Eduardo Vélez
Seacargo Logistics
View from the Top

Insider Perspective on Security and Insurance

Wed, 01/22/2014 - 13:12

Q: Given your expertise in logistics, what do you believe would be the best way to spend Mexico’s infrastructure investment budget?

A: President Peña Nieto’s infrastructure development plan is excellent news, especially for our industry, as there are nine projects that are directly linked to the logistics industry. Developing the railroad system seems extraordinary to me, since we have such transportation difficulties. There are certain forgotten regions of Mexico that are due for development, such as the southeastern region. That is why Seacargo Logistics already has a presence in the southeast. We feel the winds of change coming and we want to be first on the scene. We are now in a good position if the government begins developing the Chichen Itzá airport or the Mayab railroad. This is all linked to an evolution in the country’s necessities: the Mexico City Airport and Cancun Airport must be renewed so that they do not continue exceeding their own limit of permitted operations. Without a doubt, this administration will be dedicated to infrastructure. It will support development and once again seek out foreign investment. The development of infrastructure gives national and foreign investors faith in Mexican industries such as oil and gas.

Q: What is the relationship between this development and your presence in Mexico?

A: Our offices across Mexico are linked to different industries. Chihuahua governs the aerospace industry, Ensenada looks at the development of manufacturing plants, while Guadalajara, Aguascalientes, and Queretaro serve the automotive industry, to give a few examples. In our second growth phase, we will be focused on getting closer to the ports and to the borders, in association with customs agents who understand the principle of fluidity of merchandise within international commerce. We also plan to open an office in Tuxpan, as it is surrounded by attractive industries such as oil and gas. We have to be present in the niche that exists between Poza Rica, Tampico, and Tuxpan as our very own clients are there. Besides that, we know it is the alternative port to Veracruz, since that port will need another outlet. We are also waiting for the opening of the Bay of Campeche, we want to be present there given the natural infrastructure link between southeast Mexico and the US. This would also allow us to access the entire oil producing region. In general, we are focusing our growth in Ciudad del Carmen, Dos Bocas and Tuxpan on the Atlantic side.

Q: What changes have you seen in the way insurance companies view the logistics industry in Mexico?

A: The problem of insurance is linked to the problem of internal security. Unfortunately, today insurance companies that know Mexico well give us a nondeductible of 20% for highway segments of our transport routes. Those that do not know the country that well still give us a 10% nondeductible, although this sometimes means paying a more elevated premium. Nobody knows the real situation. Today, it is quite complicated to hire ground services between the port of Lazaro Cárdenas and the center of the country. Few will venture to do that or cross the state of Michoacan in general because of the insecurity. These are high-risk operations, which naturally make insurance much more expensive.

During the last administration, the price of cargo insurance increased dramatically in Mexico. Now, I think insurers are waiting for the violence to decrease. There is an expectation of change but I do not think that they can anticipate developments in matters of security and wait until the violence decreases to adjust their premiums. Fortunately, railroads have enabled the flow and continuity of logistical operations. The Lázaro Cárdenas railroad has been an important tool to unite the rest of the country, along with the reestablishment and maintenance of several railroad lines from Manzanillo to the center of the country and the US. That has been a useful outlet that helps balance things out; without these rail links we would have collapsed in terms of cost and internal supply. Fortunately, we have not had many incidents. Robbery figures have reduced drastically in our experience, while accidents figures have also decreased as the highways have gotten a lot better. Coupled with the major announced investment in infrastructure, this will help us to improve security in cargo transportation, both in matters of accidents and violence. We are insured through Assekuransa and through Lloyd’s in London, because we always have to create competition between our insurance providers, which are represented through their brokers here in Mexico.