Mexico: Blocked Railroads Impact Automotive Supply Chains

Mexico: Blocked Railroads Impact Automotive Supply Chains

Impact on Automotive Supply Chains

Between late January and mid-February 2018, automotive supply chains across Mexico were affected by intermittent protests by education workers which blocked major railroads essential for importing car parts and exporting finished vehicles. According to some estimates, the blockades have caused over US 21 million in lost revenue.

The protests were organized by teachers affiliated with the Mexican Trade Union of Teachers (CNTE), one of the strongest trade unions in Mexico, due to an ongoing payment dispute since late January 2018. Besides demonstrations in Patzcuaro, Yurecuaro, Uruapan, and Maravatio, the protesters have focused on blocking railroads which had the potential to disrupt freight movements between major port cities including Lazaro Cardenas and industrial areas in Mexico’s interior.

Blocked railroads across Michoacan State belonging to Kansas City Southern (KCS) and Ferromex reportedly forced large steel and automotive manufacturers to stop production at some inland plants, which depend on reliable rail connections to receive car parts’ supplies and ship finished goods via Mexico’s Pacific ports to markets in North America and Asia.

Production of at least five automotive manufacturers has been impacted, including General Motors, Ford, Honda, Fiat Chrysler (FCA), and Kia. Roughly 50 per cent of Mexico’s production of cars for exports was put at risk by the intermittent protests, according to industry sources. Two General Motors plants in Ramos Arizpe and Silao were particularly impacted due to the lack of supply of car parts.

Due to the disruption, auto manufacturers were forced to ship cars either to the Port of Veracruz on the Gulf Coast or to the Port of Lazaro Cardenas on the Pacific Coast via road freight to reach export markets in North America and Asia. Despite the contingency plans, disruptions continued as the port authority at Lazaro Cardenas confirmed that 1,800 containers were halted at the port due to CNTE blockades.

A preliminary deal was reached on Monday, February 12, but blockades and demonstrations continued throughout the week. While the potential for continuous blockades of railroads is low, spontaneous actions organized by the CNTE union over the next few weeks cannot be excluded should the preliminary deal not materialize into a final agreement.

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