Mexico’s Pacific ports brace for deeper volume declines

Mexico’s Pacific ports brace for deeper volume declines

Import cargo volumes through ports on Mexico

Import volumes through Mexico’s Pacific Coast ports fell 15 to 25 percent in March from the year-earlier period amid the slowdown in Chinese production, and a weak Mexican peso and auto plant closures could delay or weaken any rebound, logistics executives say.

Although Chinese factories are producing again, Mexico’s weak economy and factors linked to the country’s fight to slow the spread of coronavirus disease 2019 (COVID-19) could dampen any surge in Asian cargo that some industry executives expect in the spring. Some sources now say the rebound may not come until July or later.

The differing expectations reflect the uncertainty facing the Mexican shipping and logistics sector as it seeks to adapt to the new environment created by the coronavirus in an economy that had already fallen into recession before the health crisis arrived.

Observers say future volumes into Mexico will be negatively affected by a 20 percent decline in the value of the peso against the dollar, and the closing of several major car plants during the third week of March amid virus containment measures, which will cut imports of parts and raw materials.

Edgardo Hamon, managing director of freight forwarder DACHSER de México, said he expects cargo volumes to rebound in late April or May. But the company works for several auto parts manufacturers, who also opted to close when the car factories did, and that could curb the expected rebound in cargo volumes, Harmon told JOC.com.

“As of this week, we stopped shipping and we will see these volumes drop down within the next six weeks,” he said.

Summer rebound

A second freight forwarder, Nicolas Portenza, president of Eternity Mexico, estimated that Pacific Coast volumes were down 15 percent in March. He does not believe cargo volumes will bounce back to normal levels or above until July or later. “If we are going to see a rebound, we are going to see it in the second half of the year,” Portenza said.

That assessment was echoed by an executive for a West Coast terminal operator, who spoke on condition of anonymity, and said his company expects cargo volumes in July to be similar to last year. The company anticipates ports on the coast will be affected by 40 blank sailings between February and April. But with Chinese production getting back up to speed, “around 60 percent of our customers agree that purchase orders will resume around May/June,” the executive said in an email. 

An ocean carrier executive, who also did not want to be identified, said the carrier expects Pacific Coast volumes will have declined 25 percent in March and will plummet 45 percent in April, adding he couldn’t hazard a guess when volumes may recover because the situation is so uncertain.

Economic outlook worsens

Cargo volumes along the Pacific Coast, in the United States as well as Mexico, fell when ocean carriers scheduled blank sailings after production stopped due to the Chinese New Year, which closed factories from Jan. 25 to Feb. 8; closures were extended as the country fought to stop the spread of the coronavirus. Yet as China now increases its production, Mexico is facing its own economic problems, in part related to business shutdowns related to the virus. 

After shrinking 0.1% in 2019, the Mexican economy was expected to grow 0.7 percent this year, according to IHS Markit, which has now changed its forecast to a GDP decline of 1.8 percent for 2020. That was based on the expected recession in the US and the impact of Mexico’s battle with the coronavirus.

Car manufacturers in Mexico shut their plants due to slow sales and the coronavirus, with some saying they will remain closed for several weeks. Nissan and Toyota posted notices on their websites indicating their Mexican plants will remain closed until at least April 14 and April 20, respectively. 

Adding to the trade uncertainty, the peso has lost nearly 20 percent of its value since the middle of February, falling from 0.054 dollars per peso to 0.043, and making imports more expensive. 

The slow economy contributed to a 6.3 percent year-on-year drop in cargo volumes in February through Mexico’s Pacific Coast ports, to 174,623 loaded TEU, according to figures from the Secretariat of Communications and Transportation (SCT). Volumes through the Port of Manzanillo, Mexico’s largest port, fell 4.8 percent to 107,834 loaded TEU, the figures show. The Port of Lázaro Cárdenas, Mexico’s second-largest port on the Pacific Coast, saw February volumes fall 17.7 percent to 42,383 loaded TEU, the figures show.

Contact Hugh R. Morley at hugh.morley@ihsmarkit.com and follow him on Twitter: @HughRMorley1.