Today’s post is authored by Mike Nelson. Mike has been involved in the automotive industry for over 40 years. He recently retired after his 19th year at Toyota, where he had responsibility for all Rail Contracts, Strategy and Operations for Toyota Logistics Services, Inc.
Mexico is poised to take over the leading role in the importing of automobiles and trucks into the US and Canada. Currently at about 18% of all North American production, it is expected that Mexican production could surge to over 25% within the next 5 years. A major factor in this growth is Mexico’s embrace of free-trade agreements which now includes over 44 countries, in addition to its historically low labor costs. The increase in automotive production is being led by the new plants being opened by Honda, Mazda, Volkswagen, Nissan, and Audi, as well as expanded production in existing manufacturing facilities from the Detroit 3. This growth will lead to monumental challenges in finished vehicle transportation to move these increased volumes from Mexico to the US and Canadian markets.
Currently, the majority of all vehicles produced in Mexico move north by rail through the border crossing points at Laredo, Eagle Pass and El Paso, Texas. These existing routes are already plagued with significant network delays, not inclusive of delays experienced at the border through limited hours of operation, heavy congestion, required crew changes, security inspections and equipment shortages. An increase in vehicle volume of almost 2 million incremental vehicles will tend to do nothing more than further intensify the current problems that are being faced in the rail sector. Understanding this, the railroads are not sitting idly by, with current capital investments exceeding $2 Billion dollars being spent on infrastructure and equipment, but is it enough and will it be in time to meet the increasing demand.
Alternative transportation for moving vehicles north from Mexico lie in both ocean and highway transportation, but each of those has its own challenges to overcome. Highway, over the road transportation, has been virtually ignored due to binding and restrictive regulations on Mexican trucks and drivers crossing the border into the US. These issues are being addressed by regulators, but progress is painfully slow.
Ocean transportation, short sea shipping, is seen as a viable alternative, but has struggled in the past for reliability and consistency. The short sea option has always been there, but OEM demand has wavered due to the complexities involved in stabilizing the service coupled with the lack of established timetables, frequency and routes.
Additional concerns are being raised with the existing vehicle congestion already apparent at the two primary Mexican ports of export in Veracruz and Lazaro Cardenas. Any additional new vehicle volumes moving through these ports could be enough to put a potential strangle hold on all future growth for ocean traffic without major commitments of time and money for costly expansion of current automotive facilities at both port facilities.