Port works and new shipping routes to support rising trade volumes for Mexico

Mexico is engaged in a major port expansion programme aimed at doubling the country’s freight-handling capacity to 520m tonnes per year. The achievement of this goal is seen as crucial to long-term development given the significance of the segment for the import of raw materials and the export of manufactured products. The expansion of the country’s port system is further necessitated by an increase in port traffic, with the country handling 4.6m twenty-foot equivalent units (TEUs) in 2017, of which 60% were imports, up from 4.1m TEUs in 2016.

The auto industry in particular achieved strong growth, with production increasing by a record 8.9% to 3.8m units and exports rising 12.1% in 2017, according to the Mexican Automotive Industry Association. Furthermore, the liberalisation of the stateowned oil and gas sector is expected to ramp up production over the medium term, as new onshore and offshore fields come on-line. This prospective expansion of the hydrocarbons industry is driving investment in greater fuel transport and storage capacity at the country’s ports.

On Track

As a result of works carried out, total port capacity rose to 470m tonnes per year in early 2018, up from 260m tonnes in 2012, according to the Ministry of Communication and Transportation (Secretaría de Comunicaciones y Transportes, SCT). The largest project completed so far is the upgrade of the port of Tuxpan in the state of Veracruz.

Major expansion works are under way at the Gulf of Mexico ports of Veracruz and Altamira, as well as the Pacific coast ports of Lázaro Cárdenas, in the state of Michoacán, and Manzanillo, in the neighbouring state of Colima, with most of these earmarked for completion by late 2018.

The port system is administrated by 24 port authorities (administración portuaria integral, API), which manage 41 seaports and are responsible for awarding contracts for expansions and upgrades.

Veracruz

The expansion of the port of Veracruz – which is described by the SCT as Mexico’s most important port project in a century – has a combined value of MXN30bn ($1.6bn). The project is being developed through a public-private partnership (PPP), with 80% of the capital investment coming from the private sector. The completed expansion is set to include the addition of 35 new docks and cargo terminals – raising the total to 53 – two new breakwaters of 4.2 km and 3.5 km in length, and railway access to all port services.

The first phase is scheduled to be completed in 2018, while the second is set for completion by 2030. In December 2017 Infraestructura Portuaria Mexicana (IPM), a subsidiary of local infrastructure developer Pinfa, was awarded the contract to build and operate a 183,000-sq-metre public terminal – the first of a planned four – for container and bulk cargo, at an estimated cost of MXN2.5bn ($135.1m). The contract includes a 20-year operational concession, with IPM already running a similar terminal at the port of Altamira. The port upgrade will also include a liquid fuels terminal, for which a contract was awarded in July 2017 to IE nova, which is owned by US-based Sempra International. The terminal, which will have a 1.4bn-barrel capacity, is valued at $155m and is expected to begin operations in 2018.

July 2017 also saw a MXN226m ($12.2m) contract awarded to Gramosa Agroalimentos for a bulk agricultural terminal, and a contract for a minerals The liberalisation of the state-owned oil and gas sector is expected to ramp up production over the medium term ... driving investment in greater fuel transport and storage capacity terminal awarded to Mexican company Grupo Logra at a cost of MXN450m ($24.3m). Both contracts include 20-year operation concessions.

Also in the state of Veracruz, the port of Tuxpan opened a new terminal in March 2017, bringing freight capacity to 22m tonnes per year. Meanwhile the port of Alvarado, located 100 km south of the port of Veracruz, is also expected to undergo expansion to cater for increased hydrocarbons shipments.

Altamira

The port of Altamira is also undergoing development. This follows a record year for the port in 2017, with cargo volume rising 23% to 21.8m tonnes, according to the SCT. The port handled 2194 boats over the course of the year, a 16% increase on 2016, making it the fastest-growing port in Mexico.

Domestic firm Avant Energy is currently building a fuel terminal at Altamira. Upon completion the terminal will have a capacity of 1.2m barrels, serving the country’s central Bajío region. API Altamira also launched two tenders in August 2017 for the construction of two liquid fuel terminals. LÁZARO CÁRDENAS: Upgrades at the Pacific coast port of Lázaro Cárdenas have been under way since 2015. Of the 15 projects outlined in the MXN12bn ($648.5m) upgrade, 13 reached completions in 2017, with the two remaining scheduled to be delivered in 2018, bringing the port’s freight-handling capacity to 47m tonnes per annum. These works include dredging and the construction of two container terminals, while further plans are in place to build a grain terminal and an automotive processing facility. A new fuel terminal is scheduled to open at the port by the end of 2019, providing additional capacity to meet rising demand for processed petroleum products.

Among these additions are the first phase of a new container terminal, the first semi-automated container-handling facility in Latin America. The project was launched in April 2017 and is being developed under a PPP with a consortium led by APM Terminals, a subsidiary of global shipping company Maersk Line. The new facility will enable the port of Lázaro Cá rdenas to compete with leading ports like Long Beach in California – the largest container port in North America – whose efficiency is currently impeded by high levels of railway and road congestion.

In September 2017 Lázaro Cárdenas was officially named a special economic zone (SEZ) in a federal government scheme designed to foster investment in mechanical, manufacturing and agro-industries. The SEZ provides incentives including tax breaks and workforce training programmes to international investors (see Industry chapter).

Manzanillo

The port of Manzanillo, which is currently the largest container port in Mexico, completed the second phase of a new container terminal in 2016, effectively doubling its freight-handling capacity to 60m tonnes per year.

In addition, an industrial zone has been added adjacent to the facility and a new 500-metre rail tunnel is set to increase competitiveness. The project is scheduled to reach completion in late 2018.

New Shipping Routes

Recent investment in port infrastructure has also underscored the importance of Mexico securing more diverse trade flows to hedge against the risk of the North American Free Trade Agreement (NAFTA) renegotiations. “Mexico’s port expansion influenced Maersk’s decision to open new routes between Asia and the Americas,” Jorge Monzalvo, the director for inland operations for Middle America for Maersk Line, told OBG. “The company sees a favourable panorama for trade growth, but Mexico need to diversify its trading partners in the event of changes to NAFTA,” Monzalvo added.

Such trade diversification will be aided by the implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a trade agreement among 11 Pacific nations signed in March 2018, as well as a new trade deal between Mexico and the EU that was finalised in April 2018.

Remaining Challenges

While Mexico has made significant advances in the development of its port system, potential bottlenecks remain in the overall upgrade of the transport and logistics network. Cargo volumes are expected to increase, driven by rising exports and the strong expansion of the auto industry, and port investment has not been matched with similar improvements to the road system, which handles 80% of freight transport. A rise in theft from freight trucks has driven up insurance premiums, while rising fuel costs and increased toll road charges have put pressure on truck operators. Investment has been more forthcoming for rail, though blockages remain given the limited geographic coverage of the network. While the completion of existing rail projects should go some way towards easing this, investment will be required over the medium and long term to facilitate trade. With the arrival of a new administration in 2018, investors will be seeking greater clarity on the direction of government infrastructure policy and the role of the private sector.