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Plans scaled back as trade diminished

By Sandra Dibble
Union-Tribune Staff Writer
2:00 a.m. October 23, 2009



The planned Punta Colonet megaport south of Ensenada, billed as the most significant infrastructure project of Mexican President Felipe Calderón's six-year administration, is being scaled down in the face of shrinking trans-Pacific trade.

After months of delay, Mexican authorities are nonetheless pushing forward with the project, testing private-sector interest in building the massive port-and-rail facility, which is intended to serve the U.S. market almost exclusively.

“It has become necessary to adapt to world economic realities,” Juan Molinar Horcasitas, Mexico's secretary of communications and transportation, said during a visit to Ensenada this month. “There is no doubt the project remains viable, but it needs to be redesigned.”

Punta Colonet was first conceived as trade boomed in 2004, and the ports of Los Angeles and Long Beach were becoming overwhelmed. Punta Colonet's proponents said the Mexican port, 150 miles from the border, would be poised to absorb the overflow.

But container traffic is down 20 percent to 30 percent at U.S. Pacific ports, analysts say. Last week, the ports of Los Angeles and Long Beach, the largest container ports in the United States, reported the lowest September import figures since 2000.

Molinar said that in its initial phase, Punta Colonet should have the capacity to handle at least 1 million 20-foot-long shipping containers annually — about half the originally proposed capacity. Analysts said this week that the number could change based on market conditions.

Project proponents say they are looking at the long-term possibilities.

“This project is very much alive,” said José Rubio Soto, who is overseeing the project for the Baja California state government. “We cannot allow this to be stopped. . . . We're thinking about the next 50 years.”

The Mexican government first published bid specifications for Punta Colonet in September 2008, setting December 2009 as the date for awarding the contract. But the project has been stalled by economic recession and tight credit markets. The announcements of revisions to the bid specifications and solicitation of private-sector input are indications of the government's effort to measure interest in the project.

Baja California authorities say the long-term vision for Punta Colonet remains unchanged: a massive port facility eventually capable of receiving as many as 10 million containers annually from Asia and transferring them by rail to the United States.

Also unchanged is the Mexican federal government's proposal to bid out construction and a 45-year operating lease for the project. The input of the interested parties will be critical in determining how the project moves forward.

When Calderón formally announced the bidding process for Punta Colonet in August 2008, he called the project “one that truly transforms and revolutionizes the productivity of the country.”

The project included not only the port, rail line and a new U.S. border crossing, but also a community of 200,000 residents, requiring schools, roads, and other projects such as a desalination plant.

The newly released bid guidelines are similar to the original version but are vague on timing. They do not set a deadline for submissions or say when the final decision on the winning bid will be determined.

Four groups have expressed interest in the project, and the Mexican government this week invited other “interested parties” to sign up by Nov. 3 to discuss how to make the proposal a reality.

“I think that the cargo will take time to come back, maybe five years, maybe eight years, but it will come back,” said Ernesto Ruffo, a former Baja California governor who is participating in the bidding process.

Ruffo's group, Consortium Seaport Services, is led by a Spanish company, Globalvia, with participation of Watco, a subsidiary of Union Pacific Railroad, and a terminal operator, TraPac.

Ruffo said his group cannot make the project break even with fewer than 2 million containers annually. The initial challenge will be building the rail line to the border. “That investment doesn't change, whether the port is big or whether it's small,” said Ruffo, whose group's plan is to have the rail crossing near Mexicali, across from Calexico.

Some analysts are not upbeat about an imminent resurgence in demand for container shipping in the region.

“The rapid economic growth that we had experienced is probably not going to return, not only because of economic conditions but because of other structural factors,” said John C. Martin, president of Martin Associates, a Pennsylvania-based economic consulting firm for port and airport projects across the United States and Asia.

Martin endorses the scaled-down approach. “I think it's better in today's market to start more slowly than more quickly,” he said.

Rubio, who is overseeing the project in Baja California, said the state's figures show that the demand for container shipping will increase as early as next year.

“To limit ourselves by not carrying out the project would be catastrophic,” Rubio said. “We have to remain positive because this is a long-term project.”


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It will happen IMHO - too big a part of the long planned, coming global economy...

Originally Posted by Noticias

...container traffic is down 20 percent to 30 percent at U.S. Pacific ports, analysts say...

Analysts further expect that Christmas sales will only decline 3% this year...

I think that what many have misinterpreted about this project is seeing it solely as a change of port for container traffic. They only count the number of containers currently moving product from Asia to the USA via Los Angeles / Long Beach. This project represents a major shift for the manufacturing of cars, trucks and other large goods that were previously not economical to build in China and ship due to their size.

Colonet offers the option of making the parts for these large products in China and shipping them to Mexico where they can be assembled by low cost labor before being shipped across the border to market in the USA.

3% drop in sales? I think retailers would jump for joy if they only drop that much...

The one problem I see with respect to assembling Chinese made parts is the uncertainty of the currency values. Ron, you have mentioned on more than one occasion that our debt to the Chinese is the elephant in the room. Many economists expect the dollar to continue to decline for quite some time to come. Thus, foreign products will continue to increase in cost.

That said, I do believe that Mexican products will not see anywhere near the increase in prices as those made elsewhere. Mexico's economy is just too closely allied with that of the US.

Believe it or not, those crazy Germans have big plans for North America, as part of a current business plan to become the number one producer of vehicles in the world. VW is presently investing $1 billion to expand and upgrade their plant in Puebla, MX. VW is currently building a plant in Chatanooga, TN, where they intend to build mid-size vehicles to compete with Camry and Accord, beginning with the model year 2011. VW's avowed reason for investing in North America is a hedge against currency fluctuations. Fundamentally, right now, with the Euro running around US$1.50, VW cannot compete on price while building vehicles such as the Passat in Europe. Toyota, Honda and Nissan all build in North America.

Sure, this is an ever-expanding global economy. And while the dollar sinks, there will be cries of "buy American". VW is joining others in making that esaier to happen.

I know I've come the long way around, but just perhaps Chinese made parts are not going to be the long range solution.

That is a very good point but I think that the dollar is going to have to slide A LOT MORE to make the USA competitive in manufacturing and assembly on a global level...

However......... I am no protectionist. But your point about being competetive on a global level may be immaterial if we actually consume goods made domesticlly. The quick and dirty truth will still be that whether you buy a Honda made in Ohio, a Camry made in Tennessee, a Nissan made in North Carolina, or a WV made in Tennessee, you will still be enriching the coffers of foreign companies. But, alas, we have already made our bed. To have US workers making a decent wage, is better than nothing.

And let's not forget that there are many traditional companies that provide "iconic brand" to us that are based elsewhere. Check out Lever Bros.