The end of a long trucking dispute that has kept most Mexican trucks from crossing the U.S. border may spell higher volumes – and profits – for well-positioned motor carriers like J.B. Hunt (Nasdaq:JBHT), Landstar System (Nasdaq:LSTR), Heartland Express (Nasdaq:HTLD) and Con-Way (NYSE:CNW).
But while the industry welcomes the opportunity to compete, truckers are not too keen on the idea of the U.S. subsidizing expensive safety upgrades for Mexican trucks.
President Obama and his Mexican counterpart, Felipe Calderon, cut a deal earlier this month to lift a ban on Mexican trucks crossing the border. Both sides have been squabbling over the issue since the North American Free Trade Agreement was approved. A main reason for the ban was a perception that Mexican trucks are less safe than U.S. trucks and would pose a greater danger to the traveling public. In response to the trucking ban, Mexico slapped predatory tariffs on $2.4 billion in U.S. goods exported to Mexico.
The new agreement, which still must be approved by Congress, will require Mexican trucks to comply with the same laws and safety regulations as their U.S. counterparts. That means drivers must speak English and pass drug tests; trucks must be equipped with electronic on-board recorders that track compliance with a number of criteria, including fatigue-related hours of service rules.
And therein lies the rub: the Federal Motor Carrier Safety Administration plans to use $4.3 million from its general operating budget to buy on-board recorders for the Mexican trucks and pay for monitoring those devices. “It is outrageous,” Rep. Peter DeFazio (D-OR) said in a letter to Transportation Secretary Ray LaHood, “that U.S. truckers through the fuel tax, will subsidize the cost of doing business for these Mexican carriers.”
An alliance of major motor carriers agrees, noting that the idea to buy these devices for Mexican trucks is “the height of stupidity”. The Alliance for Driver Safety and Security, which supports the concept of equipping all trucks with recorders, draws the line at paying for the GPS-based devices, which can track a truck’s location in real time and document every international or state border crossing.
Steve Williams, chairman of the group, said. “It just boils down to this; if your company is driving on U.S. roads and it cannot afford the minimal cost of one EOBR for one truck, it begs the question whether we want them on our highways.”
Bottom Line: The U.S. trucking industry is bouncing back strong after a deep recession that forced hundreds of carriers into bankruptcy. With share prices up an average of 28% from their 52-week lows J B Hunt, Landstar, Heartland and Con-Way not only have survived, but they’ve prospered. And with tight shipping capacity throughout the industry, trucking companies with the strongest fundamentals are poised to post further gains in 2011.
While the U.S. trucking industry faces continued challenges with the rising price of diesel fuel, companies can use tight capacity to their advantage by raising rates. But if they are forced to roll with expensive new regulations that lower the barrier to entry for Mexican carriers, the added expense could stall earnings down the road.
