexican Customs and interna- tional train crews. "We think that will create significant additional capacity," by allowing more trains to cross the border faster, "and clearer data will make it easier to move freight," Ottensmeyer said. "The most important lesson we have learned is that we need to better align policies and practices among the governments," he said. During the pandemic, "highly efficient North American supply chains have struggled because of misalignment of government policies." Ottensmeyer noted that many US automakers reopened plants before Mexican suppliers, partly due to com- munication breakdowns. "We need to strengthen the dialogue between the public and private sectors and take advantage of the opportunities that lie ahead," he said. As the US elections approach, bringing more uncertainty about trade policy, "this is a key period for business leaders on both sides of the US– Mexico border, and in Canada as well, to engage Overshadowed COVID-19 pandemic, recession obscuring potential USMCA benefits By William B. Cassidy and Michael Angell US–Mexico trucking freight tumbled 42.8 percent year over year in April, while cross-border rail shipments dropped 67.3 percent. marcosdominguez / Shutterstock.com

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