The Impact of Mexico's Energy Reforms on Shipping Costs
For those who utilize Mexico cross-border shipping, a big change is coming this year that could introduce new elements of risk in the form of cost variability. Recent energy reform in Mexico is essentially ending state oil company Pemex’s 75-year monopoly over the entire supply chain – from crude oil to retail fuel sales. This reform now allows private companies to import fuel and establish non Pemex-branded gas stations. In addition, the energy regulatory commission will be phasing out government-set gasoline prices and replacing them with floating market rates throughout 2017 (see map).
How will this affect shippers?
In preparation of floating market rates, subsidies were removed and the price of gasoline was increased to better represent market prices. As a result, gasoline costs across the country sustained a 14-20% increase on average, beginning January 1. This increase was announced by the country's finance ministry just five days before its implementation Short notice and a rather large increase in gasoline costs have spurred protests throughout Mexico, with some blocking major highways. Shipment delays could be expected to and from zones affected by protests. Protests will likely end within the next two weeks as Mexico's population becomes accustomed to the change.
Previously, door-to-door cross-border shipments were commonly priced to only include a fuel surcharge (FSC) on miles driven within U.S. borders. This was largely due to the fact that diesel costs in Mexico remained stable as a result of government regulation. Because diesel prices in Mexico will fluctuate with the market, the transportation industry will likely need to update its processes and technology to account for a FSC program within Mexico. If the standard practice of having FSC on only U.S. miles continues, logistics providers will be assuming additional cost-variability risk. The assumption of this risk will likely be passed on to shippers in the form of higher rates. For more information regarding Mexico cross-border shipments, contact email@example.com.
Guest Writer Erik Neuwirth Manager, Mexico Highway Solutions