Cargo insurance costs rise in Mexico, amid a deteriorating security environment

2017 is shaping up to be a challenging year in Mexico. While global headlines have focused heavily on the knock on effects of Donald Trump’s election on his neighbors – the fluctuation of the peso, jittery investors in a climate of high uncertainty surrounding future trade relations –  inside Mexico, divergent but significant security worries are keeping many up late into the night. In particular, recent news that a number of major insurers have pulled the plug on cargo insurance, has created concerns for a number of Clients. 

Current Risk Landscape in Mexico

As President Enrique Peña Nieto serves out his final year in office he faces record low approval ratings and his Institutional Revolutionary Party (PRI) are trailing in third place in the 2018 presidential polls. So far this year, homicide rates have spiked by more than 30% comparative to 2016 and notably risen since Peña Nieto’s first two years in office (2012-2013). Peña Nieto came to office vowing to half the number of violent crime incidents in Mexico. Today, the security situation is comparative to the peak years of violence under former president Felipe Calderon (2006-2012), and the government is notably silent surrounding a security strategy.

Crime statistics in Mexico tend to offer a limited snapshot of the reality on the ground, particularly in reference to the high numbers of violent crimes that go unreported. However, the figures point to worrying trends. Former hotspots, such as the northern border state of Tamaulipas remain challenging, but other central states are now recording significant upticks in violence – notably, Mexico state, Puebla, Guanajuato and the wider Bajio region.

Mexico City – the country’s economic heartbeat – is having a particularly violent 2017, with record high homicide rates. Despite Mayor Mancera’s former insistence that organized crime groups were not operating in the capital, the uptick in violence in the past year is likely being driven by armed criminal groups in the capital, some of which are linked to major cartels.

official homicide statistics in mexico city

Mexico City – 2017 marks highest rates of homicide in last two decades

homicide rate per 100000 inhabitants

What does this mean for cargo theft?

On 20 July, a narco-blockade was set up in the challenging suburb of Tlahuac on the outskirts of Mexico City near to many industrial estates. The blockade was in response to an incident earlier in the day, when the Marines entered the neighborhood and killed suspected members of a local cartel.

Many of our Clients use facilities in industrial areas on the outskirts of Mexico City or in neighboring Mexico state. Industrial parks are often located nearby challenging neighborhoods, with poor policing, high levels of unemployment and few local opportunities. Cargo theft of trailers passing through these neighborhoods happens regularly, either by organized criminal groups – who often have the local authorities on their pay roll – or by opportunistic criminals looking to make a quick profit. The latter often target vulnerable looking vehicles, with merchandise that can be quickly sold on in local markets.

While BSI’s SCREEN intelligence platform rates Mexico as severe for cargo theft and general cargo disruption, we note the importance of identifying where the risks are and what makes cargo particularly vulnerable. Business continuity planning demands taking a risk-intelligence approach, assessing where there may be disruption along traditional routes and having contingency plans. We also encourage transport providers to take different routes, at varying times of the day, so it is less easy to predict when cargo will be passing through specific neighborhoods.

How are insurers responding?

The Mexican Association of Insurance has confided that a number of insurers will no longer insure cargo providers in Mexico because of the growing rate of cargo theft. The challenges of predicting loss is particularly acute when there is so little public data available. This is where we assess particular routes in question, the type of cargo and analyze the quantitative and qualitative risks to better predict where to prioritize on security spends.

Why is the security environment deteriorating again?

While we may not be seeing the gruesome killings of 2007-2011 that made major front line news across the globe, turf wars are still being fought across the country for control of key routes for drug and people trafficking. The detention of “El Chapo” in 2016 and subsequent extradition to the US in 2017 has led to significant weakening of the once dominant Sinaloa Cartel. Chapo’s power vacuum has led to internal conflict within the cartel, as well as a fight for control over swathes of the country where the Jalisco New Generation Cartel is flexing its muscles to gain control of key plazas (corridors).

How does this affect transport operations and facilities in Mexico?

The continued fragmentation of organized crime groups has given birth to small scale armed groups that operate independently, or fluidly align themselves to organized crime groups dependent on power structures. They use violence to protect themselves from other criminal groups and state authorities and rely heavily on income from extortion, cargo theft, kidnap and fuel theft. Small local transport providers are frequently targeted by such groups and are extorted or threatened into co-option/collaboration. The local authorities are often suspected of either colluding or turning a blind eye.

What does the road ahead look like?

The threat of cargo theft is not likely to decrease in the short term and we advise Clients to monitor their operations closely, ensuring best practices and due diligence programs are implemented with local business partners. As the election campaign begins in full force later this year, there are likely to be significant protests on major thoroughfares in the capital, Mexico city and state capitals. This could also affect business continuity plans and increase the risk of cargo theft as transporters are rerouted off main highways or stuck in long delays.