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Research Publications |
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Mexico's Distribution Infrastructure for Fresh Deciduous Fruits After the North American Free Trade Agreement by Dr. Juan C. Batista, Lic. Jose Armando Martinez and Antonio Soto Mexico's Trade Infrastructure CATI Publication #960301 © Copyright February 1996, all rights reserved |
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This section serves to provide an overview of Mexico's infrastructure based on secondary sources of information and data, and to establish a benchmark from which to compare the results generated from the survey.
Results from a study by Batista and Hagen completed in early 1994 will serve as the point of reference from which to make comparisons. Their study compiled information on the current and future status of Mexico's trade infrastructure for pears and apples as of 1993. Their results were general and broad enough to use as a yard stick for this study. The following discussion outlines many features of Mexico's transportation and distribution network. The subsequent discourse summarizes the results found by Batista and Hagen. Transportation and Distribution in Mexico The major metropolitan areas in the Republic of Mexico drive the markets in Mexico for fresh fruits by creating a demand for the commodities. The single most important factor in establishing major markets for fresh fruits is population density. The major markets are Mexico City, Monterey, Guadalajara, the border cities along the north, and the world-famous resorts. The capital of the republic is Mexico City, the world's most populous city. Aside from being the seat of government, it is the center of business. Its 20-plus million people make this city a very attractive market. Mexico City also contains the nation's largest and most active central wholesale market, which handles a majority of the fresh fruits entering the marketplaces around the country. Monterrey is the second largest city in Mexico, with about 3.5 million inhabitants. Located only 90 minutes away from Laredo by car via modern highways, its orientation in business is much more toward the U.S. than Mexico City. In addition, Monterrey has become a major manufacturing hub in Mexico. The resulting economic activity has created a whole segment of middle- and upper-income residents, who often travel to the U.S. for shopping, vacations, etc. The quintessential Mexican city of Guadalajara is located in the west-central portion of the country with a population of just over three million. As a result of its proximity to Mexico's agricultural production centers, the city has an abundance of fresh fruits and vegetables for sale. The main border cities between the U.S. and Mexico are, from west to east: Tijuana, Mexicali, Nogales, Aguas Prieta, Cuidad Juarez, Ojinega, Piedras Negras, Nuevo Laredo, Reynosa, and Matamores. These cities are heavily influenced by proximity to the U.S . These border towns are some distance from Mexico's major food-producing regions; thus, they get a large percentage of their foods from neighboring U.S. Mexico is world renown for her gorgeous beach resorts. They are scattered along Mexico's east and west coasts. The resorts, collectively, represent an important market for U.S. food products, especially high-value ones. The Caribbean resorts of Cancun and Cozumel are designated as free ports, which means products enter free of normal restrictions as long as they are consumed within the zone. Marketing Channels for Imported Fresh Fruits U.S. shippers, packers, and/or exporters ship fresh fruits to the Mexican border usually with the assistance of a freight forwarders, who deal with custom brokers to get merchandise across the border on behalf of a broker or importer. Virtually all fresh fruit exported to Mexico is delivered to a central wholesale market located in the aforementioned metropolitan areas, where importers have refrigerated storage. Fruit from the central markets then heads into one of three distribution channels: retail chains, smaller wholesalers, and food service chains. Retailers and food service outlets sell directly to consumers. Smaller wholesalers provide another avenue for fruit to reach final consumers. They distribute to "abarrotes," small corner-store markets, restaurants, and traditional open-air markets. These distribution channels are illustrated in Figure 3. 
Wholesale Sector: Each city in Mexico has a central wholesale market, known as the Central de Abasto. Virtually all fresh fruits moves through the central markets. Of course, the largest central markets are located in Mexico City, Guadalajara, and Monterrey. Monterrey actually has three separate wholesale markets around its outskirts. The largest of the wholesale markets - reportedly the largest in the world - is the one in Mexico City. This market serves not only the great metropolitan area around the capital but also many outlying areas. The Central de Abasto in Mexico City, with over 3,100 individual wholesale enterprises, handles a substantial volume of fresh and processed agricultural products, dry goods and general merchandise at a very quick pace. Sections "A" and "K" in the Central de Abasto house wholesalers that handle fresh fruits. Retail Sector: There are approximately 300,000 retail outlets throughout Mexico. The four states of Mexico, Federal District, Nuevo Leon, and Jalisco, which contain the cities of Mexico City, Monterrey, Guadalajara, have about 32 percent of these retail outlets as of 1993 (Batista and Hagen 1994). There are six primary points of sale in the retail food sector (see Table 8). The Mexican Census Bureau estimates the national retail food chains sell the largest volume of food relative to the other retail outlets. The largest chain stores are Aurrera, Superama, Gigante, Soriana and Commercial Mexicana. 
Retail food chains for the most part do not import directly, especially perishable products. Albeit this is expected to change over the next few years, Mexican-based distributors still provide imports. These distributors tend to deliver products to retail outlets almost daily or at least weekly. This enables the chains to keep inventories at a minimum, avoid investment in large centralized warehouses and bypass the hassles of importing. Wholesaling and retailing in Mexico should experience some significant changes in the near future as a result of partnerships between large U.S. and Mexican companies involved in food distribution. For example, Mexico's largest retailer, the Cifra Group, and Wal-Mart in the U.S. are jointly marketing and selling in Mexico . Mexico's Gigante and Flemming Foods in the U.S. are in partnership and focusing on hypermarkets in the Mexican marketplace. Trade Corridors and Ports of Entry There are four major ground transportation corridors running throughout the Republic of Mexico: the Pacific, Chihuahua, Central and Gulf Coast. The Pacific Trade corridor runs from Guadalajara to Tepic, Mazatlan, Los Mochis, Cuidad Obregon, Guaymas, and into Nogales/Nogales, Arizona. A spur of this corridor runs over to Tijuana. The Chihuahua corridor runs from Mexico City through the northwestern part of the country to Aguascalintes, Zacatecas, Cuidad Chihuahhua, and to Cuidad Juarez/El Paso, Texas. However, most of the trade on this corridor only travels between Cuidad Chihuahua and El Paso. Little international trade flows between Cuidad Chihuahua and Mexico City. The Central Trade Corridor carries the dominant portion of U.S.-Mexico trade. It begins in Mexico City and runs north through San Luis Potosi, Saltillo and Monterrey, then to Nuevo Laredo/Laredo, Texas. Over half of all trade between two the countries travels along this corridor. Lastly, there is a trade corridor developing along the Gulf Coast, which runs from Mexico City to Pachuca, Tuxcan, and up the coast to Matamoros/Brownsville, Texas. In summary, the trade highways along the four corridors are presented in Figure 4. 
In order to get a sense of the volume that passes along and the use of each corridor, the number of shipments moving between Mexico and the U.S. in 1993 are presented in Figure 5. The arrows indicate direction of trade at the border, while the term "import" refers to imports into the U.S. and "exports" refers to exports from the U.S. 
Ports of entry are the locations where cargo or product first enters the country. These include border crossing, airports, seaports, and/or locations designated as first point where imported cargo is first inspected/received. For instance, there is an agreement between an apple shipper in the U.S. and the Mexican government to allow shipments of imported apples to enter Mexico through Monterrey without having to stop for inspection at the border. Ports of entry are shown in the following figures, which contain the various transportation networks within Mexico. Truck Transportation: According to the Secreteria de Comunicaciones y Transportes, Mexico has about 55,000 miles of paved road and 95,000 of unpaved road. In comparison, the United States has about one million miles of paved road. The life expectancy of Mexican highways is up to 15 years, as opposed to 20 years in the U.S., 25 years in Canada, and 40 years in Europe (American Trucking Association 1995). The speed limits vary in Mexico by highway and terrain type. Standard speed limits are, for mountainous terrain, 50 miles per hour (mph); for hilly terrain, 62 mph; for flat terrain, 68 mph; and for toll roads, 80 mph. Mexico's highway infrastructure is illustrated in Figure 6. In addition, the cities shown in Figure 6 along the border are the ports of entry between the U.S. and Mexico. 
Railroad System: The rail system in Mexico is run by a government-owned company called Ferrocarriles Nacionales de Mexico (FNM). As of 1992, Mexico had 16,363 miles of track (American Trucking Association 1995). The major ports of entry for rail cargo are Mexicali, Nogales, El Paso, Eagle Pass, Laredo and Brownsville. The rail network and ports of entry are illustrated in Figure 7. 
Under the NAFTA, Mexico will retain the national monopoly only on basic infrastructure (excluding spur lines) and operation and administration of the system. U.S. and Canadian railroads will be free to market their services, operate unit trains with locomotives, construct and own terminals, and finance infrastructure. The present immigration laws in requires crews to change at or near the border. Given the concentration of population in the Central Valley of Mexico, it should be no surprise that rail lines are concentrated in that region relative to the rest of the nation. According to Beilock et al. (1995), truckage, overall is in good to excellent condition. Both in terms of condition and extent, truckage is not currently a limitation to growth. If anything, Beilock et al. (1995) claim the system is underutilized. Despite Mexico's strong economic recovery of the late eighties, total tonnage shipped via FNM has remained at best stagnant (Beilock et al. 1995 and Batista and Hagen 1994). Beilock et al. claim this is "due primarily to managerial problems, reflected in unacceptable service levels and poor marketing efforts and to stiff competition from a largely deregulated motor-carrier sector" (p.43). Seaports: Mexico has 21 seaports (see Figure 8). Four of these are considered major ports: Manzanillo and Lazaro Cardenas on the west coast, and Altamira and Veracruz on the east coast. More than 80 percent of the embarking and debarking freight is handled through the ports on the eastern shore. Port congestion is not uncommon and adds to delays, which are critical in the trade of fresh fruits. 
Up until recent times, the maritime sector was highly protected by the Mexican government and subject to political corruption and/or strong unions. Mexican ports, consequently, have been extremely inefficient. Problems within the ports are frequently exacerbated by inadequacies in the road system serving the port and the quality of equipment and service provided by FNM (Beilock et al. 1995). Things are changing, however. Dramatic improvements are anticipated in the ports due in large part to measures taken during Salinas-administration. Moreover the new Law of Ports1 encourages private management of and investment into the ports. (Footnote: The Mexican government enacted a new Law of Ports that encourages private investment and provides for private management of the port. Private firms, under the las, may bid for the right to be a port's Integral Port Administrator, of IPA. IPA's are responsible for a port's administration, including terminal operation, dredging, construciton, planning, and promotion.) With respect to perishables, perhaps the largest impediment to expand use of port facilities is a lack of refrigerated storage facilities. Manzanillo is the only Mexican seaport served by a refrigerated warehouse. The facility was built to handle imports from Chile and New Zealand, which must arrive by sea. The facility is operated on a concession by the largest Chilean produce importer into Mexico under the new Law of Ports. The NAFTA contains a Mexican commitment to allow 100 percent foreign investment in port facilities such as cranes, piers, terminals, and stevedoring companies for businesses handling their own cargo. Operational permits also will be issued upon proper application. For enterprises handling other companies' cargo, 100 percent investment will be allowed after screening by Mexico's Foreign Investment Commission. Airports: Generally, only very high-valued agricultural products are shipped by air. Examples include strawberries and specialty vegetables. Due to the cost of airfreight, profits are and will continue to be dependent on high-value cargo such as processed and/or highly perishable foods. Figure 9 illustrates the airport infrastructure throughout the Republic of Mexico. 
Distribution Center: Mexico City is without a doubt the major distribution hub in Mexico. However, there are two other important distribution centers: Guadalajara and Monterrey. Figure 10 shows the location of these three centers. 
It is estimated the three distribution cities account for approximately 90 percent of the wholesale trade volume done in the nation. The reason for this is most warehouse space is located in the three cities. The city of San Luis Potosi is surfacing as a future site for storage and distribution as a result of its central location in the nation. Import Procedures, Regulations and Customs This section covers information on import procedures, health and phytosanitary issues, and labeling requirements. It is recommended the Mexican importer handle these requirements since they should be better acquainted with their country's protocol. The best way to discuss procedures, regulations and customs is to go through a typical shipment to Mexico. For this purpose, a typical shipment will be via truck since a majority of shipments of fresh fruit from the U.S. go by truck. Furthermore, the scenario will assume the typical move goes through Laredo, Texas, the busiest port of entry for truck loads going into Mexico. A load first picked up at a shipper's facility in the U.S. will require a bill of lading. When the load is picked up the shipper will send support documentation - USDA APHIS-PPQ Phyto-Sanitary Certificate and Certificate of Origin - to a freight forwarder in Laredo, either with the carrier or by fax or overnight express. Typically, when the carrier arrives in Laredo, she notifies the freight forwarder, who provides status on documentation. If documentation is in order, the forwarder will direct the carrier to deliver the load to a specified location in Laredo. Carriers that allow their trailers to enter Mexico will drop the trailer off. Those who retain the trailer must wait while loads are unloaded. The forwarder then works with a Mexican customs broker to certify the documents and verify the bill of lading and other documents. The customs broker notifies the consignee of customs duties and fees required for clearance. A general comparison of the general duties for fresh fruits before and with the NAFTA appears in Table 9. 
Upon receipt of funds, the load will typically be hauled by cartage company from freight forwarder in Laredo, through Mexican Customs to the Mexican customs broker of Mexican line haul trucking firm in Nuevo Laredo. "In Mexico, customs operates under the 'red-light, green-light' system. About 10% of shipments are selected randomly for a 'red light' and lengthy inspection. Whereas a shipment that gets a 'green light' can be processed across the border in less than three hours for about $100 per trailer, a 'red light' inspection can mean delays of up to three days with a substantial increase in cost" (Maguire, 1995). Mexico's Infrastructure in 1993 In 1994, Batista and Hagen published a study of the transportation and distribution infrastructure for pears and apples exported from the U.S. to Mexico. Their results and conclusions will serve as a benchmark from which to compare the results obtained from this study. Batista and Hagen used a method similar to the one used here. The results and responses obtained from their interviews were grouped into seven categories: mode of transportation, time in transit, cost of transporting, border crossings, trade protocol, quality of fruit, and infrastructure facilities. Using the same categories, their results are summarized below. Mode of Transportation: "The majority of...(fruit is) shipped by truck, using refrigerated containers. Many truck loads are transloaded at the border; that is, a load may be removed from U.S. trailers and reloaded into Mexican trailers, or the tractors are exchanged.... Few companies, however, have made arrangements to allow U.S. containers to pass into Mexico. If such an arrangement is made, the deal usually includes a deposit for the trailer. Few U.S. companies like this arrangement because it is difficult to find a return load. Mexico has imposed a weight limit - at 45,000 pounds - on truck shipments...; however, the limit is not always enforced. Rail shipments will become more popular in the near future, most likely replacing trucks, though trucks will continue to be a favored mode of transportation (see Tvergyak and Youmans 1992 for examples). Approximately three to four truckloads fit into a single rail car. Recently a deal was struck among several players in the apple business to have rail shipments arrive directly in Monterrey before the load is opened and inspected. The FNM will still require its power to bring the rail cars - which will be owned by a U.S. company - into Mexico from the border. Thus, an exchange of power will occur at the border. The major complaints regarding rail shipments are that there are few trained Mexican personnel to handle refrigerated rail cars; that weight limit s on Mexican railroad tracks limit the efficient use of rail; and that time in transit is too long. Apples from Chile arrive by ocean carrier through the western Port of Manzanillo. Loads arrive either by container or palletized bulk. Loads are then transferred to trucks for a trip destined to the Central de Abasto in Mexico City. It takes about the same amount of time to unload a ship regardless of the way the load arrives. Currently, there is no reliable service by ocean vessel for U.S. apples. Ocean service is provided only by the Mexican steamship line, Transportacion Maritima Mexicana, S.A. de C.V.(Marmex). The cost of shipping ocean freight was found to be relatively inexpensive compared to trucking; however, the length of time was considerably longer. For the fruit trade, ultimately, the time element outweighed the cost factor; thus ocean shipments were deemed an unattractive alternative. As a result, the Mexican shipping line has not devoted resources to improving its service for the fruit trade from the U.S. It is anticipated, however, that this situation will change very soon, especially if there is an increase in volumes shipped." Time in Transit: "It can take from five to 12 days to ship a truckload of fruit for the U.S. to Mexico City. The average time span is five to six days. These times are about the same as those discovered by Tvergyak and Youmans (1992). They include two to three days in transit to the Mexican border, with an additional two to three days to arrival in Mexico City. The time in transit is more variable on the Mexican side of the border as a result of the lower quality of roads. Mexican toll roads are very good and traffic moves quickly. Unfortunately, Mexican truckers often do not want to pay the tolls, so they use the slower 'free' roads. Transloading a truck at the border can take from two to three hours. Rail shipments take a average of seven to nine days to arrive in Mexico City from the Pacific Northwest. It normally takes six to seven days to arrive at the border and another two to three days to get to Mexico City. It must be noted, however, that rail shipments are not as common as trucks, so time in transit is much more variable. The Mexican ocean line is the only marine service available for apples and pears from the U.S. to Mexico. Ocean transit times to Mexico are vague, however, because the researchers could not confirm an ocean shipment of apples from the U.S. to Mexico. This is a result of ocean shipping not being an economically viable mode of transport. According to the Mexican shipping lines, times in transit would be about 10 days to a Mexican port. After arriving in port, shipments from Manzanillo to Mexico City were estimated to take between two to three days by truck." Cost of Transporting: "Transportation costs for shipping apples from Washington to Mexico City average $7 a box. If no transloading takes place at the border, the cost drops by approximately a dollar per box. Transloading costs vary from $100 to $250 per load. The variation in transloading costs seems to depend on the reputation of the businesses involved in the transaction, but generally it is based on the reputation of the Mexican importers. For example, several Mexican importers have offices at the border. In these cases, the importers generally pay less for transloading. The cost of shipping a box of apples by rail was difficult to ascertain since rail is a little used mode of transportation today. One estimate was $3 per box. However, another estimate indicated a 70-cent difference per box between truck and rail. Shipping to Mexico requires significant terms, which result from the very high cost of capital in Mexico. Terms of payment, which include transit costs, can vary from 15 to 50 days. Thirty to 40 days seems to be the average range." Border Crossing: "The quickest route for shipping U.S. apples across the Mexican border is through Texas. This is because border crossings in Texas have more Mexican inspectors, offer access to a network of quality roads in Mexico, and provide a significant number of up-to-date facilities (including transloading areas). The city of Laredo, near the Gulf of Mexico, is the busiest crossing with nearly 1,000 trucks crossing per day. Transloading at the border is facilitated by "pasadores." (The word translates roughly to " those who pass back and forth" across the border.) Pasadores are truck drivers who can easily cross the border because they hold U.S. passports. Manzanillo is an excellent ocean port according to the Mexican agents interviewed. The Port of Manzanillo is a union shop, which, according to many of those interviewed, tends to increase the cost of handling fresh fruits. Also, several of the respondents alluded to the existence of corruption at the port. At the same time, the corruption seems to be disappearing with the additional business coming from Chile." Trade Protocol: "Apples have to be imported by registered importers who register with the Government of Mexico. All imports require a certificate of origin and a phytosanitary certificate. Many of the bigger and most innovative Mexican agents have offices on the U.S. side of the border. These offices often procure and inspect the fruit before it enters Mexico. Most of these border firms buy freight on board (FOB) U.S. Conversely, Mexican retailers, who do not normally have buying offices in the U.S., prefer to purchase fruit commodity, insurance, and freight (CIF) Mexico City. Now that many large Mexican retailers are merging with large U.S. retailers, the retail trade in Mexico will likely incorporate U.S. facilities into its procurement practice." Quality of Fruit: "Low-quality fruit was an often-voiced complaint of Mexican marketing agents. They feel U.S. packers/shippers send a lower quality product to Mexico, especially compared to the quality of product being shipped to Europe and Asia. The Mexicans interviewed did not feel Americans were involved in a full marketing "partnership" when it came to the trade in fruits. This is changing as Mexico grows as a market for U.S. apples. Part of the problem stems from the absence of a "time" element in the quality certificate issued with the fruit. Brokers sometimes store the fruit for lengthy periods of time, which of course impacts quality. However, the same brokers do not necessarily adjust the stated quality on the certificate accordingly. Consequently, Mexican buyers feel they are being deceived in the transaction. Another set of problems occurs with the breakdown of trucks in route and with the personnel who handle the fruit. There is always the possibility of trucks breaking down. If that occurs and the refrigerator units also stop, then the fruit quality can deteriorate. Personnel who handle the fruit in route or in between stops must also be well trained to understand the consequences of changes in fruit temperature. In an attempt to mitigate "temperature" problems, shippers are recording temperatures in the trailers during the trip. Temperature recording devices are hidden in the trailers in an attempt to identify where/when the quality problems begin and end. The devices record temperatures approximately every 15 minutes and log them on tape. The recording devices are inspected by buyers upon receipt of the load inspected for signs of any significant temperature changes in the trailer. Interestingly, it was noted several times that U.S. apples have a better shelf life compared to their Mexican and Chilean competition." Infrastructure Facilities: "Problems and comments regarding infrastructure facilities are quite general. They include the following:
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CALIFORNIA AGRICULTURAL TECHNOLOGY INSTITUTE - CATI
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