Stefan Kurschner, at left, president and CEO of Daimler Commercial Vehicles Mexico, leads a panel discussion featuring (left to right) Miguel Gomez, Fletes Mexico; Ramon Medrano, Frio Express; and Alex Theissen, FEMSA Logistica.

Mexico carriers' dilemma: 'world class' not always an advantage

Dec. 11, 2015
“Having two sets of rules doesn’t breed real competition." —Stefan Kurschner, Daimler Commercial Vehicles Mexico.

PUERTO VALLARTA, MEXICO. While top-tier fleets in Mexico share the challenges faced by most North American carriers, they also must overcome many others—governmental, cultural, and illegal—that by comparison are afterthoughts in the U.S. and Canada. But that’s the cost of doing business for trucking companies who look to play a leading role in the global supply chain, fleet executives explained during a Daimler Commercial Vehicles Mexico market update here.

Broadly, the panelists each emphasized their safety programs, a focus on productivity while keeping a close eye on costs, the benefits of investing in the best available equipment and technology, and the need to have good people to deliver the best possible service.

But the details behind the PowerPoint highlights show just how complicated it can be to make good on a sales pitch here.

For starters, Mexico still lacks the infrastructure to support a modern freight network, explained Alex Theissen, director of logistics for FEMSA Logistica. It’s Mexico’s largest logistics company with the goal to become the largest in Latin America.

While trucks carry 70% of the nation’s freight, there are only 85,000 miles of paved roads—or 6 times smaller than in the US, proportional to the size of the countries—to support a population of 122 million.

“In reality, the majority of freight transportation has to be done by truck,” Theissen said, and he noted the limitations of the rail network in Mexico. “But we don’t have enough roads.”

Adding to carriers’ costs, most of the good highways are tolled, and diesel runs 40% higher than in the U.S., noted Miguel Gomez, co-founder of Fletes Mexico, one of the country’s largest for-hire carriers.

Gomez also suggested that international customers “don’t understand the quality” of Mexico’s leading fleets and the effort—and expense—it takes to be “world class.”

Fletes, for example, has invested heavily in a detailed load tracking system, along with security measures such as thorough load screenings with canine inspections, and complete background checks on critical staff.

And that’s to say nothing of the investment in new trucks. While top-of-the-line equipment is expected by international customers (and new trucks certainly stand out on Mexico’s highways, where the national fleet age is 17+ years), the improved operating efficiencies aren’t necessarily a competitive advantage.

Of particular concern to the top carriers in Mexico are the “outlaw companies” that run salvaged equipment on black market fuel with little regard for safety or security. So, for loads within Mexico, the best fleets find their margins significantly undercut.

“They buy a used, illegal truck. They buy stolen diesel. They don’t pay taxes,” Theissen said. “A top-the-line fleet here can compete with anybody in the U.S., but it’s hard to compete with that.”

(For more on the complications involving Mexico’s aging fleet, click here.)

“Having two sets of rules doesn’t breed real competition,” added panel moderator Stefan Kurschner, president and CEO of Daimler Commercial Vehicles Mexico. 

Rates, drivers, cross-border challenges

Of course, the need to educate customers on the risks of lowest-cost-wins purchasing is not unique to trucking companies in Mexico—although it’s more acute. A big part of the problem is detention time, explained Ramon Medrano, president of Frio Express, a refrigerated carrier providing service throughout North America.

Medrano characterized the issue as “cultural,” and said it’s not unusual to have a customer who will leave a truck waiting for a day or even two.

“We have to show customers the costs,” Medrano said. “It’s painful to lose customers because of their inefficiency, but we leave those customers to other carriers.”

He added that “efficiency is contagious,” and once carriers expect more from customers, customers will then expect from carriers—and everyone gets better.

Driver hiring, training and retention are also a critical issues for Mexico-based carriers.

Gomez contends that driving a truck has become “less valued” as a profession. The “old-school” way of fathers teaching sons is gone, and families are no longer encouraging a new generation to go out on the road. Additionally, it can be difficult to put together a reliable driving history of applicants.

“Even if the job is well paid, it needs to be well valued,” Gomez said. “Truck drivers do not have the best image.”

But Medrano was more optimistic. He boasts a 20% turnover rate at Frio Express, and that he can be selective in hiring only experienced drivers. He explained that driver pay at his company provided a middle-class income sufficient to send children to college.

“It’s a good job for our people,” Medrano said.

Theissen likewise called driving “a very attractive profession,” but said the emerging shortage is prompted in part by drivers taking higher-paying jobs with U.S. fleets.

Of course, it took more than 20 years for the U.S. and Mexico to settle the matter of cross-border trucking under the provisions of NAFTA. But few fleets from either side of the border are taking full advantage of the ability to deliver loads deep into the other county.

Medrano, whose company specializes in cross-border reefer loads, explained that running his trucks long-haul into the U.S. simply is “not attractive” and that he’ll continue to partner with U.S. carriers and drop trailers in the border zone as he has for two decades.

And while the procedures for moving those loads have certainly been streamlined, the crossings still need to be much faster. Specifically, the infrastructure isn’t in place to support the demand.

“In the near future at least, it’s not a matter of changing the model—we need to make what we have more efficient,” Medrano said. “It’s in the interest of both sides. Everybody gains.”

Mexico is also working to improve diesel emissions, and among the options under consideration is to jump directly from the current EPA04 standard to EPA13.

In addition to the cost and complexity of the equipment, a more fundamental issue the transition to ultra-low sulfur diesel. The fueling infrastructure here still dispenses diesel rated at 300 parts per million. Again, the older national fleet is a problem.

“This is a big step for Mexico, and it brings a lot of uncertainty,” Daimler’s Kurschner said.

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