Public investment drives upgrade and extension of road network in Mexico

The upgrade of the nation’s road infrastructure is a major priority for Mexico’s current government, led by President Andrés Manuel López Obrador, better known by his acronym AMLO. The country has emerged as an international centre of trade, making the improvement of connectivity between ports and centres of manufacturing an imperative to maintaining ongoing growth.

The interior of the country in particular, requires developed supply chains to provide goods for consumers and inputs for manufacturing, further necessitating greater investment in the rural road network. Despite the growth in freight and urban rail traffic, roads remain the main mode of transportation, both in terms of goods and in terms of people. While the segment faces major challenges in terms of road quality, connectivity, traffic congestion and security, major investment plans are under way to improve and extend the network.

Roads 

The road and motorway network spanned 582,175 km in December 2018, of which 101,460 km was under state jurisdiction and 50,435 km under federal control, according to figures from the public Mexican Institute of Transportation (Instituto Mexicano del Transporte, IMT). Driven by a combination of public and private investment, the network has increased substantially in recent years, having grown 37.6% from 158,990 km in 2017. Of this total, 171,347 km were paved roads, 340,287 were unpaved, and the remainder were municipal streets and private roads. There are two major motorway routes for the transport of goods between ports and centres of production and consumption. Namely, a 632-km connection that runs between the Pacific coast seaport of Lázaro Cárdenas to Mexico City, and a 626-km route linking the port of Manzanillo with the central manufacturing heartlands of Bajío and San Luis Potosí, both of which have a travel time of around eight hours. The latter of these forms part of a longer, 12.5-hour route used by truck drivers to transport goods to and from the industrial city of Monterrey. The road network serves as the primary means of transport in the country, notably in terms of logistics and trade, with around 80% of freight moved via the network. While investment has risen in recent years, the network nonetheless faces a series of major challenges that will require the allocation of further funds from both the public and private sector. Indeed, while the country ranked seventh out of 140 countries in terms of road connectivity in the 2018 “Global Competitiveness Report” published by the World Economic Forum, it ranked 47th for the quality of its roads.

“Where Mexico could improve is roads connecting ports to the country’s interior,” Jorge Monzalvo, head of delivery for Maersk México, told OBG. “There is a need to boost security, reduce travel times, improve road quality and streamline Customs procedures.”

Expansion Plans 

Building on investments undertaken by previous administrations, the current government of AMLO has prioritised the expansion and upgrade of the country’s road system. Indeed, in the 2020 budget the segment was allocated the largest single share of public money for transport, with MXN5.16bn ($289.6m) earmarked for improvements to the motorway system. In December 2018 AMLO presented an updated version of the SCT’s National Road Infrastructure Programme 2018-24, outlining the allocation of state funding and policy objectives of the administration over the medium term.

The new plan prioritised the building of 5500 km of new roads through an investment of MXN14.2bn ($739.5m) in 2019, along with the rehabilitation of 40,500 km of federal motorway, with the aim of generating 31,000 direct and 63,500 indirect jobs. In addition, the SCT allocated MXN10.5bn ($543m) under the updated plan for the completion of 22 motorways already that remain under construction, along with the modernisation of 48 additional routes. The plan also allocates MXN8.2bn ($424m) specifically for the paving and rehabilitation of 600 rural roads, which together span 7545 km. These rural investments are expected to generate 23,000 direct jobs and 94,000 indirect jobs.

In addition, MXN12.7bn ($656.7m) was allocated directly to the National Infrastructure Fund and another state agency, the Federal Roads and Bridges and Related Services, for the maintenance of some 4230 km of roads in the country. The document upholds ongoing work on 20 roads with a combined length of 299 km, which are being developed under public-private partnerships, with a combined investment of MXN27.4bn ($1.4bn).

Road Cargo 

While public and private investment is set to expand and improve the country’s roads, a number of significant challenges continue to face private companies transporting goods. In Mexico, 80% of such firms are small companies with less than 10 vehicles. In 2018 the country had a combined fleet of 917,381 cargo vehicles, moving around 982m tonnes of goods per year, according to the National Chamber of Freight Transport (Cámara Nacional del Autotransporte de Carga, CANACAR). However, with an average age of 19 years, the country’s cargo vehicles are ageing, forcing small firms operating in the segment to allocate more resources to vehicle maintenance. The primary reason behind this situation is difficulty accessing credit.

Private firms have also faced significant shortterm disruption following the introduction of legislation in August 2018 requiring drivers to log their travel times, take a 30-minute break every five hours and spend no more than 14 hours behind the wheel. The enforcement of this legislation – which is designed to improve working conditions and prevent road accidents – spurred capacity challenges in 2018 and 2019. As a result of the legislations, drivers reduced their average number of long-haul journeys from 2.2 to 1.8 trips per week. This in turn brought a 25-30% average increase in container costs, amounting to between $300 and $400. Nevertheless, freight operators are increasingly adopting logistics technologies to improve efficiency. “Companies operating fleets can now track them with precision using apps,” David Madrigal, CEO of the fleet leasing firm Element, told OBG.

Security

Companies operating in the segment also face a number of challenges brought about by a rise in roadside robberies. A total of 17,270 such incidents were registered in 2018, a 17% increase on the previous year and a 76% increase on 2016, according to figures from Sensitech, a US-based logistics firm. These incidents endanger the lives of drivers and have contributed to an estimated 66,000 national deficit in truck drivers. Furthermore, they negatively affect the efficiency of the segment and the broader economy, with companies incurring losses as the result of stolen freight.

Efforts are under way to improve the security of the county’s road network, and the government announced in January 2019 that it would deploy a new 60,000-strong National Guard to combat lawlessness and patrol the country’s roads. However, industry experts have expressed doubt over whether this move will prove effective. “The problem with the National Guard is that there are only 60,000 of them, and of this number, 10,000 are currently stationed on the country’s southern border,” Monzalvo told OBG. “It is not feasible to think that 50,000 guards can ensure security for the entire road network.”

Larger firms, such as domestic beer maker Grupo Modelo and the South Korean multinational LG Electronics, are investing in technology to protect drivers, including GPS tracking systems and improved communications with security forces. Nevertheless, given the extent of the challenge, the impact of these moves remains to be seen.

US Trade

Approximately 62% of exports by value flow through motorways, mainly to the US market. Mexican trucks crossed the US-Mexico border 8.2m times in 2017, and the two countries undertook $442bn in cross-border trade via roadways. Most vehicles cross the border at Tijuana, in Baja California state, Ciudad Juárez in Chihuahua state, and Nuevo Laredo in Tamaulipas state.

However, the new trade deal to replace NAFTA has raised additional complications for road haulage companies. Known as the US-Mexico-Canada Agreement (USMCA), the deal was signed by all three countries in November 2018. While USMCA was ratified by Mexico, it was still pending ratification by the US and Canada as of September 2019. If implemented, the deal could limit the ability of Mexican cargo vehicles to engage in cross-border transport of goods. While the precise repercussions of the deal remain to be seen, CANACAR has highlighted the issue, lobbying the government to provide clarity to the sector and if necessary renegotiate the terms.