Michael Hansen
Director General Middle America
Maersk Line
View from the Top

Shipping Giant Expands Logistical Coverage

Mon, 09/01/2014 - 16:22

Q: Mexico is seeking for manufacturing to return here from Asia. How would this affect your operations?

A: Mexico has many FTAs which will ensure imports and exports will keep growing, so I am not overly concerned. There may be a drop in imports as more locally sourced content is obtained. However, I predict Mexico will continue to import more parts, assemble the products here, and then export the finished goods. We are seeing an increase in the exporting of finished goods to Costa Rica, Panama, Chile, and Peru thanks to the Trans-Pacific Partnership. That tendency will prevail as Mexico has a skilled labor force, efficient production, and low costs.

Q: How does the US$900 million expansion of the TEC2 deep-water terminal at Lazaro Cardenas influence the sophistication of the Mexican transportation infrastructure?

A: The terminal will be finished in 2016 but is just a part of the general infrastructure plan. As the automotive industry grows, infrastructure is needed to support it. The port of Veracruz is key for linking the Mexican market to Europe and Brazil, but being the oldest port in the country, it cannot cope with the modern requirements of import and export. It is a heavily congested, multi-purpose port which sees a lot of activity take place in a limited area. There has been growth in other ports, Lazaro Cardenas is expanding with several terminals and a new terminal has been built in Manzanillo. Rail infrastructure is another problem. Links from the Gulf Coast and from Manzanillo are inefficient, but they are more effective from Lazaro Cardenas. The federal government must invest to support the ambitions of the industry. Volkswagen, Ford, and Nissan can have all the ambition in the world, but if the government does not support them with infrastructure investments, those ambitions will not be realized. This is also a concern for Maersk Line. Our entire industry interacts with the government, and we have made it very clear that updating the port of Veracruz and increasing investment in infrastructure are an absolute must. The recent National Infrastructure Plan shows that the government is willing to take a step forward, but it must start implementing it.

Q: How much of the expansion of the ports is being targeted for the automotive industry?

A: The automotive industry plays an important role in this expansion as it is the fastest growing industry in the country. This industry is driving quality standards forward in Mexico, including the requirements for ports, for rail providers, and for maritime transport companies like Maersk Line. No other industry is pushing the boundaries of quality as much as automotive. The container terminal operators are eager to meet the automotive industry specifications, because this also satisfies all their other clients such as large retailers. This is the impact the automotive industry has on the general logistics chain in Mexico.

Q: How do you balance cost, speed and efficiency in the strategies you offer to your customers?

A: It is very difficult to strike a balance as the automotive industry requires a premium service at the lowest cost. Because the automotive industry has so much clout, it usually gets its way. Meeting that low-cost and highquality demand is an ongoing challenge for us as a transport provider. The automotive industry needs to realize that just because it has muscle does not mean it should always use it. Companies could end up with a supplier who accepts this challenge but ends up providing a poorer service, leading to higher costs for operations and across the supply chain. This situation could even lead to factories being shut down as needed materials do not arrive on time. This industry has a huge cost focus but companies need to reflect on the balance between costs and the need for quality. If a company wants to move a lot of goods at a low cost, it becomes less interesting for us. Maersk Line would be more interested in a mediumsized company with less volume. Automotive companies need to reflect on what they need from their providers and how this matches up with their supply chain. Maersk Line is good at delivering quality, but we are far from the cheapest. We provide a trustworthy service and our clients know their goods will arrive on time. We have the newest fleet, the newest containers, and we have the best track record for reliability. Sadly, this is far from the industry standard as on-time arrivals hover around 50 to 60%. We show the automotive industry what we are capable of and the automotive companies must figure out how much it is worth to know that their containers will arrive on time. This strategy has been successful with a number of OEMs. We are now the largest carrier for Volkswagen in Mexico, we have a significant presence with Nissan, and we are growing our business with GM and Ford.

Q: What can be improved in terms of rail transportation to enhance Mexico’s overall logistics performance?

A: Infrastructure must improve in central areas as the rail network in Queretaro is not sophisticated enough to support the needed movement of cargo. As a result, trucks are used to bring containers from Manzanillo, but that is not the best option in terms of sustainability, efficiency, and security. Having efficient rail infrastructure would be safer, faster, more reliable, and more environmentally friendly. The rail network is only efficient from Lazaro Cardenas to Mexico City and Monterrey. Ferromex and KCSM have discussed plans for the Bajio region but no steps have been taken to develop them. For example, there is no rail service for Honda’s plant in Celaya, Guanajuato. Ferromex may have a terminal at the Puerto Interior in Guanajuato but a lot more needs to be done. Mexico City has three large inland terminals, Queretaro and San Luis Potosi need similar strategic investments to support the rail movement there. In particular, Ferromex needs to do a lot of work internally to provide a real value proposition that is interesting for the automotive industry. The two rail operators have a de facto duopoly, Manzanillo for Ferromex and Lazaro Cardenas for KCSM, so they have not had to worry about how to get more cargo.

Q: How are you trying to reduce your US$7 billion fuel bill and how are you using trade imbalances between Mexico and Asia to save on fuel consumption?

A: Fuel is our biggest cost. We focus tremendously on reducing our fuel consumption to minimize the environmental impact of out CO2 emissions from burning heavy bunker fuel and to reduce cost. Our main tactic to achieve these dual objectives has been to slow ships down so they burn less fuel. Transit times are slower today than in the past, especially on backhaul routes where trade is imbalanced. Mexico imports many goods from East Asia but does not export many goods back there. The import leg is competitive for the country so Maersk Line tries to meet its customers’ expectations in terms of time. On the return leg, we reduce speed as nobody is willing to pay for it. All of our global services have been shaped in this way to reduce our fuel costs and our CO2 emissions. We also integrate the latest technology, such as engines and construction techniques, to reduce our fuel bill. Our latest ships, the Triple E Class, are the largest in the world. Triple E means Economy of Scale, Energy Efficient, and Environmentally Improved.” 18,000 containers can be accommodated on each ship but their overall environmental impact is reduced.

Q: When wil Mexican ports be able to accommodate Maersk’s biggest ships like the Triple E Class?

A: Only the port of Lazaro Cardenas is close to being able to welcome our biggest ships, but it is not there yet. The improvement of infrastructure will be driven by demand. If the automotive industry causes Mexico to have more imports and exports, then bigger ships will have to come and ports will have to accommodate them. At the moment, we have the right size of ship, and there are no current plans to go bigger. In a couple of years, if a rise in demand justified sending bigger ships to Mexico, we would be willing to bring those ships in at Lazaro Cardenas.