Laredo basks in boom aided by NAFTA
Servicing international trade has become border city's growth industry
By DAVID HENDRICKS San Antonio Express-news
Oct. 3, 2008, 11:58PM
Share Print Email Del.icio.usDiggTechnoratiYahoo! BuzzLAREDO — Warehouse manager Tom Wade remembers Laredo in the days before the North American Free Trade Agreement.

Hardly any residential and commercial development existed north of Del Mar Boulevard running east of Interstate 35, recalled Wade, who moved to Laredo two years before NAFTA went into effect in 1994. Now the thoroughfare divides Laredo in half.

The new frontier of Laredo growth is far from I-35, on the city's eastern and southern fringes. An additional high school campus is being built. Ground is being leveled for a Wal-Mart across from it. H-E-B Plus anchors a new shopping center, across from the large, modern Doctors Hospital of Laredo.

The building count at the 6,000-student Texas A&M International University has soared. Deer and javelina graze peacefully on the manicured campus lawns.

New housing subdivisions are being erected. Brown rooftops stretch as far as the eye can see, fronted with large signs advertising homes starting in the $185,000s.

If Laredo is an example of anything, it is this: Servicing international trade is a growth industry.


Population spurt
Laredo certainly has prospered. Its 1990 population of 133,239 has zoomed to 237,396 in 2007. The city's retail, health care and security sectors are growing, all benefiting from the strong Mexico peso. The expanding manufacturing and logistics base, however, represents the strongest steel of Laredo's economy.

Laredo is the nation's largest inland port, the biggest freight crossing point on the U.S.-Mexico border. It also ranks as the eighth-largest cargo hub in North America. More than $110 billion in freight crosses Laredo's bridges yearly in both directions.

"All national carriers are here, land, air, small package," said Wade, president of Laredo's Logistics & Manufacturing Association. "Ninety-nine percent of all Fortune 500 companies come through Laredo in one way or another."


San Antonio eager
San Antonio's business community has long tried to tap into servicing international trade, with limited success, especially by advocating cross-border trucking to reduce border delays. Laredo politicians sometimes have accused San Antonio of trying to steal border business, despite San Antonio's view that expansion of services benefits the entire region.

The Laredo business community no longer buys the argument that San Antonio is a competitor, said Joseph Mendiola, chief administrative officer of the Laredo Development Foundation. The city's business leaders now consider Port San Antonio and the Port of Corpus Christi partners with Laredo in keeping the region's distribution and transportation costs competitive in global trade flows, Mendiola said.

Laredo appreciates Bexar County's recent leadership, for example, in compiling a list of the auto assembly and supplier plants in Texas and Northeast Mexico toward developing a marketing strategy for further plant investment, Mendiola said. Autos and auto parts are the top category of products that move through Laredo.

San Antonio's ties to Laredo are strengthening. San Antonio-based H-E-B two years ago pioneered a new China-U.S. trade route, through Mexico's Pacific Coast port city of Lázaro Cárdenas. Kansas City Southern de México ships H-E-B's Asian-made nonfood goods by rail from the Mexico port city to Laredo. The freight then is trucked to H-E-B's distribution center in San Antonio.

A San Antonio warehousing development company, Cross & Co., also is benefiting from Laredo's near-capacity warehousing sector.

"We started in business eight years ago in San Antonio. When we wanted to grow beyond our market, Laredo was the first place we looked," said Ryan Smith, Cross vice president and partner.


Cross expansion
This summer, Cross opened a 200,000-square-foot warehouse near Laredo's World Trade International Bridge with a majority of the building already pre-leased. Cross is following that up with another 200,000-square-foot warehouse on Laredo's northern fringe along I-35. A separate 56-acre tract is under contract where Cross plans to build another 1 million square feet of distribution space.

"We get calls every week from people wishing our second building was finished," Smith said. Laredo's warehouse vacancy rate is less than 1 percent.

San Antonio's Toyota assembly plant also relies on Laredo for one of its most important deliveries. Metalsa in Monterrey, Mexico, makes the Tundra pickup chassis. The truck frames are transported by rail by Kansas City Southern de México to the border and then transferred to Union Pacific Corp.'s Port Laredo switching yard. Union Pacific ships the truck frames the remaining 150 miles to San Antonio.

Smith agreed with Wade on the two reasons more North American freight will flow through Laredo in coming years. Companies that contracted for China manufacturing in China are coming back to operate in Mexico, and more U.S. companies want to import Chinese-made goods through Mexico's Lázaro Cárdenas port.

John Hill, administrator at the Federal Motor Carrier Safety Administration, said U.S. companies will favor manufacturing in Mexico rather than China as long as oil remains priced above $100 a barrel because of the expense of trans-Pacific transportation.

The volume of freight originating in Asia arriving at Lázaro Cárdenas is expected to grow tenfold during the next five years, Wade said. More steamship freight companies are signing up at the Mexican port, added David Eaton, corporate affairs director for Kansas City Southern de México.


By truck and train
Laredo is preparing to handle increasing volumes of truck and train freight. U.S. Customs and Border Protection plans to expand the number of truck-processing lanes at the World Trade International Bridge to 15 from eight and to add cargo lots. A test program for 24-hour operation, instead of closing at midnight on weekdays, could start in six months. That would make the bridge the only around-the-clock freight crossing on the U.S.-Mexico border, an advantage the Laredo Development Foundation plans to exploit in its promotions.

Three proposals are under consideration to replace the lone, single-track railroad bridge in Laredo, originally built in 1892.

Laredo's business community does not expect heavy manufacturing to ever occur there. Instead, it seeks light manufacturing that makes sense for a community where freight is consolidated.

Eighteen months ago, San Jose, Calif.-based Sanmina-SCI Corp., a Fortune 100 company, opened a repair and supply-line center in Laredo. The facility employs 750 workers who operate a warehouse and repair center for clients that include Hewlett-Packard Development Co., Nortel Networks Corp., March Networks Corp. and Sun Microsystems.

Sanmina-SCI's operation is called "reverse logistics." Products needing repairs, mainly computers and electronic devices, that are made in Mexico but sold in the United States are shipped to Laredo for quick seven-day turnaround repairs.

The repair items are not sent to Mexico because of the extra cost of distance and because tariffs would be imposed entering and exiting Mexico. Laredo is the logical site, said Steven Mon Dragon, Sanmina-SCI's repair center business unit manager, because the city already is a large consolidation point for the clients.

Reverse logistics is a growing trend. Electronics and computer plants can avoid devoting space for repair operations by outsourcing repairs to companies such as Sanmina-SCI, Wade said.


Trucking across the border
Laredo and its neighboring Nuevo Laredo thrive on another industry, called drayage. Truck tractors pick up truck freight arriving in one country and transport it across bridges to the other country, where a new carrier completes delivery.

Laredo business leaders are not concerned, however, about the test program for cross-border trucking that started in September 2007, where the same driver and same truck can make the crossing and deliver freight in the interior of the other nation.

So far, only about 10 to 20 trucks a day crossing in Laredo are participating in the test program.

Cross-border trucking never will become a widespread practice, Wade predicted, because of rules that prohibit Mexican drivers from making another delivery within the United States after making a U.S. delivery from Mexico.

Cross-border trucking makes sense only when Mexican drivers can pick up another Mexican-bound load after making a U.S. delivery, Wade explained. Warehousing and logistics operations will not move out of Laredo because the border, where Customs inspections occur, never will move.

FMCSA Administrator Hill said drayage will remain a strong Laredo industry as long as distribution warehouses operate there.

"But for all the goods delivered away from the border, the border system is cumbersome, inefficient and unfriendly to the environment," Hill said. "We want to evaluate the cross-border program with a good sample of vehicles and go from there."

Wade said Laredo's business community wishes the U.S. and Mexican government would make cross-border trucking permanent, making the border open to same-driver, same-truck deliveries.

"That way everyone will see that it's no big deal," Wade said.

As long as U.S.-Mexico-Asia trade continues to grow, Wade and his Laredo colleagues figure, the big deal on the border will be Laredo.

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