Transportation and Logistics

/

Mexico’s transportation infrastructure is on the road to becoming a bright spot for the country, but it is not there yet. Over the past 10 years major improvements have been made to the country’s highway, railroad and port networks, but it may be another 10 years before the full benefits are realized.

Without doubt the most important component of Mexico’s transportation system is the 70,000-mile road network. Almost 86% of all trade between Mexico and the U.S. is handled by over-the-road trucks. In some areas the system is excellent, such as Highway 57 (the NAFTA Highway) running from Mexico City to Laredo, Texas. In others, low capacity and poor road conditions make personal and commercial traffic difficult at best.

Across the board it is more expensive to move cargo in Mexico than the U.S. or Canada. Transportation times can also be significantly longer even without considering the time it takes to cross the border. The importance of Laredo highlights these problems: Laredo handles a vast majority of commercial traffic coming out of Mexico simply because it is the shortest route out of central Mexico. This is why Mexico has made major steps to privatize its transportation infrastructure, and why transportation and logistics remains integral to any site selection study in Mexico.

Mexico’s Geographic Location & Trade Activity

Mexico is a natural trade point between North America and South America and East Asia and Europe. It has an extensive coastline on the Gulf of Mexico, the Caribbean and almost 3,000 miles on the Pacific Ocean. It is one of the leading economies of the world and has the 8th largest export economy globally. It leads Latin America with 43% of the region’s exports.

Billions of Dollars

Transportation and NAFTA

After signing the NAFTA agreement, Mexico has actively participated in the Land Transportation Standards Subcommittee (LTSS), which was created to address the development of more compatible standards related to truck, bus and rail operations and the transport of hazardous materials among the United States, Mexico, and Canada. The LTSS has been meeting annually since 1994.

Transportation protocols have been one of the last items in the NAFTA agreement to be fully implemented between the three countries. However, the recent U.S. Supreme Court ruling that environmental concerns cannot block Mexican trucks from entering the U.S. appears to have finally removed that barrier. While it is not expected that trucks directly out of Mexico City will be seen in Detroit anytime soon, a reorganization of relationships throughout North America’s trucking industry will surely follow. It just remains to be seen how transportation and logistics needs will alter the current system of transportation between Canada, the U.S. and Mexico.

Road Network

The Mexican highway system is the primary commercial transportation option in Mexico, moving about 86% of total freight traffic. There are over 68,972 miles (111,000 km) of paved roads, and 3,936 miles (6,335 km) of four-lanes expressways throughout the country. It is the most extensive land transportation network in Latin America.
(Source Mexico’s Ministry of Economy and COALAR, the Department of Foreign Affairs and Trade, Australia)

The country has two types of highways. Toll highways are modern and generally in excellent condition. Free highways vary greatly in their condition and utility. In some areas they are comparable to U.S. highways; in others two-lane roads move traffic at a snail’s pace and often run directly through cities and towns, creating major difficulties for large trucks on a tight schedule. While the toll roads are extremely useful, they are also expensive. A trip from Mexico City to Guadalajara can cost well over a hundred dollars for a truck and trailer.

Crossing Points and Corridors

Mexico has 30 international border crossings linking the two countries’ transportation systems. This link will take you to the U.S. Bureau of Transportation’s website detailing the amount of traffic crossing at each location.

http://www.bts.gov/programs/international/border_crossing_entry_data/us_mexico/html/table_02.html

In 2003, Laredo, Texas handled 31% of all northbound loaded trucks, almost as much as all California, Arizona and New Mexico’s crossings combined.

There are three major Mexico/U.S. trade corridors, which accommodate most of the truck traffic coming out of Mexico: San Diego, El Paso and South Texas.

  • Tijuana/San Diego is the primary crossing point for traffic coming out of Mexico’s west coast region, extending as far south as Guadalajara.
  • Cd. Juarez/EL Paso serves Mexico’s north-central region, from the La Laguna Region (Torreon) north. El Paso sits on I-10 running from L.A. to the east coast and has immediate access to both I-25 and I-35 heading north into the Midwest.
  • South Texas’ border crossings have long dominated in terms of total commercial traffic. Laredo is the center point, but new investments in McAllen are beginning to offer an alternative. Once I-69 is completed, McAllen will be directly linked to San Antonio, Dallas and the Midwest via a major four-lane highway.

Mexican Road Network

Port Infrastructure

Mexico has an extensive coastline with over 5,797 miles (9,330 km) of seashore. In total, 108 ports link the country with more than 400 destination points in more than 100 countries. Mexico’s port facilities cover 73.4 square miles (190 square km) and have over 114,830 ft (35,000 m) of docking facilities. (Source INEGI & Bancomext).

Ports are very important for Mexico’s nascent but growing trade with countries outside of North America. Mexico has International Trade Agreements with 31 countries, the most of any country globally. Ocean freight will play an increasing role I n the future as trade opens further with Europe and Asia. Sea cargo has increased by almost 100% over the last 5 years and there is a growing list of companies interested in using the port facilities.

There are 24 major ports in Mexico moving 250 million tones of goods per year. They are categorized as follows:

  • 16 federally-operated deep sea ports (9 on the Pacific coast & 7 on the Gulf of Mexico)
  • 5 state-operated deep sea ports (4 on the Gulf coast & 1 on the Pacific)
  • 2 tourist ports on the Pacific
  • 1 private sea port in Acapulco

(Source Bancomext)

According to the Transportation and Communication Ministry, 95% of all maritime cargo that passes through Mexican ports is concentrated in the ports of Manzanillo, Veracruz, Altamira, and Tampico.

Main Ports in Mexico

Competitiveness and Privatization of the Port Network

The Mexican Competitiveness Institute reported that the port system was marked by low productivity, long waiting times and high operating costs. Starting in 1995, a privatization process was initiated with the goal of increasing long-term competitiveness and development of Mexico’s ocean freight capacity. The Mexican government privatized much of its seaport facilities and established public-owned corporations called Administración Portuaria Integral (Integral Port Administration – API).

APIs are chartered corporations that have renewable operating concession by the Federal Government for up to 50 years. APIs are permitted to sell up to 49% of shares to foreign investors. Even tough API have invested heavily on infrastructure, they are far from being internationally competitive.
(Source: U.K. Trade & Investment)

Railroad System

The Mexican national railroad network, Ferrocarriles Nacionales de Mexico (FNM), has 16,563 miles (26,656 km) of track. The railway system moves over 85 million tones of freight annually. This volume represents around 14.8% of all land transportation and is increasing each year. Mexico has 23 railroad crossings with the U.S., approximately 12% of the trade between Mexico and the U.S. is carried by the railroads of both countries.
(Source, Ministry of Economy and Bancomext)

Mexico’s Railway System

Railway System Privatization

During the last few years, the Mexican Railroad System has undergone substantial improvements as a result of the privatization of 80% of the 16,563 miles (26,656 km) of FNM track. The original state owned FNM, was split into five regional companies. Between 2000 and 2005 more than $13 billion is budgeted for facility and track improvements, with another $5 billion for equipment.
(Source: COALAR, the Department of Foreign Affairs and Trade, Australia).

Rail transportation presents a key growth opportunity for many companies in Mexico. As the manufacturing economy is increasingly dominated by larger, freight sensitive products that cannot be efficiently made in Asia and transported to the U.S. market (home appliances and automobiles), rail is becoming an important alternative. While there are valid doubts about the current system, several major companies moving into Mexico are following the auto industry and exploring rail alternatives, both for outbound freight and inbound raw materials. This will help further develop the nations infrastructure as well as the connectivity with the U.S. rail carriers. Over the next 5 years Mexico should see a significant increase in rail traffic between the two countries.

Airport Network

There are 85 airports in Mexico, of which 56 handle international flights. Most Mexican state capitals and resorts have direct air services to the U.S. Mexico has over 94 daily direct flights to the U.S. and Canada. Key airports are located in Mexico City, Monterrey, Guadalajara, Hermosillo, Cd. Chihuahua, San Luis Potosi, Torreon, Aguascalientes, Mazatlán, Los Cabos, Puerto Vallarta, Morelia, Leon, Veracruz, Acapulco, Merida and Cancun.
(source Bancomext)

Aeropuertos y Servicios Auxiliares (Airports and Auxiliary Services) administers 58 airports. 70% of the passenger movement is concentrated in 7 airports of the network administered by ASA. The Mexico City International Airport tops the list and accounts for 36% of the passengers and 50% of air freight in the country. A major political and social issue in Mexico City is the expansion or relocation of the city’s airport to handle increased capacity.

Airport Privatization

Airport privatization, based on Mexico’s successful experience with seaports, is nearly complete. Between 1998 and 2000, 35 airports covering 97% of total passenger traffic were split into three groups, which were auctioned to joint Mexican/foreign consortia.

Mexico’s Airport Network

Telecommunications

Telephone density remains low, with about 15.2 main lines per 100 persons. In 2003 Mexico had an estimated total of 16.564 million telephone customers. Mobile subscribers far outnumber fixed-line subscribers. Currently, there are 28.125 million cellular phones in Mexico. This represents almost one mobile phone per inhabitant in the middle and higher economic consumption brackets. (Source Bancomext and CIA World Factbook)

Additionally, there are an estimated number of 10.033 million Internet users, the majority of which reside in the main metropolitan areas: Mexico City, Guadalajara, and Monterrey. (Source CIA World FactBook, 2002)

Privatization of Telefonos de Mexico (Telmex)

Mexico privatised the government-owned telephone company, Telmex, in December 1990. Nevertheless, Telmex is still the dominant player, controlling over 9% of local telephone services, 66% of long distance services, and 55% of data and internet services.

It should be noted that the Mexican law allows up to 49% foreign participation in telecommunications networks and services.

The Major Operators in Mexico

Telmex, the largest telecommunications company in Latin America dominates the market with sales in the neighborhood of US$10 billion. Shares of Telmex are traded on the New York Stock Exchange. Several large U.S. telecommunications firms are active in Mexico: AT&T is partnered with Alestra while Worldcom maintains a minority share of Avantel. In addition, there are several mobile phone players:

  • Telcel, which has over 70% of the mobile phone market
  • Iusacell – Mexico’s second largest mobile phone company. Vodafone, Bell Atlantic and Verizon are part owners of Iusacell
  • Unefon, which has been particularly successful using a prepaid card scheme
  • Axtel – one of the fastest growing local exchange carriers in the major metropolitan areas. It has foreign investment from AIG-GE Capital, Bell Canada and MetLife
  • Pegaso PCS – is one of Mexico’s newest mobile operators, it has an alliance with Microsoft, Qualcomm and Ericsson