c o l u m n

John Bendel • Senior Editor
On Free Trade

Laredo: Bottleneck On The Rio Grande

Mexican customs brokers have a vested interest in preserving inefficiency.

La Posada Hotel in Laredo, TX, looks across the Rio Grande to Mexico. Below its terraces, burgeoning U.S.-Mexican trade slows to a crawl for all to see. The scene resembles a hill of giant ants.
     Big trucks inch across the Juarez-Lincoln International Bridge, where I-35 comes to an end. On the Mexican side, under an animated electric sign worthy of Times Square, trucks creep through Mexican customs. And behind the new kennel for drug-sniffing dogs, a slow-motion line-dance of heavy trucks inches past a U.S. checkpoint.
     Visible congestion and increasing trade were much discussed here during the September conference of the North American Transportation Alliance — a coalition of carriers, shippers and interested organizations working to further trucking commerce among the U.S., Canada and Mexico under the North American Free Trade Agreement. But there is a deeper problem in Laredo — much on the minds of many conference participants — that was avoided in the public sessions of the conference.
     Since the mid 1980s, Mexico has required that all freight entering Mexico by truck be pre-cleared for Mexican customs and that all tariffs and duties be paid before crossing the border. That means every truck headed for Mexico must stop on the U.S. side for pre-clearance by Mexican customs brokers.
     Even though that function is performed on U.S. soil, Mexican law demands these brokers be Mexican nationals. The result is an exclusive and wealthy community of Mexican customs brokers, ostensibly based across the river in Nuevo Laredo, but with extensive real estate holdings, lucrative financial relationships and considerable influence on the U.S. side. NAFTA, which recognizes this system, has increased trade bringing even more business — and wealth — to the brokers.
     Critics claim the customs brokers have unofficial “gentlemen’s agreements” among themselves and with government officials on both sides of the Rio Grande. That, they say, amounts to a cartel with an incentive to keep the cross-border traffic moving through Laredo — very slowly.
     Border experts point out the more time it takes to complete Mexico’s pre-clearance requirements, the longer freight can sit in a customs broker’s Laredo warehouse or on a trailer parked in a custom broker’s yard, all the time running up a storage tab paid by shippers.
     And brokers traditionally ferry freight across the river in inefficient one-way hauls using local drayage companies they either own or have partnerships with. Trailers return empty or tractors bobtail home, creating more work for the carriers and running up additional tolls at the crossing bridges. The border cities receive a piece of the toll money, which along with increased drayage costs are paid by shippers.
     This would remain a local matter but for one thing: U.S.-Mexican trade is now a $157 billion business and 40% of all U.S. exports to Mexico pass through this strategic Texas border town. Laredo is the second busiest cargo border-crossing (after Detroit and Windsor, Ontario) in North America. We’re talking about a lot of money here, an exorbitant bill paid by U.S. (and Canadian) corporations and passed on to consumers on both sides of the border.
     Interests on both sides are trying to change the Laredo status quo, but success is by no means certain. Critics know that for many reasons, many people don’t want things to change.
     “I can’t say I’ve been threatened with violence or anything like that,” said a border expert who has been openly critical of the Laredo brokers. “But I have been warned to tone it down, that there’s a file on me in Mexico City — things like that.”
     Why wasn’t the broker issue a subject of open debate at the Alliance conference?
     Good question.