Manuel Chavez
General Manager
OEC Group Mexico
/
Insight

Nafta Driving Logistics Market Diversification

Mon, 10/22/2018 - 17:46

The logistics industry in Mexico is shifting in the wake of the NAFTA renegotiations. Manuel Chavez, General Manager of OEC Group Mexico, says that bilateral relationships like the initial deal struck between Mexico and the US, are more likely than trilateral agreements. “Because of NAFTA’s structure, we are seeing more bilateral negotiations with each party involved in the NAFTA treaty,” he says.
The reshaped agreement, he adds, could be a blessing in disguise as Mexico turns to alternative markets such as China, the world’s largest consumer of raw materials. “China is the logical choice as an export destination for raw materials because it is the world’s manufacturer,” Chavez says. “Everything from smart phones to soft toys are made in China.”
Trade to the US will remain a key factor in the logistics industry due to the shared border and the substantial market that already exists. Nevertheless, Chavez says that the change that is afoot is positive because it is motivating the industry to adapt and reshape itself. “Everybody is looking for new partners, which helps to open up new opportunities around the world.”
It is also driving companies like OEC Group to find more innovative solutions to meet the market’s needs. Chavez says the company’s philosophy is to always offer the client options. “We do not want to just be a freight forwarder doing something that has always been done,” he says. “We want to look at problems and offer innovative solutions.” This does not necessarily mean tampering with proven systems, but exploring different options that suit the customer’s needs.
To help improve the country’s logistics landscape in an ever-changing world, Chavez would like to see Mexico update its once-legendary rail infrastructure, which would speed up logistics processes. “All developed countries have robust railway systems,” he says. “There are fewer accidents on railroads, it is a more environmentally-friendly option and if we can make the necessary improvements, rail transportation is much cheaper than road freight. This will allow us a more competitive market.”
Comparing Mexico’s railway to that of the US, Chavez points to the domestic system’s inefficiencies. “In the US, it takes five days to travel thousands of kilometers by train from Los Angeles to Chicago,” he says. “In comparison, in Mexico, there is a three to four-day transit window from Manzanillo to Guadalajara, which is just 300km.” According to Chavez, there is no other way to make it a more efficient form of transport without new infrastructure, which remains an expensive option.
Monopolies are also a factor, leading to high prices, Chavez says. The majority of Mexico’s system is owned by three companies: Ferromex, Ferrosur and Kansas City Southern Mexico. “In this country, the monopolies are our greatest problem because a very small concentration of companies are attracting all the business and charging high prices,” he says. “There is a limited number of brokers and the larger players can afford to undercut the smaller ones.”
To solve this, he again looks to the US example. “In the US, there is a government entity called the Freight Maritime Commission (FMC). This organization oversees trade so there is healthy competition and a correct protocol and sanctions related to various circumstances. This organization takes everyone’s opinion into account, from the public and private sectors, which makes it a more organized, structured and cohesive way of doing business.”
Chavez adds that this goes straight to the heart of what Mexico’s industries really need: a long-term vision. “Although there is a huge list of requests for the new government, I believe we must create far-reaching solutions to make everyone competitive,” he says. “The government should evaluate and understand the current market necessities and craft a long-term strategy with real value for the industry, far beyond six years. To create a competitive country, it is necessary to consider the future, envisioning where the world is going and where technology is going.”