Mexico’s new president, Andres Manuel Lopez Obrador, has made drastic declarations that could potentially change the shape of trade within the next 10 years.
Lopez Obrador is creating noise because his plans could have a significant impact on so many global industries. As a logistics professional, I am especially interested in two changes that relate directly to the supply chain.
Changes in the Northern Border States
Firstly, President Lopez Obrador announced in December that he will decrease taxes for companies and plants in northern states along the U.S./Mexico border. He is also planning to raise minimum wage to 177 pesos ($9.00) per hour along the northern border, which is nearly double the minimum wage throughout the rest of Mexico. In addition to those changes, he plans to set fuel prices in the area on par with those in the U.S.
This is all being done to give an upper hand to the businesses in northern Mexico because they’re known to compete with American companies. As of 2016, Mexico was exporting $294.2 billion worth of goods to the United States. Essentially, Lopez Obrador hopes that more products will be made at the border, leading to more exports.
Using the Isthmus of Tehuantepec for Ship Transport
The second item I’ll discuss is Lopez Obrador’s plan to build a railroad, providing an alternative route for all freight going from Asia Pacific to the U.S. The railroad would be built at the Isthmus of Tehuantepec, the thinnest strip of land in Mexico. Currently, ships travel through the Panama Canal and deliver their goods to the east coast. With the new railroad, ships could travel by rail to deliver goods to the west coast of the U.S. instead, avoiding canal fees and decreasing fuel costs. The Istmo would be a direct competitor for the Panama Canal.
In 2018 alone, the Panama Canal moved 21,254 long tons of cargo each month, on average. Because the length of the canal is 50 miles, ships avoiding the canal may benefit from the opportunity to save many tons of fuel each trip. The exact amount of fuel saved will vary by ship based on size, speed and additional factors.
Overall Impact on Global Supply Chain
All these projects are currently being sent to Congress and are likely to happen. It is impossible to predict the global impact of these initiatives with complete accuracy, but there’s no doubt that supply chain would be heavily affected by the changed President Lopez Obrador is implementing.