Mexican Fuel Price Hike: What You Need to Know
By: Ben Enriquez, SVP Transportation Services
In Mexico, the government controls fuel prices, and has done so for many years – and the intent of deregulating the country’s fuel market has been to reflect global fuel pricing conditions. However, in the past three years, the current government has not adjusted diesel prices in accordance with the global standard. In December 2016, the Mexican government announced an increase in diesel prices for this January. Many had thought that it would be a small increase, but on January 1, the price of diesel went up a whopping 13% – 20% (depending on the region).
Since this price increase, many cities in Mexico have plunged into turmoil. Trucking companies and other businesses that rely on fuel consumption set up blockades in protest. And although the situation is still developing, this unrest has a number of consequences for shippers to consider. Below are a few FAQs and answers for those who may be shipping in an out of Mexico in January, February or throughout the rest of 2017.
Why did the Mexican government increase the fuel cost? The federal government has defended the increases on the grounds that subsidies have maintained prices that do not reflect the true cost of products. They are also in the process of preparing for the full liberalization of gasoline and diesel pricing, which will take place beginning in March and conclude at the end of 2017.
What will fuel prices look like moving forward?
The current price, $17.05 MXN/liter ($3.22/gallon) for diesel, will be in effect January 1 through February 3, 2017. There will be two weekly price updates in the first two weeks of February, and the price of fuel will be determined on daily basis after February 18.
Maximum prices will also differ between regions, depending on the costs of importing fuel to the region, including transportation and distribution. Keep in mind that Mexico is divided into a total of 90 regions (7 on the border and 83 inland) and prices will vary throughout these regions.
What are some of the major effects of the rise in price?
There are 18 states in which there were protests against the price increases, including: Hidalgo, Sinaloa, Guadalajara, Chihuahua, Mexico City and Veracruz. Additionally, the blockades created distribution problems in Chihuahua, Durango, Morelos and Baja California, and could affect airport operations in those states. All major entry ports between the U.S. and Mexico are currently open. Some gas stations have closed for a matter of hours, some for longer, and more have threatened to close.
Mexican fuel surcharges are expected to be set for shippers, and transportation increases are being released by Mexican carriers. And, while we don’t know how much fuel will cost throughout 2017, we do know that prices will continue to increase. It is important for shippers that may be operating in and out of Mexico to monitor this situation closely and take extra steps to make sure any potential disruptions to their network are minimal.
How is the fuel situation in Mexico impacting your transportation strategy?