Transpn Res.-E (Logistics and Transpn Rev.), Vol. 34, No. 4, pp.

289±303, 1998
# 1998 Elsevier Science Ltd. All rights reserved
Pergamon Printed in Great Britain
1366-5545/98 $Ðsee front matter

PII: S1366-5545(98)00017-9

INTERMODAL ROUTING OF CANADA±MEXICO 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)

AbstractÐThis paper obtains the optimal routings for intermodal containerized transport from Canada to
Mexico. Such trac 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 tradeo€s between cost and ser-
vice. 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 dis-
tribution 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 inter-
modal services whose transit time and transportation cost are obtained through industry sources. A shortest-
path algorithm enables calculation of the route requiring least time and the route of minimum cost. Non-
dominated time/cost tradeo€s are identi®ed for each origin±destination pair. After including inventory
expenses (by parametrizing the unit value of lead time), total-cost curves then eliminate some routing alter-
natives. Guidelines are provided on the e€ects of mode, carrier, and O±D locations on selection of intermodal
routes to Mexico. Finally, two new intermodal services are proposed and their bene®ts 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
signi®cance of understanding the costs of freight transportation. The second concerns diculties
(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, Mon-
terrey and Guadalajara). Those nodes will be joined through a series of rail, water and trucking
services, and e€ective intermodal combinations (route segments) identi®ed.
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.

289
290 J. H. Bookbinder and N. S. Fox

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 hap-
pen 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 tari€s
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:

‰Min…TotalTime†; Min…TotalCost†Š:

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 O±D 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-ecient 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 typi®ed 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 addi-
tional 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 A€airs 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 bene®ts of the agreement only to goods
 Intermodal routing of Canada±Mexico shipments under NAFTA 291

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 e€ect 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 trac con-
trol 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 tari€s. 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 inecient rail or water routes.
Deleting inecient 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 contain-
ership 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-to-
Mexico 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 ser-
vice 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 Paci®c and Southern Paci®c
(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 Paci®c), 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 Canadian±Mexican
trade. Southern Paci®c runs intermodal trains between Portland, Los Angeles and El Paso.
American President (using Union Paci®c lines) operates its `Double Eagle' service from Chicago
directly to Laredo; both CN and CP cover the Montreal±Toronto±Chicago corridor. Burlington
Northern/Santa Fe o€ers 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
292 J. H. Bookbinder and N. S. Fox

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 trian-
gular 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 Cana-
dian origins in the intermodal network to be studied; they are major centres in Provinces produ-
cing 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 e€ects 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 Canada±Mexico shipments under NAFTA 293

Table 1. Notation for designating routes

Origin city Abbreviation Transshipment point TS code

Vancouver, BC VAN Canada

Calgary, AB CAL Vancouver, BC VAN
Winnipeg, MB WIN Halifax, NS HAL
Toronto, ON TOR United States
Montreal, PQ MON Seattle, WA STL
Mode Abbreviation Los Angeles, CA L.A.
Water (container ship) w El Paso, TX E.P.
Rail (doublestack or COFC) r Laredo, TX LAR
Truck (container haulage) t Houston, TX HOU
Destination City code Chicago IL CHI
Guadalajara GUA Norfolk, VA NOR
Monterrey MNY Mexico
Mexico City M.C. Manzanillo MAN
Tampico/Altamira T/A
Veracruz 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 di€erent sizes of containers; it was veri®ed for the rates
on the 45- and 48-foot containers carried by APL on its Chicago±Laredo 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 di€erent 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 diculties 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
trac conditions. Allowances were made for crossing borders: 2 h for Canada±U.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. Cost±time tradeo€ analysis

Rosen®eld et al. (1985) study industry-wide tradeo€s 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
ecient 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 destina-
tion, taking account of border crossings and other delays; cost is the sum over all links, plus any
charges for drayage, pickup and delivery.
294 J. H. Bookbinder and N. S. Fox

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 con®ne attention to non-dominated solutions for each O±D pair, with routes identi®ed
by abbreviations of Table 1 (40 ft container from Canada, destined for Mexico). Transship-
ment points and successive modes are given sequentially, as in TOR±t±CHI±r±HOU±w±VZ±t±
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 container-
ship 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 de®ne 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 di€er 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 rail±rail combination, Calgary±Chicago±Laredo. Seemingly an indirect rout-
ing, 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
Vancouver±Houston rail link would mean greater distance by truck to destination, hence a domi-
nated 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-domi-
nated, 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
Chicago±Laredo 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 Canada±Mexico shipments under NAFTA 295

Table 2. Cost and time data for each intermodal link

Start node End node Mode Carrier Cost Time

(U.S. $) (days)
Vancouver Seattle Truck 286 0.5
Vancouver L.A. Truck 2220 1.5
Vancouver Houston Truck 3792 2
Vancouver Houston Rail Burlington Northern/Santa Fe 2075 6
(B.N./S.F.) and Kansas City Southern
Calgary Vancouver Truck 895 0.5
Calgary Vancouver Rail Canadian Pacific (C.P.) 613 2
Calgary Chicago Truck 2664 1.5
Calgary Chicago Rail C.P. 806 4
Calgary Houston Truck 3249 2
Calgary Seattle Truck 1217 1
Calgary L.A. Truck 2517 1.5
Winnipeg Chicago Truck 1439 1
Winnipeg Chicago Rail C.P. 617 2
Winnipeg Housten Truck 2438 1.5
Winnipeg L.A. Truck 3343 2
Toronto Halifax Truck 1615 1
Toronto Halifax Rail Canadian National (C.N.) 1025 4
Toronto Veracruz Truck/Water Lykes Lines 2600 6
Toronto Chicago Truck 885 0.5
Toronto Chicago Rail C.N. 514 2
Toronto Houston Truck 2482 1.5
Montreal Halifax Rail C.N. 697 3
Montreal Veracruz Truck/Water Lynes Lines 2600 6
Montreal Chicago Truck 1371 1
Montreal Chicago Rail C.N. 716 3
Montreal Houston Truck 2985 2
Halifax Tampico Water Hoegh Lines 2100 16
Seattle Los Angeles Rail Southern Pacific (S.P.) 1000 3
Los Angeles El Paso Rail S.P. 600 2
Los Angeles Manzanillo Water Mexican Line (TMM) 1900 4
Los Angeles Guadalajara Truck 3363 2.5
Los Angeles Monterrey Truck 2847 2.5
Los Angeles Mexico City Truck 4165 3
El Paso Guadalajara Truck 2569 2.5
El Paso Monterrey Truck 1667 2
El Paso Mexico City Truck 2469 2.5
Chicago Laredo Rail American President (APL) 1205 2
Chicago Houston Rail B.N./S.F. 1106 3
Houston Guadalajara Truck 3055 2.5
Houston Monterrey Truck 2281 2
Houston Mexico City Truck 1099 1.5
Houston Altamira Water TMM 2050 2
Houston Veracruz Water TMM 2050 3
Tampico/Altamira Guadalajara Truck 1119 2
Tampico/Altamira Monterrey Truck 895 1
Tampico/Altamira Mexico City Truck 829 0.5
Veracruz Guadalajara Truck 1421 2
Veracruz Monterrey Truck 1529 2
Veracruz Mexico City Truck 782 1
Manzanillo Guadalajara Truck 437 1
Manzanillo Monterrey Truck 1161 2
Manzanillo Mexico City Truck 1381 2
296 J. H. Bookbinder and N. S. Fox

Fig. 2. Selected intermodal links. Origins (*) and destinations (#) as in Fig. 1. The transshipment points (+) are: A; Van-
couver;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

# Route Total cost (U.S. $) Total time (days)

Destination: Guadalajara
1. VAN ±t-STL ±r± L.A. ±w± MAN ±t± GUA 3623 8.5
2. VAN ±t-STL ±r± L.A. ±r± E.P. ±t± GUA 4455 8
3. VAN ±t± L.A. ±w± MAN ±t± GUA 4557 5.5
Destination: Monterrey
4. VAN ±r± HOU ±t± MNY 3174 7.5
5. VAN ±t± STL ±r± L.A. ±t± MNY 4133 6
6. VAN ±t± L.A. ±r± E.P. ±t± MNY 4487 5.5
Destination: Mexico City
7. VAN ±t± STL ±r± L.A. ±r± E.P. ±t± M.C. 4355 8
8. VAN ±r± HOU ±t± M.C. 4356 8
9. VAN ±t± L.A. ±r± E.P. ±t± M.C. 5289 6

3.4. Toronto
Once again Chicago±r±Laredo 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 LAR±t±GUA 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).
(Chicago±r±Laredo appears however in ®ve of eight non-dominated solutions). Montreal is the
one origin whose ecient set contains di€erent water links. Norfolk±w±Veracruz appears in routes
 Intermodal routing of Canada±Mexico shipments under NAFTA 297

Table 4. Non-dominated intermodal routes originating in Calgary

# Route Total cost (U.S. $) Total time (days)

Destination: Guadalajara
1. CAL ±r± CHI ±r± LAR ±t± GUA 4392 8.5
2. CAL ±t± L.A. ±w± MAN ±t± GUA 4854 6.5
3. CAL ±t± L.A. ±r± E.P. ±t± GUA 5658 6
Destination: Monterrey
4. CAL ±r± CHI ±r± LAR ±t± MNY 2486 7.5
5. CAL ±t± CHI ±r± LAR ±t± MNY 4344 5
Destination: Mexico City
6. CAL ±r± CHI ±r± LAR ±t± M.C. 3668 8
7. CAL ±t± CHI ±r± LAR ±t± M.C. 5526 5.5

Table 5. Non-dominated intermodal routes originating in Winnipeg

# Route Total cost (U.S. $) Total time (days)

Destination: Guadalajara
1. WIN ±r± CHI ±r± LAR ±t± GUA 4203 6.5
2. WIN ±t± CHI ±r± LAR ±t± GUA 5025 5.5
Destination: Monterrey
3. WIN ±r± CHI ±r± LAR ±t± MNY 2297 5.5
4. WIN ±t± CHI ±r± LAR ±t± MNY 3119 4.5
Destination: Mexico City
5. WIN ±r± CHI ±r± LAR ±t± M.C. 3479 6
6. WIN ±t± CHI ±r± LAR ±t± M.C. 4301 5

Table 6. Non-dominated intermodel routes originating in Toronto

# Route Total cost (U.S. $) Total time (days)

Destination: Guadalajara
1. TOR ±t± NOR ±w± VZ ±t± GUA 4021 8
2. TOR ±r± CHI ±r± LAR ±t± GUA 4100 6.5
3. TOR ±t± CHI ±r± LAR ±t± GUA 4471 5
Destination: Monterrey
4. TOR ±r± CHI ±r± LAR ±t± MNY 2194 5.5
5. TOR ±t± CHI ±r± LAR ±t± MNY 2565 4
Destination: Mexico City
6. TOR ±r± CHI ±r± LAR ±t± M.C. 3376 6
7. TOR ±t± CHI ±r± LAR ±t± M.C. 3747 4.5

to Mexico City and Guadalajara (#2, 7); the water link from Halifax to Tampico/Altamira occurs
for Guadalajara (#1).
Montreal±Guadalajara is the only O±D 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 rail-
road 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 truck±water
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
re¯ecting 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 a€ect 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.
298 J. H. Bookbinder and N. S. Fox

Table 7. Non-dominated intermodal routes originating in Montreal

# Route Total cost (U.S. $) Total time (days)

Destination: Guadalajara
1. MON ±r± HAL ±w± T/A ±t± GUA 3916 21
2. MON ±t± NOR ±w± VZ ±t± GUA 4021 8
3. MON ±r± CHI ±r± LAR ±t± GUA 4302 7.5
4. MON ±t± CHI ±r± LAR ±t±GUA 4957 5.5
Destination: Monterrey
5. MON ±r± CHI ±r± LAR ±t± MNY 2396 6.5
6. MON ±t± CHI ±r± LAR ±t± MNY 3051 4.5
Destination: Mexico City
7. MON ±t± NOR ±w± VZ ±t± M.C. 3382 7
8. MON ±t± CHI ±r± LAR ±t± M.C. 4233 5

The highest destination e€ect occurs at the triangle's edge. Near the coasts can be found many
additional ecient 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 load-
ing, and the destination signi®cantly closer to the port of unloading than to a (land) border point.

4. EVALUATING COMPETITIVE INTERMODAL OPTIONS

Non-dominated time±cost trade-o€s 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 Canada±Mexico intermodal routes. We then examine
the performance required of the trucking industry to adequately compete with intermodal trans-
portation. Finally we propose new intermodal services that could bene®t 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 insigni®cant.
Although hard to determine exactly, intransit inventory costs quite likely di€er 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 ˆ 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 O±D
pair. One is cheaper and slower, the other faster but expensive. In the case of Vancouver±Mexico
City, for example, the ecient set has total cost curves y1=4355+8x and y2=5289+6x. We are
thus indi€erent 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 shortest-
transit-time alternative yields the least total cost.
Similar break-even analysis was applied to the 10 O±D pairs in Tables 3±7 with only two non-
dominated solutions. The breakeven value of x between slow and fast transport was in the range
of $240±820 (U.S.)/day.
 Intermodal routing of Canada±Mexico shipments under NAFTA 299

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: Vancouver±Guadalajara. 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: Vancouver±Monterrey. A similar graphical procedure shows that the second
solution for these cities has a range less than $20. That route probably needs no further con-
sideration.

4.3.3. Case 3: Calgary±Guadalajara. The middle intermodal alternative now provides the lowest-
cost 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: Toronto±Guadalajara. 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-e€ective only for x around $50.

4.3.5. Case 5: Montreal±Guadalajara. This is the only example where intersections of four total-
cost curves need to be plotted. As for Vancouver±Guadalajara, 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 Montreal±Guadalajara, shippers whose daily inventory cost is below $374
should choose the water route from Norfolk. Otherwise, the truck±rail 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 pre-
ceding solutions (Tables 3±7), in expressing bene®cial tradeo€s 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 O±D 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 dicult 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 3±7). 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
300 J. H. Bookbinder and N. S. Fox

Table 8. Motor carrier dominance conditions by origin±destination pair

Origin Destination Upper bound Maximum price Upper bound on

on cost (U.S. $) per mile ($) transit time (days)

Vancouver Guadalajara 3623 1.29 5.5

Monterrey 3174 1.16 5.5
Mexico City 4355 1.35 6
Galgary Guadalajara 4392 1.56 6
Monterrey 2486 0.91 5
Mexico City 3668 1.14 5.5
Winnipeg Guadalajara 4203 1.46 5.5
Monterrey 2297 1.19 4.5
Mexico City 3479 1.38 5
Toronto Guadalajara 4021 1.33 5
Monterrey 2194 1.06 4
Mexico City 3376 1.26 4.5
Montreal Guadalajara 3916 1.16 5.5
Monterrey 2396 0.99 4.5
Mexico City 3382 1.12 5

For a given O±D 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. Origin±destination mileage and driving-time matrix

Origin Destination

Guadalajara Monterrey Mexico City

Miles Time Miles Time Miles Time

VAN 2799 54:51 2736 45:10 3223 64:32

CAL 2798 57:44 2717 52:18 3204 76:58
WIN 2885 35:27 1932 50:27 2523 42:47
TOR 3032 39:46 2079 59:46 2670 52:06
MON 3372 45:52 2419 65:52 3012 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 di€erent roads.
The cost and transit time of these proposed intermodal services can be estimated by assuming
that a Vancouver±Manzanillo containership would be comparable to others such as L.A. to Man-
zanillo (TMM) or Halifax to Tampico/Altamira (Hoegh). A railway connection from Calgary to El
Paso would be similar to the Vancouver±Houston 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:

. Vancouver±Manzanillo mode: water; cost: $2100; transit time: 12 days.

. Calgary±El Paso mode: rail; cost: $1748; transit time: 5 days.

How would these services alter the set of ecient 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
 Intermodal routing of Canada±Mexico shipments under NAFTA 301

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 e€ect 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 rail±rail 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 bene®ts 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, data-
collection 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 O±D 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 3±7) furnished bene®cial tradeo€s between the two objectives. For exam-
ple, APL's double-stack service (Chicago to Laredo) was part of most non-dominated routes for
Calgary, Winnipeg, Toronto and Montreal. The Seattle±L.A.±El Paso rail link by Southern
Paci®c performed well for shipments originating in Vancouver.
Relative locations of destination and especially origin a€ect 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 ecient intermodal
combinations. Winnipeg thus has fewest; each uses the APL stacktrain. For Vancouver or Mon-
treal, each destination has a di€erent 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 max-
imized 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 O±D 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 O±D 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? How-
ever, even knowing the non-dominated time/cost solutions (Tables 3±7), one cannot predict the
302 J. H. Bookbinder and N. S. Fox

route chosen by a forwarder or individual shipper, without knowing that ®rm's utility for time/cost
tradeo€s. Our ®ndings are thus inputs to the route±choice 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 e€ect 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.

AcknowledgementsÐResearch was supported by the Social Sciences and Humantities Research Council of Canada,
Strategic Grant No. 804-94-0035.

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