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Commentary: Another iron link for USMCA?

Discussing more infrastructure to promote trade within USMCA is worthwhile

The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.

Economic integration within North America cannot work without a reliable transportation infrastructure. Two important forces come into play when building transportation infrastructure: favorable geography and the magnetic pull of preexisting transportation hubs and population centers. Sometimes new locales become prominent and sometimes older ones regain their prominence.

An older hub was recently noted by Caxxor Group, a multinational investment firm founded in Mexico. It has proposed a railroad extending from the Port of Mazatlan on Mexico’s west coast northeastward to Winnipeg, Manitoba, via Dallas and Chicago. Of course, container-handling facilities in both Mazatlan and Winnipeg would need to be enhanced. In the context of intercontinental and international trade flows, are there new opportunities to be found with transportation via the Canadian Prairies?

Winnipeg is practically at the bull’s-eye of North America. It used to be called the “Chicago of the North.” The moniker was applied in the late 19th century when the city’s growth was fueled by westward migration and economic development along the Canadian Prairies. If Winnipeg used to be compared to Chicago, what happened? Basically, the Great Depression stunted the city’s growth trajectory in grain marketing and rail transport.

The Canadian government’s response to the hardships was the formation of the Canadian Wheat Board (CWB) in 1935, which pooled Canada’s wheat exports for decades to come. Before the CWB was reformed in 2006, all Canadian wheat farmers wishing to export their product were required by law to sell it to the Canadian government at a predetermined price which, of course, might be above or below the eventual world price per bushel at the time of harvest and delivery. On the other hand, this “single desk” international marketing effort on the part of the Canadian government lent some economies of scale and quality control to Canada’s wheat farmers. In any case, the CWB was one example of Canada’s more interventionist approach to commodity markets compared to the United States. In many ways, Winnipeg became a government town in the 1930s while Chicago maintained a vital private sector.

Since all of today’s Class I railroads pass through Chicago, perhaps it is fitting that a possible third transcontinental railroad is targeting Winnipeg as a potential hub. Such thoughts harken back to those days when Winnipeg was a boomtown. The two large railways currently passing through Winnipeg are CN and the Canadian Pacific (CP). As a rail hub, Winnipeg offers connections to the Ports of Vancouver and Prince Rupert on the west; Thunder Bay (with access to the Atlantic via the St. Lawrence Seaway), Montreal and Halifax on the east; and the Port of Churchill on Hudson Bay to the north.

Beyond Winnipeg, railroads made Canada what it is today. Canada’s first Prime Minister, Sir John A. MacDonald, upon completion of the CP railway in 1885, remarked: “We are made one people by that road, that iron link has bound us together in such a way that we stand superior to most of the shafts of ill-fortune.” In fact, this “iron link” was instrumental in keeping British Columbia within Canada. There was serious talk among the local citizens about joining the United States, especially after it purchased nearby Alaska from Russia in 1867. Coincidentally, that was the same year that British North America’s eastern provinces were bound together into a federation known as the Dominion of Canada. Westward economic expansion and the creation of more provinces out of loose territories mirrored what was happening in the United States.  

Caxxor Group estimates that $1 billion-$3 billion would be needed to build what it calls the USMCA Corridor. The name is certainly a nod to the United States-Mexico-Canada Agreement which replaced the North American Free Trade Agreement (NAFTA) on July 1. The proposed rail spur from Mazatlan would need to cross the Sierra Madre mountain range in order to connect to preexisting rail lines in northern Mexico. If completed, the USMCA Corridor would be about 4,000 miles in length. 

The north-south USMCA Corridor would be an alternative to the east-west route out of the ports of Los Angeles and Long Beach. Of course, the Ports of Vancouver and Prince Rupert, British Columbia, have had a substantial head start at chipping away at California ports’ share of West Coast container traffic. While the British Columbia ports have reached over 80% capacity utilization this year, each will have completed expansions by 2023. Also, competitive intermodal rail rates on CN and CP relative to Union Pacific and Burlington Northern Santa Fe will keep the pressure on the U.S. West Coast ports to maintain their share of containerized imports to the US. Midwest and East Coast population centers.

While vessel routes from, say, Hong Kong, all pass near the Aleutian Islands of Alaska as they follow the great circle to West Coast destinations ranging from Prince Rupert to Mazatlan, the differences in distance are significant. For example, Hong Kong to Long Beach is about 7,200 miles while Mazatlan adds a further 1,000 miles to the trip. The extra travel time and distance required on the proposed USMCA Corridor will need to be compensated for by some intermodal competitive advantage in order to distinguish it from U.S. and Canadian West Coast ports.  

Transportation infrastructure and its effects on levels of modal competition and freight rates will either maintain or alter the current trade flows of tangible items. Talk of more infrastructure to promote trade within USMCA is certainly a worthy discussion.

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Darren Prokop

Darren Prokop is a Professor of Logistics in the College of Business and Public Policy at the University of Alaska Anchorage. He received his Ph.D. in economics from the University of Manitoba in 1999. Prior to his academic career Darren Prokop worked in government as an economist and in the private sector in inventory planning.