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Pergamon

Transpn Res.-E (Logistics and Transpn Rev.), Vol. 34, No. 4, pp. 289303, 1998 # 1998 Elsevier Science Ltd. All rights reserved Printed in Great Britain 1366-5545/98 $see front matter

PII: S1366-5545(98)00017-9

INTERMODAL ROUTING OF CANADAMEXICO SHIPMENTS UNDER NAFTA


JAMES H. BOOKBINDER* and NEIL S. FOXy

Department of Management Sciences, University of Waterloo, Waterloo, ON, Canada N2L 3G1 (Received 30 January 1997; in revised form 1 June 1998; accepted 3 July 1998) AbstractThis paper obtains the optimal routings for intermodal containerized transport from Canada to Mexico. Such trac is being stimulated by the North American Free Trade Agreement (NAFTA), but the cost and lead times of feasible routes are not well known. We summarize the links and routes to Mexico on which one or more carriers now operate, and then determine non-dominated tradeos between cost and service. Every southbound route from Canada requires a transshipment point in the southern or southwestern U. S. Feasible transshipment points are also candidate locations for a manufacturing `twin plant', a distribution centre, or a transportation hub. Here, as a rst step in this bigger problem, a network is constructed between ve Canadian origins and three important Mexican destinations. Each link employs available intermodal services whose transit time and transportation cost are obtained through industry sources. A shortestpath algorithm enables calculation of the route requiring least time and the route of minimum cost. Nondominated time/cost tradeos are identied for each origindestination pair. After including inventory expenses (by parametrizing the unit value of lead time), total-cost curves then eliminate some routing alternatives. Guidelines are provided on the eects of mode, carrier, and OD locations on selection of intermodal routes to Mexico. Finally, two new intermodal services are proposed and their benets discussed. # 1998 Elsevier Science Ltd. All rights reserved Keywords: NAFTA, logistics, transportation, rail, truck, water, intermodal, Canada, Mexico, routing. 1. INTRODUCTION

Under the North American Free Trade Agreement (NAFTA), Canadian exporters will have greater access to Mexico, an expanding economy of over 80 million people. Because the two countries are still only minor trading partners, the Canadian business community has had little experience with the Mexican marketplace. Two important facets of the problem, however, are clear. The rst, that shipment must involve several links and traverse the United States, shows the signicance of understanding the costs of freight transportation. The second concerns diculties (long queues, administrative delays) in crossing the U.S.Mexican border by truck (Armstrong, 1993; Giermanski, 1998). The customs-preclearance systems (Buxbaum, 1994) that exist for the air, rail, and water modes (but not motor freight) indicate that a carefully chosen intermodal route may be competitive with transportation by truck only. This study will present a methodology to compare intermodal alternatives. We apply it to a network connecting ve major Canadian origins (Toronto, Montreal, Winnipeg, Calgary, and Vancouver) and the cities comprising Mexico's economic `golden triangle' (Mexico City, Monterrey and Guadalajara). Those nodes will be joined through a series of rail, water and trucking services, and eective intermodal combinations (route segments) identied. Grant (1992) and others have suggested the types of freight whose trade volumes should increase under NAFTA. The result (Section 2) is that most products likely to experience enhanced exports from Canada to Mexico are general freight commodities, suitable for containerization and carriage by the widest range of intermodal options. Much literature on NAFTA is macro in nature, concerning, e.g. the number of jobs NAFTA will create or the additional volume of trucks crossing the border in Texas from Laredo to Nuevo

*Author for correspondence. y Present address: Canadian Tire Corporation, Distribution Centre, Brampton, Ontario, Canada L6T 5J8.

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Laredo. These data are important to policy makers (see Roberts et al., 1995) and transportation carriers. However, such jobs materialize only because individual companies make something happen in the marketplace. Similarly, each shipment by motor freight that crosses at Laredo results from a decision, by a manufacturer or third party, on the mode and routing of their goods. A Montreal shipper with freight destined for a consignee in Mexico City might dispatch the container on a truck included above in the volume at Laredo (by far the busiest border crossing). Instead, this same container could travel by water from Norfolk, Virginia to the port of Veracruz, then by truck to Mexico City. Either decision may be right. In a sense that we will make precise later, the best route involving water costs 20 per cent less than the best route crossing by truck at Laredo, but the latter goes from Montreal to Mexico City 2 days faster. In this era of deregulation, shipper-carrier arrangements are negotiated. Any published taris on le, e.g. at the Canadian Transportation Agency, should thus be interpreted as the most a Canadian shipper might pay. That is why the present study gathered empirical data, directly from carriers and third parties, on rates, times and available services. Our point of view in this paper is generally that of the shipper, not a carrier or government transportation agency. Our nal routes (Section 3) are culled from a larger group, and represent non-dominated solutions to the two-objective problem: MinTotalTime; MinTotalCost: Every link has a cost and time for each mode available, on services that already exist, where transport costs are all-inclusive (taking into account, if appropriate, pickup and/or drayage and dropo charges) and the total time for a given route includes any delays in crossing the border by truck. Every route employs two or three modes. For each OD pair, separate applications of a standard shortest-path algorithm (Winston, 1995) will yield the route requiring least time and the route of lowest cost. The nature of this algorithm makes it straightforward to obtain, in passing, Pareto-optimal solutions of intermediate time and cost. In Section 2 we review the literature on how the agreement will impact logistics in the three NAFTA countries. That section also details the options for intermodal freight transport between Canada and Mexico. Following development in Section 3 of the Pareto-ecient set of routes, we treat the value of time through a parametric inventory-carrying cost and show (Section 4) that some nondominated solutions can be disregarded. To conclude, we interpret the factors that make attractive mode and route choices. We also propose certain intermodal services which, if available in the marketplace, would merit further consideration for routing Canadian shipments to Mexico.
2. EXPORT OF CANADIAN GOODS VIA INTERMODAL SHIPMENTS

2.1. Freight transport in Mexico A logistics professional will at rst be challenged by special circumstances in Mexico. Great distance, however, is not one of them: Toronto is closer to Mexico City than to Vancouver. But remnants of Mexico's protectionist economy do introduce unique experiences. Conditions in Mexico were typied by badly-decayed two-lane highways causing heavy damage to both loads and vehicles (Contract Freighters Inc., 1994), although the new Mexican highways (four-lane toll roads) are safer and faster. Ports, border crossings and major Mexican centres now have additional links (Secretaria de Comunicaciones y Transportes, 1993). Opportunities under NAFTA for U.S. trucking rms are discussed in McCray (1993), while Brooks (1994) examines the impact on Canadian transportation industries. Waller and Emmelhainz (1995) suggest a framework whereby logistics strategies may take full advantage of the agreement. Although we consider only Canadian shipments to Mexico, ows there from the United States are discussed by Nozick et al. (1994) and Roberts et al. (1995). In contrast to the European Community, free trade in North America does not mean open borders (Anon, 1994b). There has been an increase under NAFTA in the number of documents needed when goods are exported to member countries (Foreign Aairs and International Trade, 1998; Zuckerman, 1995). Customs regulations have even become more complex because of the North American Rules of Origin. These rules apply the benets of the agreement only to goods

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produced primarily in the U.S., Canada or Mexico. Nevertheless, it turns out that, even before NAFTA, 80 per cent of Mexican products entered Canada duty-free. Therefore, this study focuses on only Mexican-bound shipments; the tari-elimination schedules of NAFTA will impact much more the southerly ow of Canadian goods. Grant (1992) studied the eect of those schedules on particular products in light of pre-NAFTA Canadian exports and Mexican imports, respectively, to and from countries other than Mexico and Canada. Commodities picked to experience trade diversion to Mexico under NAFTA include auto parts and electronic instruments. Braxton Associates (1993) also foresaw increased exports of specialized industrial machinery and small appliances, such as electric hand tools and trac control devices. Laurier Trade Development (1992) made further predictions for southbound ow of telecommunications and environmental control equipment. The point is that diverse sources anticipate enhanced ows to Mexico of Canadian goods well suited for containerization. Rather than dwell further on these or other products, we simply consider general freight. 2.2. Selection of intermodal transportation links We concentrate on intermodal movements involving full containers, 40 feet or more in length A transportation service must satisfy the following criteria for inclusion in our analysis: 1. each rail and water link must be currently operated by a well known carrier, and 2. water services should travel directly to a Mexican port and sail at least weekly. We collect freight-rate data from the carrier, and do not rely on published taris. Use of established carriers allows the assumption of acceptable on-time delivery and shipment safety. However, those issues of service quality (Blake, 1991; House, 1997; Giermanski, 1998) led us to omit shipments within Mexico by the National Railway, FNM. (At the time of revision of the paper (April 1998), several sections of FNM have been privatized and sold.) Point 2 eliminates any carrier that transships through the Caribbean, Central or South America, and also those lines that sail only monthly. Some judgement was applied to avoid calculations with obviously inecient rail or water routes. Deleting inecient route segments avoided collection of those empirical data. We now give an overview of the water or rail transportation services considered. Directories (e.g. Anon, 1994a; Hicks, 1994) list the major North American ports, and the shipping and rail lines that use their facilities. The ports themselves provide names of agents representing containership transport to Mexico. Advertisements or articles in logistics magazines (e.g. Bonney, 1993) may identify lines that ship to Mexico, but this information can become dated quickly. For example, the ports of Gulfport, Galveston, Boston and Oakland have all since lost direct-toMexico service that was promoted heavily in trade journals. Just four direct-to-Mexico, containership services were found in our search. Hoegh lines, from the port of Halifax, was the only direct service originating in Canada. TMM runs an operation across the Gulf of Mexico from Houston, and another out of Los Angeles. Lyke's lines has a service originating in Norfolk, VA but cancelled service from the port of New York. We found no containership services to Mexico from Vancouver, Seattle or Portland. Turning attention to railroads, it is well known that the North American system was built from East to West (see map in Rand McNally & Company, 1994). Rail lines to the Mexican border are in fact available on just two or three Class I U.S. railways: Union Pacic and Southern Pacic (whose merger was approved in Summer 1996) and Burlington Northern/Santa Fe (The BN/SF merger occurred in September 1995). Connecting to these roads are CP (Canadian Pacic), CN (Canadian National) and FNM. Abbott (1994) and Hicks (1994) describe the intermodal operations of each major North American railroad, enabling us to identify important corridors in the U.S. for CanadianMexican trade. Southern Pacic runs intermodal trains between Portland, Los Angeles and El Paso. American President (using Union Pacic lines) operates its `Double Eagle' service from Chicago directly to Laredo; both CN and CP cover the MontrealTorontoChicago corridor. Burlington Northern/Santa Fe oers intermodal service from Chicago to Houston by way of Kansas City. Intermodal shipments from Canada's west coast can reach the port of Houston via BN/SF (the only U.S. carrier with direct access to Vancouver), interlining with Illinois Central. (A proposed

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merger between CN and Illinois Central is (Spring 1998) now working its way through the approval process). To decide the Canadian origins worth analysing, note that North America is essentially triangular in shape and that Canada's population is linearly distributed along its US border. The result is a funnel-shaped pattern (see Fig. 1.) through which goods originating in Canada will move to the relatively narrow country of Mexico. Origin location will thus impact routes much more than destination location. We chose Montreal, Toronto, Winnipeg, Calgary and Vancouver as Canadian origins in the intermodal network to be studied; they are major centres in Provinces producing 95 per cent of Canada's total value added by manufacturing. For destinations, we considered highly-populated urban areas that will likely consume most of Mexico's imports. The so-called `Golden Triangle', bounded by Mexico City, Monterrey, and Guadalajara, generates 74 per cent of Mexico's GNP (Buxbaum, 1994). These cities are the three largest in Mexico, representing approximately 18 per cent of the population (Rand McNally & Company, 1995). That urban region is also desirable for study because it permits comparison of the eects of proximity to the coast (Guadalajara) and to the border (Monterrey), vs a central location (Mexico City) (Fig. 1).

Fig. 1. Origins and destinations. *Origins: 1. Vancouver; 2. Calgary; 3. Winnipeg; 4. Toronto; 5. Montreal. #Destinations: 1. Guadalajara; 2. Monterrey; 3. Mexico City.

Intermodal routing of CanadaMexico shipments under NAFTA Table 1. Notation for designating routes Origin city Vancouver, BC Calgary, AB Winnipeg, MB Toronto, ON Montreal, PQ Mode Water (container ship) Rail (doublestack or COFC) Truck (container haulage) Destination Guadalajara Monterrey Mexico City Abbreviation VAN CAL WIN TOR MON Abbreviation w r t City code GUA MNY M.C. Transshipment point Canada Vancouver, BC Halifax, NS United States Seattle, WA Los Angeles, CA El Paso, TX Laredo, TX Houston, TX Chicago IL Norfolk, VA Mexico Manzanillo Tampico/Altamira Veracruz

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TS code VAN HAL STL L.A. E.P. LAR HOU CHI NOR MAN T/A VZ

2.3. Assumptions and framework for calculations In our calculations, we restricted attention to FAK (freight-of-all-kind) rates for point-to-point shipments of a full 40-foot container. The transportation cost of a container of greater length was taken as proportional to the volume shipped, when the mode was held constant. This assumption was required to compare modes that ship dierent sizes of containers; it was veried for the rates on the 45- and 48-foot containers carried by APL on its ChicagoLaredo service. Certain carriers felt they had little to gain by discussing prices with someone with nothing to ship. This was resolved by assuming that within each transportation mode, the several carriers have competitive pricing and service levels. Unavailable rates were thus estimated from rates that were found successfully. When rate quotations for a pair of links were obtained for a given mode, the xed cost per container and variable cost per mile were calculated by solving two equations in two unknowns. This cost structure was then employed to estimate rates for other links of that mode (Higginson, 1993). Rates for each water link were furnished by the carrier; the preceding method was needed for particular rail links. Trucking required a slightly dierent approach. Due to competitive factors, the only information obtainable was for drayage in Mexico and a $2 (CDN) per mile quote for drayage within Canada. By solving the simultaneous equations on data obtained for Mexico, a rate was determined again as $2/mile (but U.S. funds), plus a $175 xed cost. Our best estimate of the variable charge/mile was thus two Canadian dollars for truck links originating in that country. For each truck link whose origin was in the U.S. or Mexico $2 (U.S.) per mile was used. The gure of $175 is to be interpreted as the fee to move a container across the U.S.Mexican border. Fewer expenses and diculties arise in crossing from Canada to the U.S., hence a $75 (CDN) charge was assessed whenever a truck did so. An exchange rate of $1 CDN=$0.74 U.S. was employed throughout. Rail transit times were in some cases furnished by the carrier when rates were not. Alternatively, there was usually a similar rail service from which transit time could be estimated. Truck travel times were calculated from data in Rand McNally & Company (1994), based on actual road and trac conditions. Allowances were made for crossing borders: 2 h for CanadaU.S. and 24 h for U.S.Mexico. All nal transit times have been rounded up to the nearest half-day; this accounts for driver breaks, driver switches, and any additional delays. 2.4. Costtime tradeo analysis Roseneld et al. (1985) study industry-wide tradeos between delivery lead time and cost. The approach used there and by others (e.g. Current et al., 1990; Mote et al., 1991) is to construct an ecient frontier of Pareto-optimal solutions to the two-objective problem, [Min (Transit Time), Min (Total Cost)]. For us, transit time means total interval elapsed between origin and destination, taking account of border crossings and other delays; cost is the sum over all links, plus any charges for drayage, pickup and delivery.

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Intermodal routes corresponding to points on the frontier are said to be non-dominated. The route connecting that O-D pair cannot be improved without giving up speed for a lower cost, or incurring extra cost in exchange for speed. An intermodal route is dominated if there is another route (with the same O and D) that has a lower transit time or cost while being no worse in terms of the second objective. We shall conne attention to non-dominated solutions for each OD pair, with routes identied by abbreviations of Table 1 (40 ft container from Canada, destined for Mexico). Transshipment points and successive modes are given sequentially, as in TORtCHIrHOUwVZt M.C. This intermodal route starts in Toronto, travels by truck to Chicago, is transshipped there to the BN/SF stack train service to Houston, then transshipped to TMM's cross-gulf containership to Veracruz, with nal transshipment there for movement by truck to the Mexico City destination.
3. COMPARATIVE ANALYSIS OF INTERMODAL OPTIONS

Data on the cost and time of each intermodal link (Table 2) permit calculation of the totals for each route in Fig. 2. Analysis will be organized by city of origin. Results are listed in order of increasing cost and decreasing transit time, with routes numbered for easy reference. We begin with Vancouver. 3.1. Vancouver Let us dene an intermodal combination as the route segment obtained by eliminating the link to the nal destination. Table 3 shows that no combination from Vancouver is non-dominated for all three destinations. For example, rail transport from Seattle through L.A. to El Paso appears in the solution set for Guadalajara and Mexico City but not Monterrey. The mostly-truck combination, with a short rail link between L.A. and El Paso, is the fastest solution for Monterrey (#6) and for Mexico City (#9). The two water links occur just for Guadalajara. Route #5: rail from Seattle to L.A., then truck to destination, is a good combination only for Monterrey. Vancouver has only eight possible intermodal combinations, yet six were non-dominated for at least one destination. The TMM water link (L.A.Manzanillo) performs very well for freight destined to Guadalajara. This water link is not only part of the least expensive solution (#1) but also, surprisingly, the fastest (#3). Those routes just dier in rail vs truck to the port of L.A.; for MNY and M.C. as well, quickest routes again begin by truck, Vancouver to Los Angeles. The link L.A.-r-El Paso is then part of the fastest solution to both Monterrey and Mexico City. 3.2. Calgary No single link was prevalent for Vancouver, but here (Table 4) the least-expensive way to each destination uses the railrail combination, CalgaryChicagoLaredo. Seemingly an indirect routing, the lower cost of rail plus speed on the APL stacktrain (only two days, Chicago to Laredo) keeps these solutions non-dominated. Calgary is closer to Vancouver than to Chicago, but a VancouverHouston rail link would mean greater distance by truck to destination, hence a dominated route. As for Guadalajara, proximity to the port of Manzanillo results in a water combination (#2) that actually decreases transit time relative to most routes. Solution #3 (via El Paso) is fastest, certainly faster than #1 through Laredo. Guadalajara is essentially equidistant from El Paso and Laredo, but Calgary is much closer to El Paso. 3.3. Winnipeg Winnipeg has eight possible intermodal combinations, but no water combination is non-dominated, not even the cross-Gulf service. Only the Winnipeg origin has just two non-dominated routes per destination, identical in all three cases (Table 5). Furthermore, every solution uses the ChicagoLaredo rail link. The time-cost tradeo is in truck vs rail from the origin to Chicago. These results are explained by the fact that Winnipeg, only slightly west of Chicago, is the sole origin virtually due north of the three Mexican cities. For each of them, the two most direct routes win out.

Intermodal routing of CanadaMexico shipments under NAFTA Table 2. Cost and time data for each intermodal link

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Start node Vancouver Vancouver Vancouver Vancouver Calgary Calgary Calgary Calgary Calgary Calgary Calgary Winnipeg Winnipeg Winnipeg Winnipeg Toronto Toronto Toronto Toronto Toronto Toronto Montreal Montreal Montreal Montreal Montreal Halifax Seattle Los Los Los Los Los Angeles Angeles Angeles Angeles Angeles

End node Seattle L.A. Houston Houston Vancouver Vancouver Chicago Chicago Houston Seattle L.A. Chicago Chicago Housten L.A. Halifax Halifax Veracruz Chicago Chicago Houston Halifax Veracruz Chicago Chicago Houston Tampico Los Angeles El Paso Manzanillo Guadalajara Monterrey Mexico City Guadalajara Monterrey Mexico City Laredo Houston Guadalajara Monterrey Mexico City Altamira Veracruz Guadalajara Monterrey Mexico City Guadalajara Monterrey Mexico City Guadalajara Monterrey Mexico City

Mode Truck Truck Truck Rail Truck Rail Truck Rail Truck Truck Truck Truck Rail Truck Truck Truck Rail Truck/Water Truck Rail Truck Rail Truck/Water Truck Rail Truck Water Rail Rail Water Truck Truck Truck Truck Truck Truck Rail Rail Truck Truck Truck Water Water Truck Truck Truck Truck Truck Truck Truck Truck Truck

Carrier

Cost Time (U.S. $) (days) 286 2220 3792 2075 895 613 2664 806 3249 1217 2517 1439 617 2438 3343 1615 1025 2600 885 514 2482 697 2600 1371 716 2985 2100 1000 600 1900 3363 2847 4165 2569 1667 2469 0.5 1.5 2 6 0.5 2 1.5 4 2 1 1.5 1 2 1.5 2 1 4 6 0.5 2 1.5 3 6 1 3 2 16 3 2 4 2.5 2.5 3 2.5 2 2.5 2 3 2.5 2 1.5 2 3 2 1 0.5 2 2 1 1 2 2

Burlington Northern/Santa Fe (B.N./S.F.) and Kansas City Southern Canadian Pacific (C.P.) C.P.

C.P.

Canadian National (C.N.) Lykes Lines C.N. C.N. Lynes Lines C.N. Hoegh Lines Southern Pacific (S.P.) S.P. Mexican Line (TMM)

El Paso El Paso El Paso Chicago Chicago Houston Houston Houston Houston Houston Tampico/Altamira Tampico/Altamira Tampico/Altamira Veracruz Veracruz Veracruz Manzanillo Manzanillo Manzanillo

American President (APL) B.N./S.F.

1205 1106 3055 2281 1099 2050 2050 1119 895 829 1421 1529 782 437 1161 1381

TMM TMM

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Fig. 2. Selected intermodal links. Origins (*) and destinations (#) as in Fig. 1. The transshipment points (+) are: A; Vancouver;B. Seattle; C. Los Angeles; D. El Paso; E. Manzanillo; F. Laredo; G. Houston; H. Tampico/Altamira; I. Veracruz; J. Chicago; K. Norfolk; L. Halifax. Table 3. Non-dominated intermodal routes originating in Vancouver # 1. 2. 3. 4. 5. 6. 7. 8. 9. Route Destination: Guadalajara VAN t-STL r L.A. w MAN t GUA VAN t-STL r L.A. r E.P. t GUA VAN t L.A. w MAN t GUA Destination: Monterrey VAN r HOU t MNY VAN t STL r L.A. t MNY VAN t L.A. r E.P. t MNY Destination: Mexico City VAN t STL r L.A. r E.P. t M.C. VAN r HOU t M.C. VAN t L.A. r E.P. t M.C. Total cost (U.S. $) 3623 4455 4557 3174 4133 4487 4355 4356 5289 Total time (days) 8.5 8 5.5 7.5 6 5.5 8 8 6

3.4. Toronto Once again ChicagorLaredo is overwhelming; the same Monterrey and Mexico City results occur for Toronto (Table 6) as for Calgary and Winnipeg. The lowest-cost route to Guadalajara, however, uses the water link from Norfolk to the port of Veracruz. Guadalajara is the destination furthest from Laredo (by road). The LARtGUA expenses will exceed the cost to truck inland from Veracruz, due to the narrow shape of Mexico. 3.5. Montreal Except for Vancouver, only Montreal has unique routes for all three destinations (Table 7). (ChicagorLaredo appears however in ve of eight non-dominated solutions). Montreal is the one origin whose ecient set contains dierent water links. NorfolkwVeracruz appears in routes

Intermodal routing of CanadaMexico shipments under NAFTA Table 4. Non-dominated intermodal routes originating in Calgary # 1. 2. 3. 4. 5. 6. 7. Route Destination: Guadalajara CAL r CHI r LAR t GUA CAL t L.A. w MAN t GUA CAL t L.A. r E.P. t GUA Destination: Monterrey CAL r CHI r LAR t MNY CAL t CHI r LAR t MNY Destination: Mexico City CAL r CHI r LAR t M.C. CAL t CHI r LAR t M.C. Total cost (U.S. $) 4392 4854 5658 2486 4344 3668 5526 Total time (days) 8.5 6.5 6 7.5 5 8 5.5

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Table 5. Non-dominated intermodal routes originating in Winnipeg # 1. 2. 3. 4. 5. 6. Route Destination: Guadalajara WIN r CHI r LAR t GUA WIN t CHI r LAR t GUA Destination: Monterrey WIN r CHI r LAR t MNY WIN t CHI r LAR t MNY Destination: Mexico City WIN r CHI r LAR t M.C. WIN t CHI r LAR t M.C. Total cost (U.S. $) 4203 5025 2297 3119 3479 4301 Total time (days) 6.5 5.5 5.5 4.5 6 5

Table 6. Non-dominated intermodel routes originating in Toronto # 1. 2. 3. 4. 5. 6. 7. Route Destination: Guadalajara TOR t NOR w VZ t GUA TOR r CHI r LAR t GUA TOR t CHI r LAR t GUA Destination: Monterrey TOR r CHI r LAR t MNY TOR t CHI r LAR t MNY Destination: Mexico City TOR r CHI r LAR t M.C. TOR t CHI r LAR t M.C. Total cost (U.S. $) 4021 4100 4471 2194 2565 3376 3747 Total time (days) 8 6.5 5 5.5 4 6 4.5

to Mexico City and Guadalajara (#2, 7); the water link from Halifax to Tampico/Altamira occurs for Guadalajara (#1). MontrealGuadalajara is the only OD pair with four non-dominated routes. In Guadalajara's water combinations (the two lowest-cost routes) the water link becomes shorter from the rst solution to the second. Mode then switches to rail in #3, then again decreases the portion by railroad to give the quickest route. Solutions containing water links are dominated for Monterrey, however, because of its greater distance from Tampico/Altamira than Laredo. A truckwater intermodal combination does give the lowest-cost solution for Mexico City, the destination closest to the port of Veracruz. 3.6. Summary of analysis Findings to this point correlate strongly with origin location. A spatial pattern is seen by reecting Canadian cities about Winnipeg. The Toronto results then mirror those of Calgary; routes from Montreal, like Vancouver's, are more diverse. If we think of the NAFTA Zone as a triangle (Fig. 1), shipments from central Canada employ best routes that are most direct, by rail and truck; destination within Mexico does not aect modal choice. More exceptions occur for a Canadian origin away from the triangle centre, particularly as the destination city moves further from the border or closer to Mexican ports.

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# 1. 2. 3. 4. 5. 6. 7. 8.

Route Destination: Guadalajara MON r HAL w T/A t GUA MON t NOR w VZ t GUA MON r CHI r LAR t GUA MON t CHI r LAR tGUA Destination: Monterrey MON r CHI r LAR t MNY MON t CHI r LAR t MNY Destination: Mexico City MON t NOR w VZ t M.C. MON t CHI r LAR t M.C.

Total cost (U.S. $) 3916 4021 4302 4957 2396 3051 3382 4233

Total time (days) 21 8 7.5 5.5 6.5 4.5 7 5

The highest destination eect occurs at the triangle's edge. Near the coasts can be found many additional ecient intermodal combinations for shipping freight to the Mexican market. Indeed, although water links across the Gulf of Mexico are always dominated, some water-based routes are non-dominated when two conditions hold: The origin city must be relatively near the port of loading, and the destination signicantly closer to the port of unloading than to a (land) border point.
4. EVALUATING COMPETITIVE INTERMODAL OPTIONS

Non-dominated timecost trade-os can in fact be ordered. A parametric value of transit time would permit calculation of total costs for each route. This section thus begins by showing the impact of inventory costs on the choice of CanadaMexico intermodal routes. We then examine the performance required of the trucking industry to adequately compete with intermodal transportation. Finally we propose new intermodal services that could benet Canadian shippers. 4.1. Inclusion of inventory costs The greater the time a product is in transit, the longer it is unavailable to the customer, implying increased expenses for capital, damage, insurance and safety stock. These are usually grouped under the category, `inventory costs'. Their appropriate evaluation will enable the shipper and consignee to decide how much a decrease in transit time is worth. Barnhart and Ratli (1993) incorporate inventory in their shortest path algorithm for TOFC routing. Those costs are broken into expenses for `intransit' inventory and safety stock. Somewhat arbitrarily, the intransit inventory cost per trailer is taken as a $50 multiple of the number of days of transit time, and safety-stock costs are said to be insignicant. Although hard to determine exactly, intransit inventory costs quite likely dier for lumber and computer monitors. We model the value of lead time by assuming that each container incurs a parametric charge of $x per day of transit time; that cost need not be broken into components. An intermodal solution thus has total cost y K Tx, where K is the transportation cost of that route (Section 3) and T the associated transit time. For each non-dominated alternative between the given origin and destination, construction of a total cost curve enables us to determine the range in x where that option provides the lowest overall cost. 4.2. Total cost curves: two non-dominated solutions The simplest situation is when there are only two non-dominated routes for a particular OD pair. One is cheaper and slower, the other faster but expensive. In the case of VancouverMexico City, for example, the ecient set has total cost curves y1=4355+8x and y2=5289+6x. We are thus indierent between intermodal options when lead time unit cost is x=$467 (U.S.); for x<$467/day, the lowest transportation cost also gives lowest total cost. Otherwise, the shortesttransit-time alternative yields the least total cost. Similar break-even analysis was applied to the 10 OD pairs in Tables 37 with only two nondominated solutions. The breakeven value of x between slow and fast transport was in the range of $240820 (U.S.)/day.

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4.3. Total cost curves: multiple non-dominated solutions If there are three or four competitive choices, not only do more regions of x produce lowest-cost alternatives, but some non-dominated routes are never the lowest-total-cost choice. 4.3.1. Case 1: VancouverGuadalajara. From Table 3, the total-cost curves for the non-dominated options are y1=3623+8.5x; y2=4455+8x; and y3=4557+5.5x. With three or more curves, it is best to perform the breakeven analysis by graphical methods. The result is that y2, the mostly-rail combination to El Paso, never yields the lowest total cost. By parametrizing the value of lead time, we have reduced from three to two the number of intermodal combinations that need be considered. Interestingly, both utilize water transportation from Los Angeles to Manzanillo. 4.3.2. Case 2: VancouverMonterrey. A similar graphical procedure shows that the second solution for these cities has a range less than $20. That route probably needs no further consideration. 4.3.3. Case 3: CalgaryGuadalajara. The middle intermodal alternative now provides the lowestcost solution for a very wide range in x instead of a narrow one. The fastest option is not the route of least total cost until the unit value of lead time reaches $1608. Such a high gure makes it unlikely that y3 should be employed. 4.3.4. Case 4: TorontoGuadalajara. Here the lead-time charge need only exceed $247/day to make the fastest solution the lowest in total cost. The water link through the Port of Norfolk is cost-eective only for x around $50. 4.3.5. Case 5: MontrealGuadalajara. This is the only example where intersections of four totalcost curves need to be plotted. As for VancouverGuadalajara, one alternative (here y3) is never the lowest cost route. We can also practically eliminate solution y1, since it requires x less than $8 per day. Therefore, for MontrealGuadalajara, shippers whose daily inventory cost is below $374 should choose the water route from Norfolk. Otherwise, the truckrail combination through Chicago and Laredo is the least-cost alternative. 4.4. Competitiveness of trucking The majority of shippers or freight forwarders use only motor carriage to move goods into Mexico (Armstrong, 1993; Horowitz, 1997). Objectively, truck may not be superior. Here we assess the performance required for motor carriers to dominate intermodal transport. The preceding solutions (Tables 37), in expressing benecial tradeos between transit time and cost, always had one route with least cost and another of lowest transit time. For truck to completely dominate, it must be both faster and less costly than intermodal. That is much more rigorous than Pareto optimality, but will yield some useful results. For each OD pair, Table 8 summarizes those conditions necessary for truck to completely dominate intermodal. (Distances employed to calculate price per mile are found in Table 9.) The upper bound on price/mile is higher for destinations furthest from an intermodal transfer point; cost of the longer road haul required by those destinations makes truck more competitive. For each origin, Monterrey has the lowest maximum price per mile because it is the destination closest to the El Paso and Laredo rail terminals. The transit times of Table 9 include allowances for road conditions but not border crossing or rests. Minimum driving time from Canada to Mexico thus varies between 1.5 and 3.5 days, depending on the origin and destination. In practical terms it would be very dicult to attain those values. Intervals are required for breaks and customs clearance; the short times in Table 9 would require that the truck be driven by a two-person team. Besides doubling the drivers' wage, costs would also increase due to use of a larger tractor with a sleeper unit. It would take only an additional 36 to 48 h before the transit time of motor carriage became similar to the fastest intermodal times (Table 8; these are the best entries from Tables 37). It is very likely that truck would need those hours, based on the known problems in crossing the Mexican border and legal constraints on drivers' hours. We conclude that intermodal

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Origin Vancouver Galgary Winnipeg Toronto Montreal

Destination Guadalajara Monterrey Mexico City Guadalajara Monterrey Mexico City Guadalajara Monterrey Mexico City Guadalajara Monterrey Mexico City Guadalajara Monterrey Mexico City

Upper bound on cost (U.S. $) 3623 3174 4355 4392 2486 3668 4203 2297 3479 4021 2194 3376 3916 2396 3382

Maximum price per mile ($) 1.29 1.16 1.35 1.56 0.91 1.14 1.46 1.19 1.38 1.33 1.06 1.26 1.16 0.99 1.12

Upper bound on transit time (days) 5.5 5.5 6 6 5 5.5 5.5 4.5 5 5 4 4.5 5.5 4.5 5

For a given OD pair, truck will completely dominate intermodal if, compared to the respective entries here, truck has both a lower price per mile and a shorter transit time. As always, a 40-foot-equivalent container is assumed.

Table 9. Origindestination mileage and driving-time matrix Origin Guadalajara Miles VAN CAL WIN TOR MON 2799 2798 2885 3032 3372 Time 54:51 57:44 35:27 39:46 45:52 Destination Monterrey Miles 2736 2717 1932 2079 2419 Time 45:10 52:18 50:27 59:46 65:52 Mexico City Miles 3223 3204 2523 2670 3012 Time 64:32 76:58 42:47 52:06 58:12

Calculated from data in Rand McNally & Company (1994). Mileages and transit times based on actual North American highway conditions. The most direct route (in terms of distance travelled) was used in all cases. Time is given in hours and minutes.

transportation is quite competitive with motor freight, especially given the low cost per mile of the best intermodal routes (Table 8). 4.5. Possible expansion of intermodal services A number of intermodal combinations are available from the chosen origins, but two interesting links are missing; their presence would change the set of non-dominated routes. We suggest a direct intermodal containership service from Vancouver to the west coast of Mexico. No such service currently exists. Nor does there presently exist a direct rail link from Calgary to the Mexican border; the very winding trackage that connects Calgary to El Paso is owned by ve dierent roads. The cost and transit time of these proposed intermodal services can be estimated by assuming that a VancouverManzanillo containership would be comparable to others such as L.A. to Manzanillo (TMM) or Halifax to Tampico/Altamira (Hoegh). A railway connection from Calgary to El Paso would be similar to the VancouverHouston rail link. Using data on cost and time of those routes and rail mileages from Rand McNally & Company (1994), we determined the expected performance measures of the new services: . VancouverManzanillo mode: water; cost: $2100; transit time: 12 days. . CalgaryEl Paso mode: rail; cost: $1748; transit time: 5 days. How would these services alter the set of ecient solutions (Tables 3 and 4)? The proposed links are so direct that they should only be combined with truck (from the port or rail terminal) to destination. We nd that water transport from Vancouver to Manzanillo would provide the

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lowest-cost non-dominated route in the cases of Guadalajara (VAN-w-MAN-t-GUA; $2537, 13 days) and Mexico City (VAN-w-MAN-t-M.C.; $3261, 14 days) . This service has no eect on Monterrey. A direct intermodal rail link from Calgary to El Paso impacts the solution sets for all three Mexican locations. For Guadalajara, that service (CAL-r-E.P.-t-GUA; $4317, 7.5 days) would displace the railrail combination through Chicago as the lowest-cost alternative. In the cases of Monterrey (CAL-r-E.P.-t-MNY; $3415, 7 days) and Mexico City (CAL-r-E.P.-t-M.C.; $4217, 7.5 days), this link provides an additional non-dominated option, in between the two Chicago routings. This brief analysis has demonstrated possible benets to shippers of further intermodal services. Development and operation of the proposed links would naturally require aggressive marketing by the carrier and appropriate demand from customers.
5. CONCLUSIONS

NAFTA will likely enhance the volume of trade from Canada to Mexico in products that are easily shipped in a standard dry container. Throughout, the term `intermodal' has thus denoted container transport via water, truck, or rail (COFC). By not considering TOFC shipments, datacollection remained manageable. Toronto, Montreal, Vancouver, Calgary and Winnipeg were the Canadian origins; Mexican destinations included Guadalajara, Monterrey and Mexico City. A thorough investigation of trade journals, transportation directories, and industry contacts permitted development of several intermodal connections between each OD pair. Transport cost and transit time were determined (Table 2) for those network links, enabling shortest-path analyses (for cost and for time). The resulting routes (Tables 37) furnished benecial tradeos between the two objectives. For example, APL's double-stack service (Chicago to Laredo) was part of most non-dominated routes for Calgary, Winnipeg, Toronto and Montreal. The SeattleL.A.El Paso rail link by Southern Pacic performed well for shipments originating in Vancouver. Relative locations of destination and especially origin aect the best intermodal choice. Shipments from Vancouver or Calgary should use water transportation only if the destination is Guadalajara. Goods from Toronto and Montreal should be sent by water only if destined to Mexico City or Guadalajara. Monterrey's close proximity to the Laredo rail terminal means that water transport is unlikely to outperform the railway. The farther is the origin city from central Canada, the greater the number of ecient intermodal combinations. Winnipeg thus has fewest; each uses the APL stacktrain. For Vancouver or Montreal, each destination has a dierent set of non-dominated solutions. Some intermodal choices are consistently poor. Consider the TMM containership service from Houston to the Mexican east coast: Cost and transit time from Canada are both frequently maximized by using this service. Rail transport to Houston, followed by truck to reach Mexico, is also very expensive from Canada. On the other hand, we suggested two hypothetical services (Section 4) of potential value to Canadian shippers. For each OD pair, the addition of inventory costs often eliminated one or two intermodal options. These routes either never minimize the total cost of transportation plus inventory, or they are the least-cost alternatives only for very low, very high or very narrow ranges of x (the unit value of lead time), hence can be practically rejected in most cases. Trucking would not dominate many intermodal options. For most OD pairs, the best price per-mile of intermodal transport (Table 8) was below $1.50 (U.S.); a few were less than $1.00 per mile. Shipment only by truck could not likely improve upon those rates. Moreover, the best transit times of intermodal were only 1.5 to 3.5 days longer than the fastest possible driving time (Table 9). Trucking would rarely beat these times, given the long delays at the Mexican border and the U.S. restrictions on drivers' hours of service. Several additional points should be made concerning non-dominated solutions and choice of route. The purpose of this paper was not to forecast transport ows. Rather than the point of view of a carrier or government regulator, our perspective was that of the shipper. Only pareto-optimal routes were considered; why incur greater cost than needed to achieve a given transit time? However, even knowing the non-dominated time/cost solutions (Tables 37), one cannot predict the

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route chosen by a forwarder or individual shipper, without knowing that rm's utility for time/cost tradeos. Our ndings are thus inputs to the routechoice decision, yet because of the utility issue, the model discussed in this paper cannot be a decision tool in itself. Having decided the best intermodal routes to Mexico, one should consider backhauls, e.g. of components from the Maquiladora (border) region. Bookbinder and Caviedes (1998) explore the importance of a Maquiladora plant for the Canadian electronic-assembly industry. Fawcett et al. (1995) discuss the eect on North American customer service when Mexican production is part of a continent-wide manufacturing strategy. Fawcett and Smith (1995) investigate the degree to which logistics performance can support such a strategy. There are two other themes in our larger project on the logistics implications of NAFTA. Transportation and manufacturing under free trade may change the need for or the placement of inventories. Synthesizing all of this, we hope to enunciate principles of Distribution System Design when the supply chain is extended to Mexico.
AcknowledgementsResearch was supported by the Social Sciences and Humantities Research Council of Canada, Strategic Grant No. 804-94-0035.

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