Have you heard of the new required document for shipments in Mexico? The rollout of the complemento Carta Porte went live January 1st, 2022, and in today's episode, Regional Transcon Manager, Carolina Galindo, and Regional Customs Manager, David Sanchez, will walk you through the backstory of this new document and what you'll need to do to keep things moving through an already challenging area.
Chris Parker: Hello everyone, and welcome to the Expeditors podcast, where we look at the world of shipping through the lens of a global logistics provider. I'm your host, Chris Parker, and today we're going to be talking about the Complemento Carta Porte, a new document required for shipments moving through Mexico.
Chris Parker: We'll chat about the cause and intent for this change and how it may impact an already challenged market with a focus on the US/Mexico border. With me today is Regional Transcon Manager, Carolina Galindo, to cover the transportation side of this conversation, and Regional Customs Manager, David Sanchez, who will, of course, cover the custom side. Carolina and David, welcome to the podcast.
Carolina Galindo: Thank you.
David Sanchez: Thank you.
Chris Parker: So, before we start chatting about today's topic, I wanted to get to know you two a little bit more. Share a little bit about your backgrounds. Carolina, let's start with you. So, Transcon is more of an internal term for us at Expeditors. What does it mean, and what do you do in your role?
Carolina Galindo: As you mentioned, Transcon is terminology in Expeditors. It's basically ground transportation. I do cover, as you mentioned, the region for Mexico and US southern border. So basically, I oversee the operations within these branches in regards to business development. Been with the company already 11 years. I have background mostly in ground transportation, knowledge in other areas like air, ocean, and customs. Definitely not an expert, more an expert on the ground transportation side of things. But yeah, my background has been mostly in that side of logistics.
Chris Parker: What about ground transportation excites you? Why do you like your job?
Carolina Galindo: Every day is just something new, right? New challenges, you cannot say that it's going to be the same as yesterday. So yeah, I mean, just like the dynamics, everything changing day over day, I think it's what keeps up in this challenge of logistics and ground transportation. So yeah, things move pretty quickly.
Chris Parker: Nice. David, let's talk about you now. So, what do you do as Regional Customs Manager, and what's your experience or your career like with Expeditors?
David Sanchez: I've been with the company, with Expeditors, for over 21 years now. And overall, my experience in my background goes to about 30 years already. I had a degree in Mexican custom, so that's everything that I've done professionally my entire professional life. Started with small brokers, other private companies, retail on the import/export side, and then 22 years with Expeditors. Because of how the Mexican customs works and operates, we have to be very structured and organized, not only in the customs process-related areas but also on system development and customs compliance. Because in Mexico, customs compliance is an area basically that falls under the umbrella of a Mexican broker. We have to have a lot of resources and very, very strong and robust group process system so we can perform correctly.
Chris Parker: Yeah, absolutely. And I definitely want to talk about that a little bit later once we start are getting into this. But first things first, I mentioned Complemento Carta Porte. Between the two of you, could you tell me what it is? What is this thing? All I know from looking online it's an electronic waybill compliment, right? Could you talk a bit more about that? David, let's start with you.
David Sanchez: The Complemento Carta Porte is actually, as you mentioned, as the name mentions itself, complement. It is a supplemental information or additional information to the current Mexican electronic invoice or electronic billing. The acronym for the Spanish name is CFDI. So that's one of the main elements that we have to consider. It is the complement or supplement additional information to an already existing or preexisting format of electronic billing that Mexico has been using for the past 10 years, 12 years already. You are completely right. It is an electronic version of the bill of lading for all modes of transportation and also a key element on this document. This is an official format. So it is controlled, and the information that is required is very, very standard and consistent throughout all modes of transportation.
Chris Parker: Yeah, this is a big push towards more standardized information circulating throughout Mexico, and we'll talk about a number of reasons why this was pursued. So Carolina, could you talk a little bit more about your side of things? How would something like this affect ground transportation?
Carolina Galindo: This is basically adding steps to a regular process when it comes to transportation, right? Right now, all the parties involved need to provide additional information either from the customer side, new coding, new descriptions, a lot of things that need to be in accordance to these new requirements because authorities publish specific dialogues to use. So, I guess that's the most important impact, just adding steps to a process, trying to provide new information that needs to be transmitted, as its name says, electronically in a timely manner. Definitely, coordination between everyone that is having a part in a shipment, in the overall process, needs to pretty well-coordinated itself to understand that the need to provide something for the shipment just to be moving within the roads of the country.
Carolina Galindo: I guess that is the main impact when it comes to transportation, flow of information needs to be done in a pretty timely fashion, I would say. And just like moving the information from customer to the trucking companies and then just doing the overall transmission, it's again the newest thing and definitely impacts times.
Chris Parker: So then, what does the Mexican government hope to achieve with the Carta Porte? What were some of the challenges that necessitate this new documentation and process?
Carolina Galindo: Well, I guess I'm going to say the ones that they highlight the most is obviously having a good traceability of goods that are moving in the country. Definitely, they want to know what is moving within our roads and just across the country. Unfortunately, there's a lot of informal business, and also, since this new requirement comes from the Mexican tax administration, they do regulate all the fiscal things within the country.
Carolina Galindo: So, they definitely want to eliminate for these informalities just on any transportation services. They want to make sure that everyone that is contracting a transportation service is paying, obviously, the tax that they should pay because of contracting these services with the tracking companies. So those are, I'm going to say, the two majors, I don't know. David, do you want to add on something else?
David Sanchez: Oh yeah, definitely security. It's how this new requirement started and built already in the electronic invoice. It was a very easy way to make sure that bill of lading information was available online and cannot be, just print paper document, which was the previous process and was very easy to hide some information. So, security, also the routes, as Carolina said, make sure that if a product is moving from one city to the other and suddenly it shows up somewhere else within the country, authorities immediately they're going to be able to find out or to realize that there is something wrong or possibly wrong with that shipment. And then also, there was a lot of informal transportation within Mexico.
David Sanchez: So the fact that this mandatory requirement is built within the fiscal invoice, that pretty much reduces or almost eliminates the fact that some of those movements, they were not falling under the umbrella of the IRS. So now authorities are going to have additional sources of revenues through both value-added tax and income tax.
Chris Parker: While it slows down the shippers or forwarders, does this speed up customs enforcement for the Mexican government? If they can catch things while things are en route, is that the point too, to speed that up, or is that even a factor here?
David Sanchez: I think authorities used the existing CFDI or electronic invoice platform because has already been in place for 12 years, and the information is visible online. Information is very, very easy for the authorities to obtain and to confirm to validate because everything is electronic. This is not necessarily a customs process, it's not really a requirement for the entry itself, but authorities are going to enforce or are enforcing the non-compliance of this requirement as contraband, as a fiscal customs process. So they have the way to detain cargo while they investigate or just make sure that their findings, however they have to act or follow up, is going to be there. But what is not really a customs process. They just build it around the fiscal and customs proceedings. So they have the authority to retain the cargo.
Chris Parker: I was wondering if one of you could illustrate the role Mexico plays in the Americas when it comes to logistics. What is Mexico doing now, and what is it trying to accomplish in the Western Hemisphere?
David Sanchez: Mexico, it's going through a modernization process, which is somehow advanced and with a lot of steps forward, a few steps going backward. But Mexico, about 20, 25 years ago, it was protectionist economy, meaning that average duty rates were around 125%. There were very, very high counter billing duties, just as some measure to protect the Mexican economy or the Mexican industry, not really properly analyzed or properly established. And a lot of goods, including machinery, they were subject to import permits.
David Sanchez: It was a way to obtain additional income and pretty much restrict, protect the national industry. Mexico, in the mid-80s, they start moving towards becoming part of, back then, the GATT (General Agreement on Tariffs and Trade), now it's the World Trade Organization. And in order to do that, they have to reduce and to minimize all the illegal or one-sided protectionist measurements such as duties and also the import permits. In the last decade, I will say Mexico even moved forward in order to become a SAFE partner.
David Sanchez: So Mexico applied to become part of the Wassenaar Arrangement, implemented the authorized economic operation program, and pretty much the import duties in Mexico, average less than 15% now. There are just very, very few import permits to specific goods, like really, really illegal type of products. Mexican government, they're not looking to establish a protectionist measurement through permits, so that's over. So Mexico, the current scenario of Mexico, it's an open economy with very, very low duty rates, and the regulations for the import requirements are also very, very low and more simplified.
Chris Parker: And then Carolina, your turn. One thing I wanted to touch on is just the fact that it brings in a lot of raw materials and does that manufacturing of final goods. Could you talk a little bit about that and help me understand that?
Carolina Galindo: Yeah, of course. I mean, as we may know, Mexico has a lot of these programs from many years ago under what we know as the maquila, so maquiladora. So yeah, basically, labor, for that matter, is pretty low for any other economies. That being taken in consideration, that's why it applies for having imports, a lot of raw material, having them be transformed here in Mexico, in different areas of the country. And then just getting back into the US or to Canada or any other countries in any other mode of transportation as finished products.
Carolina Galindo: So definitely that is, I'm going to say, the model that you see the most with any companies that you see that have investments here in the country with a lot of automotive industry, a lot of the OEMs and the automakers are here also in Mexico. So yeah, I mean, definitely that is the model that we see most, and we can say as a general fact that that's how it works, right? Everything comes raw. It has been transformed and then goes out as finished products.
Chris Parker: Because of the trade wars and tariffs and things like that, are companies finding themselves changing their sourcing to Mexico?
Carolina Galindo: Yeah. Well, I mean, we've seen some trends, I'm going to say in the last years, where you see a lot of investments, for example, from Korean companies or Chinese companies. Definitely, we see those trends of these countries investing and having a lot of labor being placed here in the country. I mean, those are two of the most recent examples I can think of, but yeah, I mean, we definitely see that changing.
Chris Parker: So now that a month has gone by since the Carta Porte was implemented, I think it was January 1st, was the start date for that. What have been some of the challenges for freight forwarders and shippers alike as they worked their way through this new change?
Carolina Galindo: Well, I mean, as mentioned, it was a massive change for everyone, right? So it is basically just adding steps to the process everyone needs right now. It's in this learning curve of understanding how they need to step in, what information they need to provide. I guess system-wise, definitely, there's been some backlogs when it comes to transmitting the information. Imagine the number of national carriers that we have in the country and the amount of shipments that are moved also across the country. A lot of information now is traveling, and definitely, that also can slow down the systems by themselves.
Carolina Galindo: So that is something we've seen also in the past weeks. We also have cases where we do have customers from the US, for example, that they don't necessarily have a counterpart here in Mexico that can support in this type of compliance to new regulations. So all the information, for example, that authorities have published is in Spanish. So sometimes also the language barrier we can see is somehow a struggle for specific cases. Obviously, it is difficult for this to be something new and only be available in Spanish, for example.
Carolina Galindo: So I guess those are the things that, I mean, everyone is just trying to get enrolled in the new process and trying to have things be more smooth as we are moving along. But I mean, timing-wise, shipments, we can see some delay. Nothing really, really big as of now, but I mean, we do have exceptions, and I mean, they're being managed.
Chris Parker: David, you said that customs brokerage works a little bit differently in Mexico. Could you talk a little bit about that? I know that for freight forwarders, too, some will have their own custom brokerage departments and such. How does that change once it's operating in Mexico?
David Sanchez: Well, first of all, the Mexican customs law, I would say that is the biggest difference to many other countries. For the Mexican customs law, the Mexican broker is liable for all the information that is transmitted to customs. So, quantities description, country of origin, import requirements, every single piece of information falls under the, or the Mexican broker is co-responsible to transmit that information accurately. With that being said, that is one of the key or main elements the Mexican broker has to deal with. And because of that push from the authorities to enforce pretty much the law through the brokers, there's also a very limited amount of brokers in Mexico because it's around 870, 880 brokers approved Mexico only. There hasn't been any opening for new brokers since 1998 or so.
Chris Parker: It's a very finite amount then?
David Sanchez: Yeah. Because of how they enforce the law through the brokers, for the authorities is easier to enforce a law again, within less than 1000 brokers, rather than maybe 200,000 importers or exporters. So the broker has to be very diligent to what we do.
David Sanchez: Thus, it's very normal that our approach in Mexico is more complex, is more thorough from the broker, pretty much the options are to be right or to be wrong. So again, the scrutiny and the amount of the peace of mind that a broker has to put into each import-export document is way higher than the commonly or in other countries.
Chris Parker: Yeah. Yeah. And if you're wrong, it means fines. It means your shipments get held up.
David Sanchez: The enforcement penalties may go very, very high. Still, in Mexico, customs falls under the umbrella of the IRS. So whenever the amounts or the issues pass a certain line, certain limit, then they become a fiscal issue. It's no longer or is not only a customs administrative element but may go to an actual, the very legal, fiscal, legal side, which is very, very bad for the companies. And also, Mexican customs, they use a way to enforce and make sure that everything is okay with the broker and importers and exporters by very easily removing or putting a halt on the import or export privileges.
Chris Parker: Clearly, there's a customs bottleneck here. I'm curious. I talked in our intro here that I wanted to cover what's going on between the US/Mexico border. I know that it's seen its fair share of challenges over the last year, but we've not really talked about it on the podcast. Could one of you explain what it's like right now for transportation across the border? What does the physical trucking bottleneck look like?
Carolina Galindo: Sure. Yeah. I mean, I think that naturally from Mexico, there's always more shipments going from Mexico to the US rather than the other way around, right? So there's more-
Chris Parker: It's always been this way?
Carolina Galindo: Yeah. I mean, naturally, that's been the way because of what we spoke about how Mexico works naturally on transforming goods to finished goods. With everything that started, I'm going to say with the pandemic, all the things that, I'm going to say impacted because of this, because we have less drivers out there in the industry because companies were shut down a few months and everything that evolved around the pandemic, this made even for this imbalance to be greater. We can see right now, for every 10 shipments that are moving from Mexico into the US, we see only one coming back or one available driver to be moving those 10 trucks that are physically at the border, right?
Chris Parker: And what was it like before?
Carolina Galindo: Before it's was typically three to one, the ratio was three to one. So yeah. I mean-
Chris Parker: That's so many. Wow.
Carolina Galindo: Yeah. Everything just blew up in our faces. I mean, just the market overall, right? This has not been specific to anyone, but just how the market started working. So, imagine having demand going really, really high, not having equipment availability, not having drivers available because of COVID, because they are retiring, because they are not returning to the industry. So, that is making a lot of the struggles that we are currently living in the market.
Chris Parker: In another aspect, too, it doesn't make sense to bring back empty equipment, no?
Carolina Galindo: Exactly. Yeah. I mean, it doesn't make sense, but it's been a measure. But right now, having empties, again, back into Mexico as to have enough capacity for just the companies be pushing out the shipments as they need to is one of the measures that, I'm going to say, it's become a common practice. So that's why also I'm going to say, when it comes to rates and everything related on that side, also those things have been on their highest records. Because of everything that right now, again, demand going up and not having enough supply, I mean, it's just the logic side of things that's happening.
Chris Parker: Okay. So with the border and now Carta Porte now an effect here, what is Mexico doing to ease the complexity to address all this? What are they doing?
Carolina Galindo: Yeah. Well, the carriers, I'm going to say, speaking from their standpoint. Obviously, they're trying to retain their drivers as much as possible. I mean, they are doing investments when it comes to buying new equipment, having few challenges in there, but they also are trying to, I'm going to say, develop their own drivers' school, something that probably we see that its pretty common in the US, not that common in Mexico. So I'm going to say that the carriers are trying to go a step further and also take advantage of the situation, right? Grow within, trying to have their own drivers' schools, that is something really, really new in the country. I mean, it's going to take a while, obviously, probably we're not going to see the results within this year probably, but I mean, it's something that their strategies are more aligned into, growing organically rather than what they did, or they were used to doing in the past.
Chris Parker: On the custom side David, do you know of anything that Mexico's doing to make things easier for people or to relieve the complexity here?
David Sanchez: I would say that, even though there's legal complexity on how the Mexican customs operate, I think also the law or the requirements are very black and white, are very clear, and they are very upfront. Is not common that we can have, or importers exporters may have a surprise that really, really is going to affect or pretty much shut them down in doing business in Mexico. The climate has changed in Mexico. We have a different party in government. They have a different way of doing things. But in general, I will say that it's very clear line where the customs, and in general, the Mexican Ministry of Economy, they're trying to go.
Chris Parker: What could shippers be doing in order to make their own lives easier as they try to move their products through Mexico? What would you say are some of the best practices right now?
Carolina Galindo: Well, when it comes to the transportation side of things, I'm going to say shippers are more used to understanding the market itself, like what are the things that are having an impact. And therefore, they're trying to become a preferred shipper. And basically, they try to work based on forecast. They plan as much as possible, communicate those plans to your logistics partner.
Carolina Galindo: Obviously, they are trying to make their operations be more efficient, minimizing the loading and unloading times, trying for the whole process be, I'm going to say more easy for the drivers, so they actually want to run those loads. So, I guess it's just around trying to make, from their side, things a little bit more easier, more efficient, and cooperating obviously as to also provide anything that we need for just everything to move as easy as possible and as smooth as possible. Right.
Chris Parker: Sounds like a lot of, just do your homework and then do as much pre-work, as much work ahead of time as possible to move smoothly.
Carolina Galindo: Exactly. Yeah. I mean, moving things upstream, it's definitely what is... What we've seen actually has a positive impact and just try to overcome all the complexity and the market struggles right now.
David Sanchez: Well, definitely make sure that the Mexican counterpart, they are, first of all, aware of the new requirement, that they have a clear understanding of what it is and they have already, either within the organization or within their service providers, assign the responsibility to provide and assign this new piece of information and definitely a way that they can handle it and manage this information in a safely manner with the most automation possible.
Chris Parker: Well, David and Carolina, thank you so much for taking the time to talk with me about this. If people wanted to know more about Complemento Carta Porte, or just understanding what's going on at the US/Mexico border, where would you direct them?
Carolina Galindo: I mean, I will say there is definitely resources directly provided by authority, which is the IRS in Mexico, which is SAT, directly to their page. They're updating the information constantly, publishing everything, and that's basically the resource everyone is using to keep updated and just align to the requirements that we are having from their end. So, that would be a good source.
David Sanchez: Yeah. I agree with Carolina. Because the resources that we have in Mexico, all the information it's only in Spanish, available only in Spanish. So for those they cannot read Spanish or understand Spanish, definitely with their transportation providers or logistics partner, then it's a very good way so they can understand, learn and also plan upon this Carta Porte.
Chris Parker: Well, the two of you, thank you so much for taking the time. I really appreciated it.
Carolina Galindo: Thank you.
David Sanchez: Thank you.
Chris Parker: Thanks for listening to today's episode. If you've got any questions or want to learn more about today's topic, check out the show notes for more information. And before you go, make sure you're subscribed on whatever podcast app you're using so you won't miss the next episode. To learn more about Expeditors, you can find us on LinkedIn, Facebook, Instagram, and Twitter, or simply visit us at expeditors.com. Take care, and I'll see you next time.