In a special series in the March 2021 issue of Railway Age, 11 North American railroad CEOs explore the daunting challenges the rail freight industry will face as the 21st century enters its third decade – from operations and technology to marketing and growth. Here Pat Ottensmeyer, President and CEO of Kansas City Southern, discusses realizing the full benefits of the new US-Mexico-Canada deal.
Last summer, the new agreement between the United States, Mexico and Canada (USMCA) officially came into force, replacing the 26-year-old North American Free Trade Agreement (NAFTA).
The USMCA set a new standard for bilateral support by passing both houses of Congress in the United States by an overwhelming majority. After approval by all three countries, then United States sales representative Robert Lighthizer stated, “USMCA is the gold standard by which all future trade agreements will be judged and citizens of all three countries will benefit from it for years to come.”
As we near the one-year anniversary of this historic trade agreement, we face new and unexpected challenges for our economies and societies due to the global coronavirus health pandemic. The pandemic has weighed heavily on expanded global supply chains, and its economic impact has been a resounding wake-up call to the importance of safe, reliable, and resilient sources of industrial goods in supplying North American markets.
– – “To achieve the full benefits of the USMCA, leaders should commit to creating a framework that allows for continued better coordination of issues and strategies.” – –
This phenomenon is particularly evident in critical goods such as pharmaceuticals, medical devices and consumables, personal protective equipment, and food. As reported by Jacob M. Schlesinger in The Wall Street Journal Last summer (“How Coronavirus Will Reshape World Trade”, June 19, 2020): “Almost 90 governments blocked the export of medical devices to ensure their citizens’ supplies, while 29 did the same for food, according to Global Trade Alert . a monitoring group based in Switzerland. “
More recently, global semiconductor shortages have severely impacted automotive production across North America. This development, a derivative impact of the coronavirus pandemic, prompted President Biden to sign an executive order reviewing the US’s reliance on expanded global supply chains and protecting the economy from critical supply shortages, reducing the US’s reliance on expanded global supply chains are.
The coincidence of these events represents a unique opportunity for North America to become an even more powerful force in global manufacturing and commerce. Even before the COVID-19 outbreak, there was evidence that the winds of global supply chain strategies were beginning to shift. According to a 2019 study by consulting firm AT Kearney, there has been a “dramatic reversal” in US imports from low-cost Asian countries (LCCs). In addition, the share of manufactured imports from Mexico to the United States of US imports from Asian LCC has increased in each case in the past two years and stood at 42% for the entire year in 2019.
In an afterword to this 2019 study, AT Kearney stated, “2020 came with a disorder of a new magnitude – COVID-19. We expect that companies will increasingly tend to spread their risks … [and] Restructuring their global supply chains for increased resilience … because resilience is key to operating profitably in the face of persistent disruption. “The key word here is” resilient, “which means the ability to recover quickly from difficulty.
All of this should bode well for US-Mexico cross-border trade, which has already contributed to the creation of significant economic prosperity on both sides of the border. As the graph above shows, the GDP produced by the ten border states in 2019 would have represented the third largest trading bloc in the world.
To fully capitalize on this new North American moment and take full advantage of the USMCA, leaders should commit to creating a framework that allows for better coordination of issues and strategies on an ongoing basis. Ideally, such a framework would also include private sector engagement so that, unlike NAFTA, there is a dynamic exchange of ideas and policy alignment to keep the USMCA current and relevant as economies, technologies and societies evolve in a way that that we can’t even imagine today. In addition, unlike NAFTA, USMCA contains a sunset clause that requires updating and renewal in the future.
There is a model for the framework that I am describing. Established in 2013, the US-Mexico High-Level Economic Dialogue (HLED) was established to align and advance the economic and commercial priorities necessary to promote mutual economic growth, job creation and global competitiveness for both the US and Mexico are of central importance. Under the direction of then-President Obama and Vice-President Biden, HLED met annually with the participation of the Cabinet and in connection with the CEO dialogue between the US and Mexico, a group of private sector CEOs of whom I have the privilege of being US -Co-Co to act. Chair.
– – “The new USMCA gives private companies 16 years of clarity to make the investments necessary to develop stronger and more resilient North American supply chains.” – –
We are entering a new era for North America. The new USMCA gives private companies 16 years of clarity to make the investments they need to build stronger, more resilient (there’s that word again) North American supply chains.
President Biden and the Mexican President Andrés Manuel López Obrador held their first (virtual) bilateral meeting. You did not miss the opportunity to create the necessary framework for dynamic high-level engagement to keep the USMCA current, relevant and in line with the best interests of our societies as they agreed to restart the HLED, to achieve further common goals. They agreed to strengthen the resilience and security of the supply chain.
The region’s economic recovery and long-term prosperity depend on a healthy bilateral relationship with private sector involvement and the goal of developing a more resilient manufacturing and supply chain strategy for North America.
Read more about Railway Age’s special CEO Perspectives series:
• • Ian Jefferies, Association of American Railways: Sustainable economic and legislative policy
• • Katie Farmer, BNSF: Use of advanced technologies
• • Keith Creel, Canadian Pacific: Let the top line grow
• • J Ruese CN: Improving the visibility of the customer supply chain
• • Jim Foote, CSX: Railways as a sustainable business
• • Jim Squires, South Norfolk: Building the digital railroad of the future
• • Lance Fritz, Union Pacific: Intelligent investment strategies
• • Peter Gilbertson, Anacostia Rail Holdings: Excellent customer service
• • Dean Piacente, OmniTRAX: Building better communities through industrial development
• • Dan Smith, Watco: Integrated fuel growth in transportation services