Grupo TMM, S.A. de C.V.

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Grupo TMM, S.A. de C.V.

Avenida de la Cuspide 4755
Mexico City, D.F. 14010
Mexico
Telephone: +52 (55) 5629-8866
Fax: +52 (55) 5629-8899
Web site: http://www.tmm.com.mx

Public Company
Incorporated: 1958 as Transportacion Maritima Mexicana, S.A.
Employees: 10,213
Sales: 9.18 billion pesos ($1 billion) (2001)
Stock Exchanges: Mexico City New York
Ticker Symbols: TMM A and TMM L (Mexico City) TMM and TMM/L (New York)
NAIC: 482110 Line-Haul Railroads; 494230 Specialized Freight Trucking, Long Distance; 488310 Port & Harbor Operations; 488320 Marine Cargo Handling; 488991 Packaging and Crating; 511120 Offices of Other Holding Companies

Grupo TMM, S.A. de C.V., formerly Transportacion Maritima Mexicana, S.A. de C.V. (TMM) is the holding company for the largest multimodal and logistics shipping company in Latin America. The company manages some Mexican ports and has established alliances with U.S. shipping and trucking firms. Its most valuable holding is its majority stake in Grupo TFM, S.A. de C.V., a joint venture with Kansas City Southern Industries Inc. that operates Mexico’s most important railway.

Maritime Powerhouse: 1960-90

The enterprise founded in 1955 became Transportacion Maritima Mexicana, S.A. in 1958. It was founded by Enrique Rojas, who became its president and chairman of the board, and the enterprise was backed by a group of private investors, including the Serrano Segovia family. The federal government, by means of the Bank of Mexico, the National Bank of Foreign Commerce, and Nacional Financiera—its development agency—acquired 30 percent of the firm’s equity in 1962, with the rest remaining in private hands. TMM began operations on the Atlantic and Gulf of Mexico coasts in 1960 by acquiring Linea Mexicana. Pacific Coast liner service to Central and South America began in 1961, transatlantic services on a regular basis to Northern Europe in 1963, and regular services to the Far East and Mediterranean in 1968.

By 1970 TMM was Mexico’s most important shipping line, although it represented only 10 percent of the nation’s total seaborne commerce. Some 33 ships with combined 250,000 metric tons of deadweight were visiting 54 foreign ports in 21 American, European, and Asian countries. In 1969 these ships traveled 1.09 million nautical miles and transported 1.58 million metric tons of cargo. Some 11 of these ships were practically new and included specialized vessels to carry coal, cereals, minerals, and other bulk cargos. In 1971 TMM took possession of two container ships, built for the firm in Yugoslav shipyards. These were the first two container ships to fly under a Latin American flag and had the capacity to carry 417 containers, of which 60 percent could be refrigerated.

TMM began trading shares of its common stock on Mexico City’s stock exchange in 1981. The company, which had established storage capacity for bulk liquids in 1973, branched out further in 1982 by purchasing the Texas-Mexican Railway, a line running from the Mexican border with Texas to the port of Corpus Christi, Texas, a port used by many Mexican shippers. The following year it began transporting automobiles and auto parts in specialized ships from Japan to Long Beach, California. By 1985 it also had added an air-freight subsidiary and an interoceanic container transport service that crossed the Isthmus of Tehuantepec by road and rail as an alternative to the Panama Canal for shipping between the Atlantic and Pacific oceans. With a wholly owned fleet of 29 ships in 1985 and chartered ships as well, it was offering service to more than 100 ports in 26 countries. The company was a major beneficiary of new government regulations directing public-sector shippers to use Mexican-flag merchant vessels whenever possible.

In 1990 TMM added Ensanada, Baja California, as its first Mexican port of call after leaving Long Beach. This made it the only carrier offering direct service to Ensanada, which was located only about 65 miles from the many maquiladoras, or assembly plants, on the Mexican side of the border with California. Although most of these plants were owned by U.S. companies, in recent years Japanese and other Asian countries had stepped up their investments in maquiladora plants, thereby generating an increasing flow of electronic components, textiles, and consumer items from East Asia to Mexico. TMM’s revenues in 1990 came to $402 million. Its fleet of 35 ships transported more than 200,000 containers and about four million tons of bulk cargo. Specialized TMM ships carried about 100,000 automobiles that year. About one-fifth of company revenues were coming from a single client, Nissan Motor Co.

Jose Serrano Segovia became chairman of TMM following the 1991 purchase by Grupo Servia, S.A. de C.V., a family corporation, of about one-third of TMM’s common stock. Later that year TMM made its first equity offering in the United States, selling American depositary receipts—the equivalent of shares—and the next year it raised $91 million with an international public offering of shares. The shares held by government bodies were put on the market in 1992.

Rail and Road Links Eclipse Shipping: 1992-2000

TMM, in 1992, began a tanker-vessel operation and launched a $650-million investment program to upgrade its fleet and to expand its operations in surface transportation. As part of this endeavor it established a joint venture with J.B. Hunt Transport, Inc. (terminated in 2002) to transport goods over the Mexico-Texas border by means of rail or truck. In 1993 TMM and a smaller Mexican shipping line that it later acquired, Tecomar S.A., joined together to begin a vessel-sharing venture offering weekly service between three Mexican ports, two Texas ports, and seven European ones. TMM had been using five ships that sailed at about eight-day intervals between some of these destinations. Under the new agreement, it replaced the ships with three larger ones. By this time TMM was hauling more than half of all Mexican imports and exports. Also in 1993, TMM signed a seven-year contract to carry petrochemical products of Petroleos Mexicanos (Pemex) within Mexico and a five-year contract to move the giant firm’s oil within Mexico. In 1994 TMM and J.B. Hunt began transporting goods for Cifra, S.A. de C.V., which owned the Aurrora department store chain and was a partner of Wal-Mart Stores Inc. in its Mexican operations.

TMM lost money in 1994, when a sudden peso devaluation resulted in an economic crisis. The crisis struck Mexico’s banks most of all, and TMM lost much of its 43-million-peso ($14 million) investment in shares of failed Grupo Financiero Cremi. However, since 92 percent of TMM’s revenues were in dollars, not pesos, the company was not as hard hit as most, and it returned to profitability in 1995. By 1996 TMM was planning to replace its seven trans-Pacific vessels with six faster, 22-knot ones. The company in 1995 had won-in partnership with Stevedore Services of America, Inc. (SSA)—a 20-year concession from the Mexican government to operate the container terminal at Manzanillo, Mexico’s most important Pacific port. In 1996 TMM paid $7.9 million for a 25-year concession, again with SSA, to operate the international cruise and cargo terminals, plus a multipurpose terminal, at Acapulco, including the right to open duty-free shops to serve tourists from passenger ships. Also in 1996, the company won a 20-year concession for $7.1 million to operate the international cruise terminal at Cozumel Island and announced a ten-year distribution contract with Allied Domecq Group, a large dealer of wines and spirits such as tequila, rum, and brandy. Port facilities at Tuxpan, Veracruz, were opened in 1996 in collaboration with Tecomar.

TMM and Kansas City Southern Industries submitted, in December 1996, a successful bid of 11.07 billion pesos (about $1.4 billion) to the Mexican government for a 50-year concession to operate Ferrocarril del Noreste, S.A. de C.V., Mexico’s most important railway line. The joint-venture partners established a new company, Transportacion Ferroviaria Mexicana (TFM), to operate the rail line, with Serrano Segovia as president and chief executive officer. By 2002 TFM was hauling 60 percent of all rail traffic crossing the border between the United States and Mexico.

TMM joined with CP Ships Holding, Inc., a subsidiary of Canadian Pacific Ltd., in 1998 to establish a joint venture named Americana Ships Ltd., with 40 ships and combined sales volume of $1.2 billion a year. This arrangement brought the shipping lines of TMM and CP Ships’ Lykes Lines and Ivaran Lines together, but the lines maintained their separate brand names and continued to compete against one another for cargo contracts. (Ivaran was soon merged into Lykes, however.) The main benefit was the savings expected to result from combining the purchasing power of the carriers in negotiating with stevedoring and other terminal services, inland transportation, warehousing services, and insurance coverage.

In 1997 TMM had revenues of $477.3 million but it lost money that year, and again in 1998. In 1999 it lost an alarming $62.6 million on revenues of $844.7 million, even though the company’s share of Grupo TFM had net earnings of $82.5 million. The maritime segment of its business fell by nine percent in revenue while its rail revenue grew by more than 40 percent, thanks to TFM. Javier Serrano Segovia, nephew of TMM’s chairman, became chief executive officer early in the year.

TMM renegotiated its trans-Pacific shipping arrangements in 1999, when it began a direct service between Mexico and East Asia, without stops in California. The Mexican port of call was Ensenada, and the company used smaller vessels that could enter this shallow-draft harbor. The advantage of docking at Ensenada for Korean and Japanese manufacturers was its close proximity to Tijuana, which had become the television manufacturing corridor for North America and the location for many Japanese and Korean television and electronics maquiladora operations. From Ensanada these ships continued south to TMM’s container terminal at Manzanillo and its intermodal link to Mexico City, where most of the double-stack cargo was electronics, toys, and other consumer goods.

Company Perspectives:

Our Mission: To solve, through teamwork and door to door solutions with a multi-modal personalized focus, the specific transportation and logistics needs of our clients.

TMM sold nine containerships in 1999 that had formerly been chartered to Americana Ships and were no longer needed because of overcapacity and low rates in its key trans-Atlantic market. Later in the year it sold for $68.5 million its 50-percent stake in Americana Ships to its partner, Canadian Pacific, and Canadian Pacific’s shipping division, CP Ships Holdings, Inc., plus its entire division of scheduled worldwide liner services. It also received $46.1 million from SSA by increasing SSA’s share of the ports-and-terminal venture to 49 percent and sold its share of a joint venture to market bulk supplies of liquid chemicals in four ports for $27.8 million. From these and other asset sales in 1999 and 2000 TMM raised $277.3 million. The decision to sell its stake in Americana Ships came soon after Standard & Poor’s downgraded the company’s credit rating. “We were too small a carrier to remain in international shipping,” Brad Skinner, a TMM officer, told Maja Wallengren of Latin Trade in 2002. “We could not compete, so what we did was shift the company to where the country is going.” The sale reduced TMM’s debt from $600 million to less than $400 million.

TMM continued specialized marine transport, winning, for example, a contract to ship a million tons of liquid petrochemicals for Celanese Mexicana, S.A. from its La Cangrejera complex near Coatzacoalcos, Veracruz, to Houston. Ford Motor Co. hired TMM to manage the logistics, transportation, and distribution of after-market auto parts in Mexico, and DaimlerChrysler Corp. named the company its “Best Transporter of the Year” in 1999. General Motors Corp. made a $20-million investment in TFM’s multimodal subsidiary. A concession to manage the port of Progreso, Yucutan, was purchased for $4.5 million. TMM also was running 13 Mexican logistics centers within Mexico. Railroad revenues now accounted for about 70 percent of company revenues.

TMM in 2001 and 2002

TMM’s division for specialized marine transport had 32 ships, owned or rented, in 2002, with a total of 223,100 deadweight tons. It was deploying supply ships and tankers to serve the petroleum industry, parcel boats to transport liquid chemicals, automobile-transport boats, and, in Manzanillo, tugboats. The ports and terminals division was managing (with SSA) four ports under concessions from the federal government and was also operating facilities in the ports of Veracruz and Tuxpan. The logistics division was providing intermodal services, including packaging, by sea and rail with offices in 13 Mexican cities and strategic alliances as a maritime agent in Chile, Costa Rica, Ecuador, and Venezuela. Its customers, besides the Big Three U.S. auto manufacturers and Nissan Corp., included such U.S. firms as Procter & Gamble and Costco. This division was operating 420 trucks and 200 road-rail semitrailers. The railroad division represented TMM’s share of Grupo TFM, which included the Texas-Mexican Railway, a subsidiary of Mexrail, Inc. (Mexrail, in which, as well as TFM, TMM held a 51-percent share, was sold to TFM in 2002 for $64 million.) TMM was merged into Grupo Servia, which then became Grupo TMM, in 2001. Members of the Serrano Segovia family retained a majority of the voting shares of common stock and, in 2001, held 46.5 percent of the total shares.

Of TMM’s revenues of $1 billion in 2001, the rail division accounted for 66 percent; specialized maritime, 17 percent; ports and terminals, nine percent; and logistics, seven percent. Of the company’s operating income of $189.1 million, rail accounted for 81 percent; ports and terminals, 16 percent, specialized maritime, two percent; and logistics, one percent. Net income came to $8.9 million. The long-term debt at the end of 2001 was $953.2 million and the total debt about $1.29 billion.

Principal Divisions

Logistics; Ports and Terminals; Railway; Specialized Marine Transport.

Principal Subsidiaries

Administracion Portuaria Integral de Acapulco, S.A. de C., V. (51%); Autotransportacion y Distribucion Logistica, S.A. de C.V. (51%); Comercializadora Internacional de Carga, S.A. de C.V.; Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (38%); Lactocomercial Organizada, S.A. de C.V.; Maritima Mexicana, S.A. de C.V. (60%); Naviera del Pacifico, S.A. de C.V.; Seglo, S.A. de C.V. (39%); Servicios Mexicanos en Remolcadores, S.A. de C.V. (60%); Terminal Maritima de Tuxpan, S.A. de C.V.; TFM, S.A. de C.V. (31%); TMM Logistics, S.A. de C.V.; TMM Multimodal, S.A. de C.V. (97%); TMM Puertos y Terminales, S.A. de C.V. (51%).

Principal Competitors

Allied Holdings, Inc.; C.H. Robinson Worldwide, Inc.; Grupo Ferroviario Mexico, S.A. de C.V.; Union Pacific Corp.

Key Dates:

1960:: TMM begins shipping operations on the Atlantic and Gulf of Mexico coasts.
1970:: TMM is Mexico’s biggest line, with 33 ships.
1992:: The company forms a joint venture to truck goods to the United States.
1995:: TMM wins the first of several concessions to operate Mexican port facilities.
1997:: Through a joint venture, TMM begins operating Mexico’s leading railway.
1999:: TMM withdraws from its original business of general maritime shipping.
2001:: TMM merges into Grupo Servia, which then becomes Grupo TMM.