Record-Breaking Rail Blockade Activity Upends Freight Movements in MexicoEverstream Team
Amidst economic insecurity during the COVID-19 pandemic, multiple long-standing disputes have flared in Mexico over the course of 2020, leading to a record-setting year of protest activity involving rail blockades. In 2019, protests involving rail blockades were recorded on a total of 64 days. In 2020, more than 143 days involving rail blockade activity in at least 1 location nationwide have been recorded so far. Regions that have experienced at least 1 blockade include Chihuahua, Sonora, Sinaloa, Michoacán, Veracruz, Puebla, and the State of Mexico. In Mexico, where 70 percent of rail tonnage is connected to foreign trade, the impacts on international supply chains can be severe. This report outlines the 2 most recent blockades in Mexico, including the ongoing disruptions in Michoacán.
Long-standing dispute flares in Michoacán, disrupting cargo at the Port of Lázaro Cárdenas
Since October 2, protesters affiliated with the National Coordinator of Education Workers union (CNTE) have blockaded railroad tracks operated by Kansas City Southern of Mexico at various points within the state of Michoacán. Specifically, blockade activity has been reported in Uruapan, Morelia, and Pátzcuaro, 3 municipalities that are situated on the segment that connects the Port of Lázaro Cárdenas with lanes leading to Guadalajara, Toluca, and Mexico City. The protests are driven by calls for the payment of salaries for 1,200 teachers and lagging benefits for new teachers. Multiple blockades by the same group have been previously recorded by Everstream Analytics in the same municipalities. A local industrial advocacy group estimated on October 23 that total losses from the blockades in Michoacán already exceed 900 million Mexican Pesos, or 43.1 million US Dollars.
After 20 days of blockade activity passed, sources reported that a total of 17,000 railway cars have been disrupted, with 31 trains stopped on the tracks, disrupting the movement of over 4,858 shipping containers and operations at the Port of Lázaro Cárdenas. Of the disrupted shipping containers, 2,396 are understood to be stranded at the port, with 1,036 pending loading, 819 canceled or switched to an alternative mode, and 607 loaded without train assignment. Additionally, 1,215 finished vehicles that are stranded have been loaded onto a train, while another 434 are pending loading. Cargo theft activity has been reported in Caltzontzin, near Uruapan in Michoacán on October 16; some stranded cargo has been relocated to nearby courtyards, ports, or border posts and placed under guard.
On October 15, sources indicated that Maersk suspended service offerings in Michoacán due to a lack of available platforms for rail, port, and railway terminals. In an effort to address strong demand for unplanned mode transfers, customs officers stationed at the Port of Lázaro Cárdenas in Michoacán extended their service hours from October 21 to be from 08:00 to 20:00 local time. The measure is in response to congestion and disruptions at the port as a result of rail blockades by teachers in the region, causing many shippers to reallocate rail cargo to ground transport options. For upcoming shipments that are not stranded by the protest, shippers are reportedly utilizing alternative ports in Mexico in addition to the Ports of Los Angeles and Long Beach in the United States at additional cost.
Farmers relent in Chihuahua after 60 days
Elsewhere, a group of protesting farmers recently released a blockade on the Ferromex rail network near Pedro Meoqui, Chihuahua on October 25 after 60 days. The blockade was situated southeast of the Ferromex Junction in Chihuahua, therefore disrupting traffic on the vital Torreón to Ciudad Juárez/El Paso lane (which moves cargo from Monterrey, Saltillo, and Chihuahua to and from Juarez and the United States) but sparing traffic on the lane from Topolobampo to Ojinaga/Presidio. The disrupted rail lane is commonly utilized for agricultural products, automotive parts, assembled vehicles, chemical goods, electronics, perishable goods, and the energy industry. Supply chain managers should anticipate residual delays as service is restored.
The protesters were demonstrating in relation to Mexico’s obligations under the Water Treaty of 1944 with the United States, which was recently renegotiated and is likely to disrupt water supply for agricultural producers in Chihuahua. The treaty is a current point of contention because the Mexican Government owes the United States 324 million cubic meters of water dating back to 2015, the due date for which is October of 2020. As the date approached, farmers began to protest in September 2020 against the impact of this repayment.
Under the recently-renegotiated plan, provisions were established to secure water access in Mexico in the event of drought, water infrastructure failure, or humanitarian emergency. However, the extent to which this will satisfy protesting farmers is not known. Throughout the duration of the protest, the farmers refused to negotiate with government authorities, but eventually were persuaded to end the blockade in recognition of the hardship caused to other industries and workers in the region. Changes in the flow of water are expected to take place on November 19, which may lead to further unrest.
How to adapt your supply chain to rail disruption risk in Mexico
In contrast to the most common approach taken by governments in the face of COVID-19, President Andrés Manuel López Obrador has insisted that the Mexican government implement a lean budget in 2021. In turn, the primary factors that drive protesters to the rails in Mexico – namely land management disputes, public payroll controversies, and general economic insecurity – are likely to be exacerbated. As such, supply chain managers depending on rail transportation in Mexico should take note of this increased risk for disruption and prepare contingency plans in case rail blockades disrupt their network.
First, establish strong relationships with a trucking agency servicing your key ports that enables you to secure alternative capacity in case of an emergency. Alternatively, understand what alternative ports you may be able to utilize in the event of a crisis and what steps would need to be taken in order to execute that contingency. Second, ensure that you have sufficient inventory and cargo protection measures in place if a shipment becomes stranded for an extended duration. Finally, consider using risk monitoring tools to track your supply chain end-to-end and receive near-real time alerts on rail blockades, among other disruptions, giving you a first-mover advantage when crisis strikes.