Mexico Improving Infrastructure but Hurdles Abound

Fri, 09/01/2017 - 10:41

Recognizing that the intertwined logistics problems have an impact on the country’s competitiveness, the government has set out to make improvements, investing large amounts in the renovation of roads and the construction of new highways and railroads. According to the Ministry of Transportation (SCT), 26 highways have been constructed or expanded since 2012 and the current presidential administration’s goal is to complete a total of 54 by the end of its term in 2018.

Even so, transportation remains a hurdle. “Mexico has improved its road infrastructure but there are still some obstacles on major highways. One of the challenges for Mexican exports via road and air is also the efficiency of customs procedures. This is one of the most difficult areas for the logistics industry because truckloads repeatedly may have to wait weeks at the border before they can cross,” says Agustín Picado, Country Manager of UPS Mexico.

Among the solutions are free-trade zones (FTZ) that have gained importance as an option for companies to make their border crossing more efficient. Under the Customs Technologic Integration Project (PITA), established by the Ministry of Finance and Public Credit and the Tax Administration Service, the government expects to modernize and digitalize 60 points of revision that manage almost 99 percent of all customs operations in the country, allowing companies to receive their goods directly at the industrial park instead of waiting for approval at the border.

Industry watchers says much more is still needed. Andrés Lerch, Advisory Partner and Leader of the Operations Transformation Area at EY Mexico's Automotive Center, told Mexico Automotive Review (MAR) 2016: “It is vital to expand the current logistics network with roads and railroads, ports and dry ports. Existing infrastructure is barely enough and many highways are already showing signs of overcapacity.” Logistic costs in Mexico can represent from 10 to 40 percent of a product’s overhead. In developed countries, this cost is only 10 percent. As the automotive industry grows, more cars need to move across the country to reach either ports, airports or the border with the US, 5 million by 2020 to be precise. Without enough connectivity, rather than being in a privileged position, companies will face added expenses related to logistics problems.

Airport infrastructure also poses issues of its own. Mexico has the third-largest number of airports in the world, after the US and Brazil, with a total of 1,414 airports reported by the General Direction of Civil Aviation (DGAC) in 2015. However, not all are operational or available to most aircraft. Only 360 of those airports are certified by DGAC and many of those are unused. According to the Global Competitiveness Index 2016-2017, Mexico ranks 61st out of 138 countries in quality airport infrastructure. The federal network of Mexican airports shows only 76 are officially registered. Of all flights in Mexico, 76 percent are concentrated in only 10 airports, according to DGAC. Internally, operating airports also must confront difficulties. Francisco Pertierra, the Director General of AeroUnion, says smaller airports “do not have the necessary infrastructure to load and unload large cargo airplanes.” This forces cargo companies to either use smaller aircraft or to move loading equipment to the final destination, increasing costs. Those flying into Mexico’s capital and largest business hub, Mexico City, arrive at Mexico City International Airport, which is saturated.

The construction of the New Mexico City international Airport will ease things up, according to Erik Meade, Country Managing Director Mexico of Panalpina, as one of the main dilemmas for the country’s airports is the priority of passengers over cargo. “The government should incentivize the construction of more airports throughout the country, mostly because the issue directly relates to Mexico’s competitiveness,” he said. “The Bajio region is growing thanks to the automotive industry, yet some locations would benefit greatly from better air connectivity.”