A game of chess in Mexico 

In 2019 production and sales in Mexico declined by -12.5% and -7.3%, while overall exports through the ports grew marginally by 0.5% to more than 1.2m vehicles against the previous year, according to figures from the Ministry of Transport and Communications. While accounting for 60% of vehicle traffic, the export growth was a significant drop on the growth seen in 2018, which amounted to +17%. Maritime imports of vehicles last year dropped by more than -2% to above 777,300 vehicles, continuing the gradual import decline of the last few years.

There were mixed results for vehicle handling at the individual ports in Mexico through 2019. Numbers were down slightly at the port of Veracruz, though it remains by far the busiest port for finished vehicle traffic in the country (and North America as a whole). Veracruz moved half of the vehicles imported and exported through the Mexican ports in 2019.

The port has long battled with problems of congestion but the state-run port authority API has been working with terminal operators and service providers to reduce vessel delays and maximise throughput, according to Bill Kerrigan, vice-president of logistics at the Auto Division of terminal services provider SSA Marine. However, he said there was always room for improvement at Veracruz, describing processing there still being like “a chess game”.

Investment in capacity

Two new ro-ro berths were made available in 2019 and facility developer CSI Group worked to complete a $50m six-storey parking lot with storage capacity for 10,000 vehicles, increasing the static capacity at the port by 30%.

At the Puente Villa Rica Automotive City just outside Veracruz, terminal operator Horizon Auto Logistics (HAL) added ten hectares of parking space and expanded its vehicle processing centre by 2,000 sq.m, also upgrading the facility with specialised tools in the bodyshop and installing fast universal electric vehicle (EV) chargers in readiness for the growth in EV handling.

That expansion at Puente Villa Rica equates to an increase in capacity of 20,000 vehicles and is another step toward the company’s goal of having 44.5 hectares at its disposal and being able to process around 500,000 vehicles a year through the port facility.

At the beginning of this year the company officially aligned its business in Mexico with that in the US under the Horizon Auto Logistics brand, having previously been Horizon Terminal Services outside of Mexico.

Additions at Altamira

The port of Altamira, which is also on the Gulf of Mexico, recorded gains in its dominant export trade of more than 4% in 2019, thanks in part to the growth in automotive production in the state of Neuvo León, which moved to become the leading manufacturing state in Mexico last year (overtaking Mexico state), according to data from national statistics provider Inegi. Vehicle and automotive parts production combined were one of the biggest contributors to manufacturing GDP for the state in 2019.

As first announced in 2018, terminal operator Amports invested $11m in the port of Altamira in return for its 20-year concession to operate a vehicle terminal. That has resulted in the establishment of a PDI facility and 175,000 sq.m area storage area for vehicles and accessories, to support processing for vehicle makers including GM, Kia, FCA México and Navistar. In July last year Amports also reopened Altamira’s railyard.

Lazaro Cardenas

Over on the west coast, developments in infrastructure continued at Mexico’s second busiest port at Lázaro Cárdenas, which continued to gain volume in 2019 and maintain a good balance of exports and imports (see table). SSA Marine’s division there, SSA Mexico, is completing an eight hectare expansion, supported well for feeder services inland by railroad provider Kansas City Southern (KCS) Mexico, which provides capacity for 72 rail cars and has brought in a second line to the port.

SSA Mexico is seeing a lot more imports from Asia and there has been a lot of interest in short-sea services from the both coasts to the US, according to Kerrigan.

As with Veracruz there is room for improvement, according to HAL.

“Currently both vessels and vehicles are required to be moved between the terminals, which is not efficient from time and cost perspective,” said Tomasz Lis, vice-president of commercial and chief commercial officer (CCO) at HAL. He said a more integrated and therefore efficient approach to logistics was needed for OEM customers, something HAL was offering to its customers.

Trade was down generally at Mexico’s other vehicle handling ports though there was a significant turnaround at Mazatlán, which saw export losses turn to import gains to maintain volumes at around the same numbers.

That was in part helped by the influx of Mitsubishi volumes following an investment of $350,000 by terminal operator Mazatlán Maritime Terminal (TMAZ) to expand facilities in support of the new trade.

Mitsubishi chose Mazatlán because of available capacity (smaller volumes were previously imported by Chrysler) and it will remain the carmaker’s exclusive port for imports.

From there, the vehicles are taken by rail to Mitsubishi’s vehicle processing centre in Aguascalientes for value-added services before final delivery.

Signing of USMCA

Through the 2019 there was uncertainty surrounding the redrafting of the North America Free Trade Agreement (Nafta) into the proposed US-Mexico-Canada Agreement (USMCA, or T-Mec in Mexico), which was triggered in 2017 when the newly elected Trump Administration in the US called a halt to the existing agreement because of perceived unfair trading terms with Mexico and Canada.

Political disputes hampered the progress of the agreement and related to problems with immigration stemming from Central America and led to threats from the US to impose new tariffs. Discussions through last year were also focused on tighter labour standards and strengthened environmental protections.

The deal was finally ratified in March this year and will come into effect at the beginning of July 2020. It was welcomed by Jesús Seade Kuri, Undersecretary for North America at Mexico’s Ministry of Foreign Affairs, when he spoke at Automotive Logistics Mexico in the same month.

Seade pointed out that, under Nafta, Mexico had become by far the largest exporter in Latin America, even bigger than all the other countries combined. But more important than volumes, he explained, was that Nafta had helped Mexico to shift from a focus on oil to a diverse array of goods for global markets – including automotive parts and vehicles. However, while the agreement is likely to free up further investment in Mexico, overall it could increase the costs of manufacturing in Mexico because it calls for a significant increase in the portion of regional content required in automotive products.

The ratification is widely perceived as restoring confidence in trade for North America and could help to boost port activity in Mexico.

“The USMCA signing means more stability, which is needed for the OEMs in terms of possible new investments in Mexico,” says Lis. “We hope that this will also drive more short sea exports of the Mexico-made vehicles to US ports.”

Kerrigan at SSA Marine acknowledged that the new USMCA was an achievement but said the course for building vehicles in North America had been set long ago by the billions invested by the OEMs in Mexico. He said it was now up to those vehicle makers, along with the railroads and port terminal operators to find a balance that effectively and efficiently used the infrastructure that has been put place.

“Economics as they are now will likely not lead to further large infrastructure investments in the coming years,” he said.

Covid catastrophe

An economic situation that was already declining in North America, as seen in figures from the International Organisation of Motor Vehicle Manufacturers (OICA), which showed that sales and production in each country were down in 2019 (see table), was blown out of the water by the impact of the Covid-19 pandemic in the first quarter of this year.

Plant shutdowns have continued sporadically in Mexico. For instance, a proposed reopening on June 15 for VW Group’s plant in Puebla and that of its Audi division, was cancelled at the last moment when state governor Miguel Barbosa signed a decree stating that conditions for the automotive and industrial sectors were unfavourable. Those plants were reopened but further closures are likely as the coronavirus continues to take its toll.

The impact of the shutdowns in trade in North America and globally have hit the ports. While trade at Veracruz was down -2% in March 2020 based on the same month last year, in April it had dropped by -58% and May’s figures are expected to be even worse.

As with ports across the world, carmakers looked to the Mexican ports as locations for storage as outbound supply routes seized up. Kerrigan said that this was a lesson the carmakers learned from the last crisis in 2008 and that they were prepared this time.

“They pushed as much as they could to the dealers, found off-dock sites and used the rail ramps; overall there is space now,” he says.

Meanwhile, HAL says it has developed additional yard space at external yards and has been able to make use of public yards inside the port. There are also more berthing positions for ro-ro vessels, according to Lis, who adds that OEMs are looking for logistics expertise at a time of crisis and are more open to suggestions to implement operational improvements to reduce waste.

Kerrigan says that SSA Marine has kept dialogue going with its customers through regularly scheduled conference calls and online meetings. He adds that relationships built up over the years have been strengthened through these last several months.

“It took a few months for the pipeline to dry up. Now we wait until the factories are back to normal production. This is being done in stages first – Asia – to Europe – to North America – to South America,” he explains.

Volumes are expected to recover in the second half of this year but will not reach levels equivalent to last year in either import or export because of Covid-19 and some analysts estimate that sales this year in Mexico will drop 23% against 2019 volumes.