Robert Cottey, Americas Analyst at A2 Global Risk
Robert Cottey is A2 Global Risk’s Americas Analyst. Robert, a British citizen, is responsible for A2 Global Risk’s analysis of political and security risks in the Western Hemisphere. Prior to working for A2 Global Risk, Robert was a parliamentary assistant for a member of the European Parliament in Brussels, and also has experience working at EU and UK diplomatic missions in Mexico and Costa Rica respectively. Robert has an MSc in Latin American Studies from St Antony’s College of the University of Oxford, as well as a first-class BA (Hons) in International Relations from the University of Nottingham, during which he spent time studying at universities in Mexico and China. In addition to English, Robert has a fluent command of Spanish, as well as a limited knowledge of Portuguese and French.
Fuel Shortages Raise Risks For Mexico’s Just-In-Time Supply Chains
Since early January 2019, Mexico has been hit by shortages at fuel stations, caused by a new distribution strategy to counter fuel theft.
Fuel stations across Mexico have been experiencing shortages since early January 2019, when the government and state oil company Petróleos Mexicanos (Pemex) introduced a new tanker-based distribution strategy to counter illegal fuel theft.
Initially, shortages were limited to nine central and northern states, however they have since spread to the capital Mexico City and prompted panic buying, long queues and even closures of petrol stations.
On 10 January, the Tuxpan-Azcapotzalco pipeline, a key supply line to Mexico City, ruptured in two places, further exacerbating existing pressure on supply.
As of 14 January, shortages continue across much of the country, particularly in central states and Mexico City. These have led to spontaneous protests and road blocks in the capital and the states of Guanajuato, Jalisco and Querétaro, and heightened business risks for just-in-time supply chains, including in the automotive and logistics sectors.
The new distribution method is also leading to backlogs for the unloading of oil tankers at key ports, including the Gulf Coast ports of Tuxpan, Pajaritos and Madero, as well as the Pacific port of Manzanillo.
The shortages at the pump have largely been caused by government moves to counter illegal fuel theft, which according to President Andrés Manuel López Obrador cost USD3 billion in 2018. The most common forms of fuel theft were pipeline tapping and theft of tanker trucks.
In order to counter this theft, Pemex has closed several key pipelines and refineries and ramped up distribution via tanker trucks. The government has also deployed 4,000 military personnel to secure six major oil refineries across the country.
The shortages have begun to have a significant impact on key economic sectors, such as the automotive industry and manufacturing.
On 10 January, the Mexican Automotive Industry Association (AMIA) warned that disruption to logistics heightens the risk of production being suspended at plants. The automotive industry is especially vulnerable, with many plants located in northern and central states affected by shortages, such as Coahuila and Guanajuato, and because of the nature of its just-in-time supply chains. Manufacturers are also facing shortages of high-quality imported fuels which are used to fill new vehicles’ tanks.
The Business Coordinating Council (CCE), a powerful business lobby, has also warned that fuel bottlenecks are having disruptive effects on workplace attendance.
RESPONSE & FORECAST
In the one-week outlook, there is a high likelihood that fuel stations continue to face shortages, particularly in northern and central states, as well as Mexico City. Firms operating in these states should factor shortages into operational planning and consider implementing contingency measures where appropriate for business continuity.
Manufacturers and automotive industries should consider increasing supplies of essential parts and equipment to mitigate the risk of delayed deliveries.
Firms which import or export via major ports should engage with the port authorities to gauge the extent of possible delays.
Companies should alert suppliers, clients and partners of delays where necessary, and consider allowing staff to work remotely.
Business travellers to Mexico in the one-week outlook should exercise heightened vigilance due to the higher-than-usual risk of protests against the shortages. These would likely take place in main squares, outside offices of the government or Pemex, or near fuel stations. Road blocks are also likely on major highways. Business travellers should avoid all protests as a precaution and use a secure journey management service.
Firms which operate in Mexico should monitor local media reports and announcements from the government and Pemex regarding the shortages in the one-week outlook.
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