Consultant Insight: USMCA goes into effect July 1, but will air cargo providers benefit?

[caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] NAFTA, which has been in effect since 1994, will be replaced July 1. Through intense negotiations with trade partners Canada and Mexico, a revised NAFTA, renamed the United States Mexico Canada Agreement (USMCA) was formally passed in the United States in March 2020, after Canada and Mexico had approved the measure in March and December 2019, respectively. The automotive industry will be among the most impacted by this agreement, with revision in country-of-origin rules. Automobiles must have 75% of their components manufactured in Mexico, the U.S. or Canada to qualify for zero tariffs — up from 62.5% under NAFTA. Other requirements that will impact the automotive industry include: 70% of all steel and glass used in the production of the automobile must originate in North America; 40% of an automobile and 45% of a light truck must be produced using an average labor wage of $16 per hour by 2023; quotas of 2.6 million Canadian and Mexican vehicles, higher than the 1.8 million under NAFTA; and quotas of $32.4 billion in Canadian auto parts imports and $108 billion in Mexican auto parts imports. The implementation of this agreement comes amid the patchwork reopening of manufacturing sites due to COVID-19. To date, Mexico has been slower than the U.S. to reopen its factories, leading to critical shortages of parts and components, which has slowed the restart of U.S. manufacturing lines reliant on those parts. As a result, automotive trade groups have called for delayed implementation of USMCA, due to COVID-19-related costs and delays and the difficulties in adapting to new, complex country-of-origin rules. Year-to-date trade between the U.S. and Mexico through April has slowed. Overall, it is down 13.3%, with April year-over-year figures down a whopping 46.1%. As noted in a previous Air Cargo World article, Will US cross-border air demand continue gains in 2020? , the majority of cross-border trade is conducted via truck, representing almost 70% of total transportation movements between the U.S. and Mexico. Air represents less than 3% of total transportation movements between the two countries. In terms of speed, airfreight continues to play an important role in trade. For example, year to date through April, trade has increased 3.5% for the miscellaneous chemicals commodity. Air represented the biggest increase at almost 40% of the trade increase. It is likely that as more manufacturing reopens, air will also play an important role in quickly fulfilling orders for parts and components that had been in short supply for automotive manufacturers like GM and Ford. In addition, per terms put forth in the USMCA, there will be higher de minimis thresholds, which will likely benefit small parcel delivery providers as well as e-commerce players. De minimis thresholds determine which low-value parcels can be shipped across international borders tax-free, tariff-free and with simple customs forms. As such, air will likely be utilized to quickly fulfill promised last-mile delivery goals, whether second-day, same-day or next day. Amazon may be positioning itself to take advantage of the USMCA; according to rumors, the e-commerce giant is building a fulfillment facility in El Paso county close to Interstate 10, less than 20 miles from the Mexican border. El Paso is one of the largest cross-border crossings, and its international airport is also a part of Free Trade Zone No. 68. In 2019, DHL Global Freight Forwarding expanded its services at the airport. Other operators at the airport include DHL Express, FedEx Express and UPS. USMCA will be closely monitor by industry analysts — especially its impact on the U.S. automotive industry, which was already displaying signs of slowing prior to COVID-19. On the other hand, whether the USMCA might drive additional growth in cross-border e-commerce remains to be seen.

Consultant Insight: USMCA goes into effect July 1, but will air cargo providers benefit?

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