David O’Donnell
Director General of O’DONNELL
View from the Top

Logistics Sector Driven by E-Commerce, Consumption Growth

Thu, 11/01/2018 - 15:05

Q: How does O'DONNELL add value in Mexico’s logistics and industrial sector?
A: All of our work is focused on improving our clients’ competitiveness. We study the markets and sectors, we listen to our clients, we design, build and lease state-of-the-art industrial projects in core industrial logistics markets and we provide creative financial solutions. We buy vacant land or underperforming industrial assets and we build speculative properties, anticipating market demand. We also upgrade industrial properties or provide marketing expertise to lease vacant properties. For the last 23 years, we have developed a wealth of market knowledge and market contacts, and we have proven our expertise. Our business is driven by demand, so we need to invest where the demand is strong and consistent.
Q: How might the new USMCA treaty impact the growth of the industry?
A: If USMCA is not ratified, tariffs will conform to WTO rules, which will translate into an average weighted tariff of approximately 3 percent for Mexican exports to the US. In the medium and long-term, this will not disrupt existing supply chains or limit Mexico’s competitiveness. In the short run, it will create volatility, which represents an opportunity for us. Mexico continues to benefit from its workforce and a reliable and competitive supplier base. Furthermore, the energy sector represents a great opportunity for the manufacturing sector to create a block that imports and exports to the world. USMCA is not about each member’s competitive advantage but the USMCA countries’ competitivity vis a vis other trading nations and blocks. Regarding the effects of Trump’s administration and the willingness of international investors to base operations in Mexico, the leasing of space has reached a historic high, especially in the logistics sector and near the US border. We have not seen rents drop or companies leave. But we have not seen new companies making significant investments in Mexico, but those already here have driven the market through expansions.
Q: What is your opinion on ZEEs and what are the incentives for industrial parks that settle there?
A: O'DONNELL thinks ZEEs present an attractive opportunity for those companies that can afford to operate in developing areas. But I am concerned that the plan has not been executed yet, nor have we seen any major investment. The government’s transition will mean the next administration must see it through. Regardless of the ZEE initiative, will keep investing in major logistics markets and where there is proven demand.
Q: What is on your wish list for the next administration and what policies should the new administration implement to further boost infrastructure development?
A: The first thing to be addressed is rule of law. The government needs to have more transparency, security and justice in the system. Secondly, education must be prioritized as Mexico will not be able to compete in the long term without an educated work force. Thirdly, I think that Mexico needs to compete with the US on tax policies, so a tax reform is in order. And lastly, there needs to be investment in infrastructure and a focus on manufacturing clusters, inland ports, rail crossings and the expansion of highways.
Q: What new initiatives or incentives can be implemented to boost industrial and warehouse development in Mexico, as well as the logistics sector?
A: If the sector has to rely on incentives, it will not be competitive in the long term. The greatest gift to the sector would be an administration that is responsible and proactive throughout the permitting process. Furthermore, officials need to establish a master plan for each city’s development and invest to support the plan. Also, the government must strive to provide security and enhance the rule of law in the country. Finally, it should improve and extend education to maximize the country’s competitiveness. In summary, we need rule of law, security, a just and effective judicial system, education, infrastructure, a competitive tax policy and responsible and proactive local and state governments.