Improving Trade Brings Challenges in Mexico

Continuing Expansion at Pacific Ports
Mexico’s secretary of Transportation and Communications, Luis Telles, speaks of projected growth projects for Mexican ports. Several Danish companies are interested in building further facilities at Mexico’s Pacific Ocean Port of Lazaro Cardenas. Bidding requirements for construction of a new container terminal at the booming port will be made public in the third quarter of 2008. A new container terminal built by Hutchison opened at Lazaro Cardenas last fall.

On the much-heralded issue of construction of a brand new port at Colonet Bay, just south of San Diego, Telles indicates the rules for auctioning for construction of the port from scratch and a railroad line that will link to the US in Arizona will be announced by mid-year.

Infrastructure for this particular port will be built totally with private capital. It’s projected that the facility will thrive on cargo that the Ports of Los Angeles/ Long Beach can no longer handle.

A myriad of Pacific shipping companies are interested in Port Colonet. Kansas City Southern and Union Pacific are already positioned to bid for the construction of the railroad.

“We’ll be conducting an auction to build terminals at Manzanillo Bay,” says Telles. The Pacific ports of Manzanillo and Lazaro Cardenas are enjoying a booming growth with forecasts of an 18% increase in container cargo for the balance of 2008.

At Manzanillo, the head of port unloading operations of Operadora Cuenca del Pacifico (Pacific Rim Operators), Alberto Lara, says the port is now second or third port in container traffic, “thanks to the marketing system with China.”

At Lazaro Cardenas, another sign of growth is the $80 million investment Kansas City Southern of Mexico (KCSM) is making to develop a new intermodal terminal. This investment is in addition to the $300 million KCSM spent in 2007 to enhance its track network. “2007 was a very good year for us but 2008 is looking even better,” commented KCSM CEO, Jose Zozaya, “We have several infrastructure projects underway.”

But growth, at least in Hermosillo, is headed for a collision with the government’s environmental agency, Semarnat on two fronts. Semarnat has not released an environmental impact study for a 180- acre swamp area adjacent to the port that needs to be filled. Another problem exists with the port’s noisy and aging cranes that can be corrected by using more current technology.

Mexican Trade with Canada
Mexico-Canada trade under the North American Free Trade Agreement continues to be abysmally low when compared to Mexico’s or Canada’s commercial exchange with the US.

Unlike other consultants who have made claims that, “the biggest problem between Mexico and Canada is the US,” Gabriel Parrodi, head of the Intercambi consulting firm, considers the crux of the problem is, “lack of interest by Mexican manufacturers to export to Canada,” and pretty much, vice-versa.

Logistics costs are not an issue either, says Parrodi. Getting a container to San Francisco costs about $3,000 and getting it to Vancouver about $4,000.

“There is no longer a pretext to claim there is no competitive transportation or that you just can’t do logistics planning. Infrastructure is there in the three countries. It’s a good moment to consider exporting to Canada now that their dollar is at a par with the American dollar.” Canadian Pacific Gets

Into the Act
Fred Green, president and CEO of Canadian Pacific Railway, praised the improvement made to Mexican tracks since the railroads went private, “in spite of negative opinions” within the Mexican railroad sector. Manufacturers, he said, should rely more on using railroad companies as their logistics have evolved enormously.

“If I have business with Mexicans and they are doing the distribution, I can rest assured the quality is the same,” he said. Up to now, however, “your average cargo company continues to go naturally towards trucking and, as a consequence, they are not joining the intermodal transportation systems. They still have to be educated.”

The Cross Border Transportation Project
The trial project to permit both Mexican and US trucking companies to do direct service will be over next September. A study by Dermot Hayes of the University of Iowa says that if the program is not continued, the US might have as much as a $ 2 billion trade deficit. US Department of Transportation secretary Mary Peters has already requested of Congress an extension of the program.

Should Mexican trucks be stopped from operating in the US on only door-to-door services, the Mexican government might apply countervailing duties or increase tariffs, both fear. This uncertainty is also holding companies back from joining the project.

A Tale of Two Bridges
Because of their particular interests the Union Pacific (UP) and Kansas City Southern Mexico (KCSM) have slowed a decision to construct a new railroad bridge over the Rio Grande. UP is partnering with Ferromex to have a bridge built at Colombia, Mexico, 60 miles west of the two Laredos. KCSM wants the bridge to cross at Laredo, says Communications and Transportation (SCT) official Manuel Rodriguez.

The difference is how near each location is to the closest hub of either railroad company.

In between are Mexican statehood interests too, as Colombia belongs in the state of Nuevo Leon while Nuevo Laredo is in the state of Tamaulipas. Thus far, says David DeCarne of the Department of Transportation, only Colombia has applied to construct the new railroad crossing.

According to the SCT’s Rodríguez, the Colombia project requires a $100 million investment: 83% going into tracks, 13% into the bridge and the rest for facilities.

David Eaton, spokesman for KCSM, says the idea of a Colombia bridge runs against their investment in Nuevo Laredo and logic. The Colombia location would require at least 60 kilometers of track. There would only be 15 kilometers of track needed at Nuevo Laredo at a total cost of $50 million.

A decision is pending. Meanwhile, the Laredo bridges, with 36 railroad crossings a day, will be operating beyond capacity in less than five years.

DHL Invests an Additional $112 million
DHL announced it will invest $112 million dollars over the next five years in its Mexican express division. Half of the investment will go into new vehicles and the rest to opening new gateways, hubs and air networking.

The first project has been to enhance the carrier’s distribution hub at Mexico City International Airport. DHL has operated the facility since 1991, where it handles an average of 13 million packages a year. Shipments move from the site to destinations within Mexico and on to the remainder of Latin America.

With the enhancements, the company can now load 624 trailers a month, a 60% capacity increase.

Other improvements are on the way

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