Building connections: Reorganising logistics platforms could help companies reduce costs

Infrastructure development has helped expand Mexico’s transport system and strengthen logistics activities in the country. High among the reasons for this is the fast growth of containerisation, coupled with increased connectivity between transport modes. “Interconnection between different kinds of transport increased in 1995 with the privatisation of the national railways, because some of the companies that initially bought the concessions at the time were already in other transport businesses,” said Salvador Díaz Espejel, member of the board of directors of the Association for Logistics and Distribution Professionals.

CHALLENGES: A shortage of warehousing space and logistics platforms presents a challenge, as the sector is pressured by rising global trade and manufacturing activities. In 2012 Mexico was ranked 47th out of 150 countries in the World Bank’s Logistics Performance Index. According to the Inter-American Development Bank (IDB), logistics costs represent 14% of GDP in Mexico, compared to 8% in the US and 9% in Canada.

A programme by the Ministry of Communications and Transportation (Secretaría de Comunicaciones y Transportes, SCT), the Ministry of Economy and the IDB aims to organise and develop logistics infrastructure with the creation of the National Logistics Platforms System (Sistema Nacional de Plataformas Logí sticas, SNLP). Although there has been an expansion of logistics zones across Mexico in recent years, the lack of an integral, sector-level plan resulted in some of these new areas being inefficient or underutilised. The programme’s initial report has identified 85 locations across Mexico where logistics centres could positively impact cargo movement and decrease logistics costs. “There is definitely a deficit in terms of warehousing capacity in the country,” Díaz told OBG.

PROGRESS: About 55% of these logistics centres already exist, but most need to be strengthened through better infrastructure. For the remaining 45% that must be built, authorities are trying to determine the best way to finance the new projects. Improvements are also expected from the current infrastructure expansion plans, which will see major investments in ports, airports and the road network. The transport sector is set to receive up to MXN582bn ($45.2bn) in private and public investment during the current presidential term. Many of the new logistics platforms are to be included under the current infrastructure budget.

LOGISTICS CENTRES: In 2013 work began on what is to become one of the biggest logistics platforms in Latin America, located close to the city of Monterrey. At 1300 ha, the Interpuerto de Monterrey will be a dry port logistical centre with the capacity to house firms operating in the northeast of the country or aiming to trade with the US. While total investment will depend on the number of companies it is able to attract, the first phase of the project, which will establish basic infrastructure in about 300 ha, is budgeted at $130m.

Initial investment has been provided by the government of Nuevo Léon, hoping to encourage businesses to establish their logistics centres in the area. The location has been chosen for its proximity to transport infrastructure, including railway connections with links to seaports on both of Mexico’s coasts, as well as the national highway network. Furthermore, the new Interpuerto de Monterrey includes a Customs office, which means that cargo heading there from over the border will not need stop until it reaches the logistics depot.

A smaller logistics platform was announced in mid-2013, to be built in the State of Mexico. The new Edomex logistics platform will cost MXN2.4bn ($186.5m), and have an area of 600 ha, making it the biggest logistics platform in central Mexico. Edomex will also have an internal Customs office to help speed up the bureaucracy for international transport.

Despite the need for additional platforms, Mexico has had a troubled history with previous efforts to build large-scale logistic areas. In 2006 a new logistics park opened in San Luís Potosí, but by 2012 only about 20% of its capacity had been filled, according to local media reports. Another logistics centre, inaugurated in Puebla in 2009, also saw lacklustre performance. One of the SNLP’s main attributes is that it establishes where logistics platforms need to be located in the country in order to be effective as well as economically viable.

COURIER EXPANSION: Infrastructural investments by the government are being coupled with private sector expansion. Several courier operators are upgrading their logistics infrastructure to improve operations both within Mexico itself and with neighbouring countries. FedEx recently opened a new $48m logistics centre within an industrial park in San Martín Obispo in the State of Mexico. DHL has also been betting on Mexico, and recently opened a new $7.3m operations centre in the capital city, part of a larger investment strategy that will see the company invest as much as $160m in the country from 2012 to 2017.

Mexican courier Estafeta recently announced plans to invest over MXN419m ($32.55m) on a fleet expansion and a new logistics centre in Guanajuato. Another local courier, Redpack, invested $7m to establish a new operations centre in Tultitlán. The logistics sector is composed of many fragmented competitors, from small players that focus on specific segments, to large firms that offer a full range of services. According to the SCT, about 83% of trucking companies are small businesses with fewer than five trucks, many of which operate in the informal sector.

DRIVER WANTED: Nonetheless, fast growth of the logistics sector has uncovered a discrepancy in the way firms have been expanding. According to the National Chamber for Cargo Transportation (Cámara Nacional del Autotransporte de Carga, CANACAR), the sector is facing a shortage of trained drivers, with about 70,000 new drivers required to meet the needs of existing transport companies. In certain areas, like the central part of the country, the lack of drivers has stopped about 40% of the existing truck fleet, according to CANACAR. To counter this, the chamber has been working with several universities to promote technical training and increase the human resources pool for the road transport sector. As result, a National Driver’s Centre opened in 2013 at the Technology University of Léon. Other training programmes are set to open soon in the states of Puebla, Nuevo León, Jalisco and State of Mexico, according to local media reports.

MOTOR AGE: Another challenge may come from the average age of vehicles operating in the sector, which can degrade efficiency. According to 2013 figures from the SCT, the average age of Mexican road transport vehicles is 17 years old, compared with 13 years in Brazil and five years in France. Rising fuel prices and security concerns have also increased logistics costs.

Reducing those costs will be essential to boosting economic activity. The IDB reports that transport and logistics expenses account for 30% of total costs for small and medium enterprises. Decreasing the burden will allow smaller companies to reinvest more money in technology training and productive activities. Furthermore, the new SNLP will be an essential tool for the logistics sector to take full advantage of the continuing investments in rail, road, and port infrastructure.