United States – Mexico – Canada Agreement (USMCA)
November 30, 2018 marked the official agreement between the United States, Mexico, and Canada on a new trade policy when leaders of all three countries signed off on it at the G-20 Summit in South America. The renegotiation of the North American Free Trade Agreement (NAFTA) has added a few new chapters addressing digital trade, anti-corruption, and good regulatory practices to protect small and medium-sized enterprises. Since NAFTA originally went into effect in 1994, it was undeniably in desperate need of modernization. Today’s technological advancements and developments have been identified and addressed fairly extensively to protect intellectual property in each country.
As far as transportation goes, there’s unanimous agreement that this new agreement is a good thing. For the most part, it’s very similar to the existing NAFTA, but the updated text aims to streamline transportation standards. Primarily, it’s aiming to implement more technology to expedite shipping and transportation procedures. The expectation is that the USMCA should translate into faster shipping times and relieve some pressure currently placed on logistic companies that cross international borders.
The only major concern associated with this otherwise good news is Section 232 of the Trade Expansion Act of 1962—the 25 percent tariff on steel and the 10 percent tariff on aluminum. The Motor and Equipment Manufacturers Association claims that this piece of the agreement chokes the United States’ ability to invest in more manufacturing and workforce development, which then affects the transportation industry. Many are calling on the Trump administration to include language to exempt Mexico and Canada from Section 232 to keep those channels open and running.
While there’s no other language that concerns supply chain experts, everyone is still well aware that unforeseen issues could arise once USMCA officially goes into effect. That won’t happen until the agreement goes through the Trade Promotion Authority procedures and Congress signs off on the bill.
China and the United States
As of December 1, 2018, President Trump and President Xi of China came to a verbal agreement that brought cautious relief to those following the situation. Trump and Xi have agreed to try to come to a compromise regarding treatment of intellectual property and technology transfer issues by March 2, 2019. A new compromise will then allow for renegotiation of tariff rates for both countries. Until then, the U.S. has paused the tariff increase for the New Year and will keep the 10 percent rate, and China has promised to begin purchasing from the U.S. agriculture sector. Considering the fact that China was our main export for soybeans in 2017, it is a welcomed relief, but we’ll believe it when the orders come through. We might be able to expect to see China source the US for pork, as outbreaks of African Swine flu are hitting their herds hard. That is still an unknown, but should agricultural exports pick up, that will help relieve serious economic pressures on small farms and rural communities.
Effects of ELD Mandate
Speaking of unknown effects until implementation, the ELD Mandate has been in effect for a year now and we pretty much saw real-life consequences as early as Q1.
Earlier this year the load-to-truck ratios were significantly higher than the previous year. Tie that into the trucker shortage, and it means a lot of freight was sitting around waiting to be moved. This forced shippers to up their rates, which they then passed that cost along to consumers. The last half of this year did see a down-turn from load-to-truck ratios, but consumers shouldn’t expect price decreases.
A few companies who raised prices are familiar names: Amazon increased their Prime membership due to hiked shipping costs. Grocery store name brands like Hormel Foods, General Mills, Tyson Foods, Betty Croker, Haagen-Dazs and PepsiCo have all raised their prices, and others such as Hershey, Procter & Gamble, and Mondelez are slated to raise their prices as well.
The ELD Mandate also messed with paychecks. Drivers aren’t willing to sit around for more than 2 hours to be unloaded while miles are money and their time window is limited. This has created a new culture of drivers/carriers who purposefully avoid specific chains or manufacturers who are notoriously disrespectful drivers’ time. While comfortable lounges are nice, all the free soda and available showers don’t make up for eating into 5 hours of a shift.
The ELD Mandate has had some positive influence. Since the data is now digital, truckers are able to prove beyond doubt that they’ve been kept waiting at warehouses and are now more likely to receive compensation. And about 60 percent of drivers do believe the safety implications the mandate was intended to enable have been reached.
The other 40 percent feel like safety measures are getting worse, with drivers plowing on through bad weather, driving while exhausted for every last available minute, and speeding to cover more miles. ELD actually has reported that following long unloading detainments, drivers do drive an average of 3.5 miles faster. Clearly, some adjustments need to be made.
There has been talk that rather than repeal the ELD Mandate, the Federal Motor Carrier Safety Administration revisit and update the Hours-of-Service (HOS) of Drivers Rule. Ideally, the 30-minute break rule will be nixed, and drivers will be allowed “to use multiple off-duty periods of three hours or longer in lieu of having 10 consecutive hours off-duty.” Since nearly 75 percent of drivers reported they’re detained at a warehouse for longer than 2 hours at least once a week, this should help make that time work as breaks rather than count against drivers allotted driving window. The public call for concerns has closed, and we should have more information about the results of what might happen to HOS later in 2019.
The restrictions the ELD Mandate has placed is overall not so terrible. In fact, the limitations it’s put on shipping goods in a timely manner has brought about the biggest positive of 2018:
Increased Pay for Drivers
The pay for over-the-road drivers has not been great, with the United States averaging about a $40,000 salary. The shortage of drivers and the restrictions of the ELD Mandate has caused some companies to drive up sign-on bonuses as much as $6 grand and increase salaries.
Unfortunately, even with these salary increases, when adjusted for inflation, drivers are still making about 50 percent less than they were in the 1970s. But it looks like we can expect these pay increases to continue as long as the ELD Mandate stays in effect. For those who are going into truck driving, or intend to stay in the game for a few more years, they should experience some better compensation. The US is already short about 60,000 truckers, and ForeignPolicy expects that in less than a decade that number will be about 174,000.
2019 will hopefully provide us with some happier numbers about salaries. Maybe the future of over the road truck drivers will be as attractive as it once was.
Stay Tuned to LDI’s Blog Feed
We’ll be revisiting these topics and surely much more each quarter throughout 2019 to update you on the state of affairs in transportation.
The end of Q1 will undoubtedly have some interesting tariff updates with China and some real-time transportation data about the US/Mexico/Canada border.