Assessing Mexico’s Transportation InfrastructureWed, 10/21/2015 - 16:52
Q: How would you rate Mexico in terms of its logistics and transportation infrastructure?
A: Advances have certainly been made. There is now more interstate infrastructure, but growth is not happening at the rate required to match Mexico’s industrial expansion. There is a discrepancy that lies between what the industry in general sees as its imperative logistical needs and what the government is willing to do. For example, many of us believe that rather than investing in building new highways, it is more intelligent and productive to examine the highway network and identify problematic sections. The government could then use a percentage of its budget to fix those sections instead of building an entire new highway that will only solve a specific need, while neglecting the rest of the highway network. The condition of these problematic sections is directly related to the type, size, and weight of the trucks that transit along them. Imagine a bridge that cannot hold trucks above a certain size and is thus limiting the traffic on that road. The smart thing to do would be to invest in improving this bridge so that more trucks can continue using the same road.
We are at a critical moment because of the passing of a new NOM-012, which regulates the weight and dimensions of vehicles for industrial use. The previous norm favored competitiveness, safety, and economic stability, as it promoted the use of newer, much safer and less polluting trucks. Newer vehicles were allowed to run with higher weights than the older trucks along high specification highways, which charge a toll. The new norm does not make this distinction, so older trucks can carry the same weight as the new ones. This does have some short-term benefits for some owners of the cargo, because the cost of freight will decrease. However, in the long-term, freight costs will be negatively affected, because, among other things, transit times will be longer and maintenance costs will increase. Infrastructure condition is closely tied to commercial success, so these limitations put us in a disadvantageous position, as compared to other countries. Ultimately, this norm will have a negative impact on the mining sector´s productivity and competitiveness as well as that of the entire country. We have been part of several studies that using hard data show the government the number of trucks, the frequency of transit, and the relative economic value of the cargo transported along certain sections of highways that are deemed as the most important from an industrial user perspective. We have identified about 15 important segments and brought them to the government’s attention, asking them to supervise and take better care of those highway sections that are most important to the mining industry and to the Mexican industry in general. The main message we wish to send is for the government to be more rational when it comes to the limited resources that are destined for highway infrastructure, especially giving maintenance and improving existing roads that are crucial for the industrial sector. Unfortunately, this has not worked as I would have expected.
Q: How is Mexico’s security situation impacting logistics and transportation in the mining industry?A: It is true that lack of security negatively affects transportation and logistical costs, but this is an issue that affects most industries in the country. Mining is no outstanding exception. Industries have spent copious amounts of money on this, which naturally affects their revenues. Given the fact that mining products are commodities with internationally set prices, if companies have to spend additional resources on security, they will be negatively affected. As with any other cost factor, unfortunately there is an inflation rate for security also. The amount a company spends in security in a given year, will very likely increase the next year. Most mining companies now consider security to be an integral part of their logistics costs. For example, Mexican railroad services provider companies have dramatically increased their payrolls with many employees dedicated to security, which result in considerable expenses that they necessarily have to pass on to their customers. Everyone in the mining production chain ends up paying for security costs. It is very sad, but this subject will remain for as long as there are no long-term solutions to Mexico’s security situation
Q: Which Mexican ports are most in need of expansion?
A: Mexico has not experienced much growth in terms of its port infrastructure. The expansion of the port of Veracruz has been prepared on paper for years, but nothing has yet really materialized. This is one of the most important ports in the country, so its expansion is at the top of my priority list. On the Pacific side, the natural conditions of Lazaro Cardenas, such as its deep draught, allow for the carrying out of large operations, but it must keep growing on, to achieve its full potential. Manzanillo is growing, although the problem of urban sprawl is halting its continued expansion and making it rather slow. These infrastructure issues are very important and I think the government is already addressing them, but I do not see this happening rapidly. Short-term solutions cannot be easily found, as these are long-term operations. Another problem concerns the tariffs for the use of ports infrastructure and terminals as well. These are imposed based on the size and weight of the cargo, while efficiency in the moving of the cargo is not well taken into account. Being ports infrastructure always limited, the key factor is the speed every user has when using it; the faster the better, both ways, coming in and out of the port. Some time ago an experiment was carried out at one of the piers within the port of Veracruz, where companies who could shift their cargo in and out of that pier faster benefited from a cheaper tariff. The system worked quite well, yet it was neither continued nor implemented in the other piers in Veracruz. I have not heard of a similar intent elsewhere in Mexico.
Q: What improvements have you seen to the Mexican railway system?
A: Nobody can deny we have had a tremendous quality jump in the railroad providing since the privatization of the service. However, it is also very clear for me that the starting point was a very low one. When it was a government service, the quality level was very poor, mainly during the last couple of years, therefore despite being a very high jump, it is not yet at the level it should be. Moreover, if we bear in mind that in Mexico we do not have inland waterways, the current level of cargo being moved by rail should be considerably higher and because of this there are a lot of things still pending to be done in this area.
Nowadays there is an initiative to modify the existing law ruling the service. Among other changes, it proposes some government participation in the stablishing of railway tariffs. This project was generated and approved by the Chamber of Deputies, but is still held up in the Senate. In the original law, concession holders can determine the tariffs for railway use without regulation or supervision from any authority. Now, I am not in favor of government-controlled tariffs, as these should be set by the interacting market forces. However, an official organism should at least oversee tariffs for the railway system, as is the case in countries like the US. Neither the Ministry of Communications and Transportation nor any other government entity participate in the process of tariffs fixation, and as a result the cost increments have outstripped inflation rates. However, although this initiative seeks to establish some kind of control over tariffs, it also suggests some changes that I do not agree with at all. For instance, it suggests that competitiveness could be fostered by allowing new players to use existing railway infrastructure without paying anything, and this would be completely unfair at all for those companies that invested heavily in railways 20 years ago.
Q: What is the Commission of Transportation and International Trade at CAMIMEX doing in this regard?
A: We combine efforts with other groups to make our perspective clear to the authorities, calling upon evidence from studies and hard data. For instance, we work closely with the National Association of Private Transport (ANTP), a very solid and serious group which has broad understanding and experience on industrial transportation, not only by railroads but by trucks, vessels and airplanes as well. We provide the authorities with data from Mexico and other countries, as some models generated and used in here are being studied and replicated in places like Peru, Brazil, and Colombia. Mexican experts are being hired abroad to advise on logistics and transportation models around the world. Sadly, the political situation is causing Mexico to slip back and lose its leadership in this area.
Q: Why was it important for CAMIMEX to have a Commission overseeing these areas?
A: When creating specific Commissions, CAMIMEX’s board of directors attempts to reflect the needs of the chamber itself and its members in the mining industry are looking for. Once it spots a niche that needs to be filled, in any area of the business, CAMIMEX looks for a group of experts dedicated to this subject among its members that can share ideas and problems, while also addressing the issue collectively.
These efforts concentrate on the greater needs, and the result will be a group which turns out to be stronger than a single company fighting on its own. The representative of a company can voice a problem to an authority, but this will be a single voice that might differ from that of other mining companies. Conversely, a group dedicated to transportation or international trade or any other matter within the chamber will have the strength of all its members. The issue will be treated more seriously and it will represent the interests of several actors. This will be taken before the authorities, who will have to view it as a general concern and not just a single company’s issue. The idea of the Commission is to concentrate the perspectives, both positive and negative, of the different associates in a single entity. The chamber remains strong as long as its members continue providing information to use in its favor