The News: Removing Roadblocks to Logistics Demand

When President Obama travels to Mexico next month to meet his counterpart, Felipe Calderon, a trade dispute between the neighbors could be on the agenda. At issue is a controversial pilot program permitting Mexican truckers to bring goods into the United States. Part of the North American Free Trade Agreement, the program expired this month when Congress omitted funding from a $410 billion spending bill. Mexico retaliated on March 18, slapping tariffs on exports of some 90 U.S. products that are valued at about $2.4 billion annually. Representatives of the White House and Capitol Hill are developing a proposal to revive the pilot program, and negotiators from the United States and Mexico are also working behind the scenes to ease tensions. Although it is difficult to gauge the tariffs’ short-term impact, they could conceivably reduce demand for distribution facilities by taking a bite out of U.S. exports, noted Tim Feemster, senior vice president & director of global logistics for Grubb & Ellis Co. He cited a hypothetical case: “If you have a 200,000-square-foot building and 10 percent of your business is exports to Mexico, you have only 180,000 square feet of your goods to cover the cost of your building.”  The tariffs have drawn the attention of business and federal officials alike, but the real issue for U.S. distribution facilities may be longer-term opportunities. The goal of streamlining the supply chain was behind the original NAFTA agreement to relax restrictions on Mexican truckers. Feemster explained that the purpose was to remove the hitch created by requiring goods coming from Mexico to switch to American trucks before entering the United States. Allowing freer flow of trucks from Mexico could increase the volume of goods shipped to border states, increasing demand for distribution facilities in markets like San Antonio, Dallas, Phoenix and San Diego. But making U.S. highways more accessible to Mexican trucks would also have implications well beyond the border region. “It gives U.S. companies a lot more latitude as to where to locate their distribution points,” Feemster said. Permitting Mexican trucks to venture freely would probably increase the need for distribution facilities in any U.S. market that proves to be a major destination. And taken to its logical conclusion, the free-trucking rule would also prove to be a two-way street, Feemster pointed out. After carrying a load of Mexican-made goods to their U.S. destination, trucks could then pick up a shipment for the return trip to Mexico. Expanding the volume of those exports would be another source of increased demand for distribution facilities.