Mexico Transportation Profile 2012

Mexico is connected by airlines, highways, and railways. Buses link Mexico’s urban regions. International airports are situated in Cancún, Guadalajara, Merida, and Monterrey, but Mexico City is the most important center of international air travel. The railway network is owned by the government. Veracruz on the Gulf of Mexico, and Guaymas, Manzanillo, and Mazatlán on the Pacific Ocean are the major ports.

Freight Transport Report Q4 2010

The 2010 recovery has helped many Mexican freight operators get back into the black. At the end of July, TMM, the Mexican multimodal freight operator, announced an increase in Q2 profits to US$14.9mn compared to a US$66.4mn loss in the same quarter a year earlier. Operating profit was up by 33.9% y-oy, an improvement attributed to better performance at the company's maritime and ports divisions. Financial expenses were down 37% y-o-y, with consolidated revenues up by 2%. The maritime division experienced an 8.4% increase in revenues, and ports 46.1%.

The good times may be fairly short-lived. With the US economy faltering as we go into 2011, Mexico is also looking at a slowdown. On balance, we believe that the last quarter of 2010 will look significantly worse than the previous nine months, with longer-term economic and political concerns - most of which took a back seat during the recent recovery - again set to predominate investor sentiment towards Mexico. The strengthening of the opposition PRI in the July state elections reinforces our long-held view that, despite strong desire for reform, President Calderón will effectively remain a lame-duck president until the end of his tenure in 2012.

On the economic front, although Mexico's export-led recovery has been impressive, strong export growth has not had a positive impact on domestic demand, according to the Q110 real GDP growth reading. With the export outlook looking weaker, we reaffirm our view that growth will slow in H210 and through 2011. In short, we see little to encourage us to alter our real GDP growth projections of 4.4% and 3.2% for 2010 and 2011 respectively.

We estimate the air freight sector was one of the strongest areas of growth within Mexico's freight transport sector in 2010; domestic volumes carried increased by 17.5% in tonnage terms to reach 121.3mn tonnes after a decrease of 21.8% in 2009. The outlook for 2011 is for more subdued growth, but it will nevertheless remain in double digits, gaining 11.3% to 135mn tonnes.

Mexico's port sector benefited from the 2010 upturn in the country's trade volumes. Mexico's largest port, the port of Manzanillo, experienced estimated growth of 18.15% in its total tonnage this year. In 2011 the port's growth rate is projected to reduce to 6.6%. Mexico's largest Caribbean facility, the port of Veracruz, was estimated to grow at a slightly less impressive 12.3% y-o-y to 18mn tonnes in 2010, with a sharper slowdown to 3.9% in 2011.

The pattern of growth in Mexico's rail freight sector has been volatile, with periods of steady increases followed by protracted declines. This trend was estimated to continue in 2010 with a projected rebound after 2009's slump in volumes. In tonnage terms, volumes were up by 2.9% to 40.2mn tonnes, after 2009's estimated 3.8% contraction. In 2011 we project volume growth of 1.1%.

Mexico's trade patterns in recent years have mirrored the strength of the US economy with US consumer and industrial demand one of the main drivers of exports. With much of the country's industry and manufacturing sectors catering to the US market, US demand also has a direct impact on domestic consumption levels and therefore on imports. Our main scenario is for the US recovery, which made itself felt strongly in 2010, to lose steam in 2011. Consequently, our estimates point to a robust recovery in Mexico's trade with total real trade volumes expected to grow by 16.2% y-o-y in 2010, a rate which we nevertheless forecast to fall to 5.0% in 2011