ONCE UPON A TIME

Mexico 2014 | TRANSPORT | REVIEW: TRANSPORT

Government investment and new legislation are reducing transportation costs and providing commuters in major cities with less-congested routes and more environmentally friendly options.

Transportation infrastructure is central to Mexico's ambitious development plans. And although GDP growth in 2013 was a disappointing 1.1%, Mexico's political and economic leaders spent the year laying the groundwork for long-term future growth. The cornerstone of the new transportation policies announced by President Enrique Peña Nieto is the Transport and Communications Infrastructure Investment Program 2013-2018. In addition to $55 billion allocated for telecommunications and improved internet access, the program has already dedicated $46 billion to developing transportation infrastructure. The plans include a 5,400-kilometer network of inter-state roads to improve connections between the regions of Mexico. Railway coverage will also be expanded through a combination of regulatory reform and 950 kilometers of new railway tracks. The plan also entails four new international ports, the modernization of nine existing ports, and a 60% increase in merchant shipping capacity. By promoting regional transport hubs, the plan aims to decrease congestion at Mexico City Airport by upgrading 15 other regional airports.

In 2014, the government raised projected public and private infrastructure spending to $590 billion between 2014 and 2018. The announcement also included 743 projects in areas such as energy, communications and transport.

ANCHORS AWAY

Over the next five years, Mexican ports will receive investment of around $3.7 billion in investment as the country moves to establish itself as a regional logistics hub. The investment is timely, as many of the country's existing ports are underutilized due to a lack of development. Mexico has 117 ports and terminals along its coastline, however 67% of maritime trade passes through just 16 ports, and 96% of all container shipping passes through four major ports. New construction aims to change this. Changes are taking place on the Pacific coast, where the government has constructed a new industrial complex at the port of Manzanillo to handle liquefied natural gas (LNG) imports. With a price tag of over $350 million, the investment will provide cheaper energy to industrial developments that are springing up around Guadalajara, Mexico's second largest city. At Mexico's Lázaro Cárdenas port, APM Terminals, a port operator based in the Netherlands, broke ground on a three-stage container terminal project. The new terminal will increase capacity by 4.1 million TEUs, compared with the port's current 2.2 million TEU capacity.

HEADING OUT ON THE HIGHWAY

Under President Nieto, the budget for construction and maintenance of roadways is 36% higher than that of his predecessor, Felipe Calderón. While approximately 80% of the funding for new roads will come from government coffers, Mexico is also engaging in partnerships with the private sector. Two projects, the Tuxpan-to-Tampico highway and a first stage of the Cardel-Poza Rica highway, are moving forward as public-private partnerships (PPPs) with an estimated investment of $1 billion. Overall, the 2013 plans for Mexico's Transport and Communications Investment Program entail 149 Highway projects, with a price tag of $30.9 billion. The most expensive component of the road construction is a network of 34 super-highways that will dramatically enhance the connectivity of Mexico's major industrial and residential areas. The San Marcos Bridge is a stunning testament to the tenacity of Mexico's infrastructure reforms. Completed in 2013, the San Marcos Bridge is the largest and tallest bridge on the Nuevo Necaxa-Tihuatlán section of the México-Tuxpan highway currently under construction. Measuring 220 meters in height, and spanning 180 meters, the bridge is an engineering feat worth the detour.

FLY BYS

Moving beyond the terrestrial developments, Mexico's aviation industry is leading the reforms with sweeping upgrades and infrastructure developments. Plans are currently under review for a new $9.23 billion airport serving Mexico City. The airport is slated to open in 2018 and will eventually feature six runways. The date could not come soon enough as Benito Juarez International Airport, Mexico City's current airport, is massively overstretched. In 2012, the airport exceeded maximum capacity over 50 times, and according to the Airports Council International, the existing hub handled a record 31.5 million passengers in 2013. Meanwhile, domestic flights were up by 4%, and international arrivals by 9% in June 2014.

On the business side, Aeroméxico faces an uphill battle. Aeroméxico recorded a sharp drop in profits in 2Q2014 as market conditions in Mexico soured. An economic slowdown, in conjunction with expansion by Aeroméxico, and the overall Mexican market, put pressure on yields. Aeroméxico has adopted an aggressive pricing strategy to protect its position in the domestic aviation market as VivaAerobus and Volaris adopt low-cost strategies, and Interjet assumes the role of Mexico's hybrid carrier—touting an upscale product at a low cost. Launching in 2006, Interjet rapidly built its domestic market share to 25%, and its market share for 2013 was roughly 24%. Interjet is also expanding internationally, and is currently servicing nine markets outside of Mexico. As a grim reminder of the challenges facing carriers in Mexico, the flagship airline Mexicana, which suspended flights in 2010, finally declared bankruptcy in April 2014. After multiple attempts to rescue the airline, potential investors folded, paving the way for the dismantling of the iconic company, which first took to the skies in 1921.

PUBLIC TRANSPORTATION

Public transit in Mexico is developing in two important directions. As President Nieto's development plans pour investment into developing new commuter options, local governments are making headlines with green initiative aimed at cutting carbon emissions. The National Infrastructure Plan currently designates over $2.2 billion for the mass urban transit subsector, with seven major projects including new subway lines for major metropolitan areas, commuter rails, and bus systems. In Guadalajara, the Jalisco government launched Macrobús, which features 41 dedicated buses that operate on exclusive, car-free lanes. Between 2012 and 2015, the buses are expected to reduce 330,000 tons of carbon dioxide emissions, which is equivalent to taking 55,000 cars off the road. Although the Institute for Transportation and Development Policy, together with an international committee of transportation and development experts, awarded Mexico City the 2013 Sustainable Transport Award, the city is not resting on its laurels. New mobility laws announced by Mayor Miguel Ángel Mancera in 2013 aim to reduce congestion and improve pedestrian and public transit options for residents through four key changes. The new law recognizes a citizen's right to mobility by incorporating principles of urban resilience, inclusive governance, and active transport. The law prioritizes pedestrians and cyclists by prioritizing people-oriented transportation policies such as safe crossroads, and increased public bicycling infrastructure. The changes also include a regulatory body for mass transit corridors, and a new Road Safety Integrated Plan to improve traffic safety in Mexico City.

HORSES OF IRON

Perhaps the most ambitious transport reforms of 2014 are in the railway sector, where President Nieto is opening up the state sanctioned duopoly to investment, in order to tackle inefficiencies and reintroduce passenger services that were cut during the privatization of Mexico's state railways in 1995. Almost 9,000 kilometers of passenger railway lines were abandoned in 1995, isolating unprofitable communities, stranding travelers across Mexico, or reducing travel options. While major railway interests are concerned that the changes fail to account for their existing investments, and set a worrying precedent during a period when Mexico is working to attract investors, industry experts are confident that the Senate version of the bill, slated for consideration later in 2014, will address their concerns. Transport and Communications Secretariat (SCT) rail director Carlos Almada announced that the three largest rail projects will cost $7.18 billion, and refocus investment on passengers. The SCT is also investing $2.2 billion in cargo rail transport, such as the Aguascalientes-Guadalajara line in Encarnación to reduce the travel time between the ports of Manzanillo and Altamira by 16 hours. With billions being invested in new lines, it is clear that rather than congesting existing tracks with new passenger routes, the government is planning to add entirely new lines to handle returning passengers.