Regional Report: Mexico
By Hal Lundgren01 November 2016
Call it the gamble that paid off.
“I had $20,000 in my pocket,” said Carlos Torres, looking back on his sharpest business decision. “I used the money to start my company.”
One decade after that brave leap, Riggers Group is solidly established in three Mexico locations as a go-to company for turn-key plant locations, machinery moving/installation and other services.
Riggers Group became the first Mexican company to burst among North America’s top 50 rigging companies, Torres said.
Except for a down 2009 after defaulted subprime home loans pushed the U.S. into recession, Torres said his company has kept moving ahead. He estimated average annual sales growth at 20 percent. Acquisitions and technology drove most of the early growth.
Today, training advances and more-than-strict attention to safety push the company forward.
“Our company has never had an accident,” he reported. “We spend lots of time talking about safety before we start daily work.”
Looking at 2017, Torres predicted that the strong U.S. dollar – and weak peso – will sustain value of doing business in Mexico throughout the New Year.
“With the dollar up and the peso down, Mexico continues to look more interesting as a place to invest,” he said.
At Tradelossa, the air holds more than usual caution. A spokesman pointed to a specific reason. He declared the immediate future for Mexico’s national energy giant, Pemex, “troubling.” No wonder. Low oil prices have sent shivers throughout the Americas.
“Today, Mexico’s government gets about 18 percent of its revenue from Pemex,” the spokesman said. He added that the oil price slump has created revenue shortfalls. That’s a major hardship for government programs as well as the private sector.
“Oil has not been what it used to be,” he said. “That means lower energy investment by some companies in Mexico. What would be the point of building or expanding oil facilities when the oil price doesn’t justify that investment? This situation also means our government will not have as much oil money to offset the debt it has taken on.”
Five Tradelossa oil projects demonstrate the demand slippage. Only one of those five projects has moved forward on schedule.
“The other four are still on hold,” he said.
Prior to the U.S. election, general concern and specific worry about the future of the North American Free Trade Agreement (NAFTA) also dogged Mexico’s economy. NAFTA has been beneficial to the country.
“We want it to continue,” the spokesman added.
Tradelossa has prospered, in part, by successfully transporting wind tower components in the U.S. and Mexico. While that market might continue to grow – especially in northern Mexico – another development might not be a Tradelossa opportunity. As Mexico continues to develop green energy, solar energy has become a hot ticket. Tradelossa does not serve that renewable-energy segment because solar panels and other components do not require heavy hauling.
The Tradelossa spokesman also brought up the “R” word – a U.S. recession – as a possibility. That development would hammer Mexico’s economy. The historic recession interval in the U.S. is about 18 to 24 months.
“We just don’t know right now,” the spokesman said. “We might know in a month or three months or six months. Even without a U.S. recession, I see many challenges. Mexico used to have a major (economic) crisis about every six years. We have now gone 20 years without one. I hope we can keep that record going.”
Auto plant expansion
Irrespective of economic turns, Tradelossa stays ready to take on almost any project. The company recently delivered two massive turbines almost 600 miles from the Port of Altamira to Mexico City. The 330-ton haul was part of a combined cycle project.
The Tradelossa spokesman added, “As generators and turbines become bigger, it’s very important to have the right equipment and right team to handle these types of loads. We do.”
Ask Alvaro Rodriguez about 2017, and Monterrey-based MPE’s chief executive will respond by industry segment.
“Our automotive business looks very strong not just for 2017, but maybe the next three or four years,” he replied.
“Kia. Mercedes-Benz. Ford. Audi. Nissan,” said Rodriguez. “They all have projects in Mexico. The heavy hauling and lifting equipment we sell is very expensive, and our customers keep asking for more of it.”
The former head of Amisa, Rodriguez now directs MPE’s sales of heavy equipment.
“The auto segment is just going crazy here,” he said. “That’s not only good for companies in Mexico. It’s also good for Mexico’s general economy and for employing people.”
Other segments, like the struggling oil industry, present challenges cited by the Tradelossa spokesman.
“One of the problems is that many oil projects were bid based on $75 barrel oil,” Rodriguez explained. “When the oil price started to go way down, it affected everyone. Projects were put on hold. There wasn’t enough money to pay for them with $40 barrel oil. It was a mess.”
Rodriguez won’t predict oil’s price in the upcoming year. He also shies from predicting the peso’s value. Mexico’s currency has slipped against the dollar throughout 2016.
“The weaker peso is good for exporters,” he said. “It’s not good for the people of Mexico.”
He echoed the belief that keeping NAFTA in place will continue to help Mexico’s economy. Irrespective of the U.S. election, Rodriguez sees “lots of work ahead for Mexico in 2017, especially in auto manufacturing.”
The automotive sector also shaped the 2017 outlook of David Gonzalez. He’s the mechanical and electrical engineer who serves as president and CEO of International Relocations of Mexico (IRM). His 18-year-old company specializes in planning, transportation, installation, construction and renovation.
“With Japanese, German, U.S. and other countries’ auto companies doing lots of work in Mexico, that’s a very positive trend,” Gonzalez said. “I see even more U.S. and Canadian companies moving to Mexico. There’s another strong market developing for Mexico. It’s aerospace. I think it will remain strong for the next five years.”
Airbus, the global, France-based airplane and aerospace giant, is an IRM client.
“The oil business is something else,” Gonzalez said. “Oil price-dependent companies have struck hard times.
“Like some of our clients, we try to stay diversified,” Gonzalez said. “When something wrong happens in one industry, you want to be ready to do projects in other industries. We always look for ways to expand our services.”
Still, were auto manufacturing to back off, IRM could be vulnerable.
“We’ve been very busy doing projects with auto companies,” he said. “They keep calling us. We have the equipment they need. If we don’t always have the right equipment, but that’s not a problem. We get what we need for the project. We’re ready to share equipment with other (competing) companies to do a job right. Many of us (business owners) are friends who socialize and play golf together. Those friendships enable us to do what’s needed to serve customers.”
Given his outlook for the automotive and aerospace industry, Gonzalez said IRM anticipates “steady business for the next three or four years. If business does slow, I don’t see that happening before 2020.”
As Mexico companies move into 2017 optimistically, the personal schedule for Riggers Group’s Torres calls for a slowdown.
“When I started our company with that $20,000, I worked all the time,” he said. “I would leave for work when my little daughter was still asleep. When I came home at night, it was always late. She would have already gone to sleep.”
Those days are over for Torres.
“My schedule now is instead of working all the time, I only work about 20 hours each week,” he confessed. “I spend much more time with my family. Except for Friday.”
Friday is his golf day.
“We now have many good people working in our company,” Torres said. “I want them to run the business well with or without me. And they do.”