Study Says Freight Booming as Mexican Economy Grows

This story appears in the Nov. 19 print edition of Transport Topics.

A growing economy and a global shift in manufacturing are spurring investment in Mexico’s freight transportation industry, according to a recent study that said there is a $68.4 billion market for trucking services in Mexico.

As part of that trend, APM Terminals last week broke ground for construction of a new container terminal at the Port of Lazaro Cardenas on Mexico’s Pacific coast. The $900 million project is ex-pected to provide an alternate route for freight containers from Asia to reach markets in Mexico and the United States.

“We are very proud to be a part of Mexico’s growth,” said Tiemen Meester, vice president for business implementation for APM Terminals, a global port operator based in The Hague, Netherlands.

Also last week, U.S. Xpress Enterprises, Chattanooga, Tenn., announced plans to expand its operations in Mexico with the purchase of a 90% stake in Mexican freight carrier Xpress Internacional and the formation of a joint venture with logistics services provider Logisti-K, based in Monterrey, Mexico (see story, this page).

The study by logistics industry researcher Richard Armstrong documented the growing involvement by U.S. and international companies in the development of trade and transportation services in the country.

Mexico is the United States’ third-largest trading partner, after China and Canada. In 2011, the United States imported nearly $200 billion worth of goods from Mexico and U.S. firms exported $152.6 billion worth of goods to Mexico.

And trade volume continues to grow. In August, the Bureau of Transportation Statistics reported that U.S.-Mexico surface trade reached $35.5 billion, a 7.8% increase from August 2011. By contrast, U.S.-Canada trade fell by 1% to $47 billion in the same period.

Much of the growth in freight demand in Mexico is related to expansion of auto manufacturing.

“There are 25 automotive assembly plants spread out from Mexico City north,” Armstrong said in his report. “Over 1,000 tier 1 and tier 2 suppliers are now located in Mexico. Over 2 million automobiles and light trucks will be exported from Mexico in 2012.”

Boris Franchomme, Ceva Logistics senior vice president for Mexico and Central America, told Transport Topics that Mexico “has become one of the main suppliers to the U.S. for auto components.”

At least five automakers — Nissan, Honda, Mazda, BMW and Audi — have announced plans to build new assembly plants in Mexico and, as a result, Franchomme said, “We expect the demand for ground transportation to increase significantly in the next two to three years.”

In addition to the auto industry, “there seems to be a clear trend towards near-shoring,” the shift of manufacturing of electronics and consumer goods from Asia to Mexico, Franchomme added.

“This will put additional pressure on the trucking and transportation sector in terms of service and capacity,” Franchomme said.

“Trade should continue to grow,” Armstrong said. “The domestic market is growing two to three times as fast as the U.S. They are building highways and getting important [intermodal] connections. That is going to have a fairly dramatic effect” on freight movement.

Armstrong said he does not expect to see much change in cross-border trucking operations, even though a provision in the North American Free Trade Agreement permits Mexican carriers to operate north of the border.

“Mexican companies have established partners and, if they operate in the U.S., their U.S. partners would have to worry about the possibility of losing freight to the Mexican carrier,” Armstrong said. “Both sides are satisfied with the status quo.”

Luis Erana, president for technology, aerospace and service logistics industries for Exel, the U.S.-based logistics unit of Germany’s Deutsche Post DHL, described the Mexican trucking industry as “vital and robust.”

“Customers are investing in hauling capacity, and there are a great number of trailers transported between Mexico and the U.S.,” Erana said in an interview with TT. “The Mexican gross domestic product is growing and, as consumers have more spending power, the demand for domestic goods is expected to significantly increase.”

Armstrong’s report estimated total logistics spending in Mexico at $142.2 billion in 2011, with trucking accounting for the biggest share of logistics costs at 48%, followed by warehousing and inventory carrying costs, 34%; logistics administration, 6.1%; rail, 4.4%; air, 3.8%; water, 2.1%; and freight forwarding, 1.5%.

Armstrong’s report identifies 45 of the largest Mexican trucking companies and includes profiles of six logistics companies and two rail carriers, Kansas City Southern Railway and Ferromex Grupo, operating in Mexico.

Armstrong estimated about 3,000 for-hire carriers operate in Mexico and, although the vast majority of them are single truck operators, the largest Mexican carriers are “very sophisticated and capable.”

The largest motor carrier in Mexico, according to the report, is Autotransportes de Carga Tres Guerras S.A. de C.V., a company that provides less-than-truckload and parcel delivery services throughout the country. The firm, based in Guanajuato, operates a fleet of 563 tractors and 93 straight trucks, generating annual revenue of approximately $220 million.