Mexico Set For Strong Christmas As 3Q Imports Jump 14%

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1 A.P. MOLLER REPORTE Moller-Maersk DE COMERCIO DE MEXICO PRIMER TRIMESTRE 2017 Trade Report 3Q 2017 MEXICO Mexico Set For Strong Christmas As 3Q Imports Jump 14% Electronics, Auto and White Goods Imports Underpin Mexican Manufacturing Diversification Crucial Amid Asian Weakness and NAFTA Uncertainty China Steps Up Environmental Regulations, Asian Exports Drop 14% Avocado Exports -, Diverted To The US After Weak Harvest

2 2 Mexican manufacturers and retailers are set to enjoy their best Christmas since 2015 following a jump in electronics, white goods and auto parts imports in the third quarter ahead of the holiday season but diversification is going to become increasingly important for exporters amid Asian softness and NAFTA uncertainty. Thanks to improving consumer confidence on the home front and US economic strength, electronics and auto manufacturers increased Asian and European third-quarter import orders by 31% and 27% respectively, contributing to another strong quarter for total Mexican maritime container imports, which rose 14%. Asian, in particular, Japanese and South Korean vehicle manufacturers were among the top performers in the extensive Mexico auto manufacturing sector. However, total exports lagged, declining 3% in the third quarter year on year following a 14% drop in Asian exports. Consequently, total Mexican imports and exports finished the third quarter 9.7% higher over a high base of comparison during the same period a year earlier. Despite export weakness, this is still an excellent result. So much so that Maersk Line is revising higher its forecast for 2017 imports to 12% from growth. Exports are now, however, seen below for the year amid uncertainty about Chinese demand. We are cautiously optimistic going forward until the first quarter, Mexican trade on the imports side has surprised us positively as consumer confidence improves but exports need to keep growing as diversification through opening new markets or trade accords has never been more important than before to help support key industries such as auto, says Mario Veraldo, Managing Director for Mexico and Middle America cluster. Clearly, a possible new and successful TPP trade deal for Mexico would go a long way toward boosting trade diversification across more than 10 Pacific nations now that talks have been revived, he adds. MEXICAN RESILIENCE As Mexico is expected to deliver another strong trade performance in 2017, the country remains one of the strongest trade markets in Latin America and one of the better performing markets in the world among advanced and more established economies. A testament to this resilience is how the nation s industry and companies coped with the recent earthquakes. The earthquakes will likely lead to a small revision lower in GDP forecasts for 2017 but most companies only stopped work for one day after eight states accounting for 3 of Mexico s GDP were affected, according to data from the national statistics agency (INEGI). For Mexico City, which accounts for 17% of total GDP, only 16% of businesses in the capital, or around 329,000, reported serious damage caused by both earthquakes, according to INEGI. In terms of imports, relief goods were up 3 in the third quarter following the earthquakes. Total Imports and Exports 2 21% Total Imports 2 13% 9.7% 8.6% 2 17% 11% 14% 14%

3 3 IMPORTS Imports in the third quarter are traditionally driven by retailers and manufacturers ramping up 5 production ahead of Black Friday, Buen Fin and Christmas. Orders are made for deliveries in August 4 and September so that new products start to hit 3 stores and forecourts as of October. Consequently, third-quarter imports were driven by electronics, 2 auto parts and white products from Asia and Europe, respectively 12% and 17% higher, leading to total imports growth of 14% - just a tad lower from a strong first-quarter performance. - Electronics and white goods as well as automotive parts all saw growth above 2 in the third quarter, underpinning continued strength in the Mexican manufacturing sector, says Morgan Edwards, Head of Sales for the Mexico and Middle America cluster at Maersk Line. EXPORTS Third-quarter exports were predominantly impacted by a one-off third-quarter 2016 gain in aluminium exports that did not repeat this year. Exports were also impacted by tighter environmental regulations in China that are aimed at improving sustainable practices within industry. For Mexican exports, this led to a drop in waste exports to China with plastic scrap exports declining 13% in the third quarter year on year and wastepaper falling 18%. For imports, tighter environmental regulations led to Chinese factory closures, hurting tyre, down 2%, and chemical commodities. Beer, beverages and electronic goods exports enjoyed the highest growth rates but a weak avocado harvest in California meant that avocadoes went north across the border instead of overseas, leading to a drop in maritime container exports for the quarter, says Edwards. Avocado exports dropped around. The difference in results between imports and exports is stark with just two sectors on the imports side underperforming compared to nine sectors in decline for exports. 39% Total Exports 0.2% The need for diversification has never been greater. Companies need to gain the agility to switch markets quickly to maintain cashflows and margins when traditional trading partners encounter difficulties. This isn t easy. Opening new markets is key. Europe is clearly one answer but establishing new bilateral trade accords with more countries. Another important step is to foster a culture of diversification among Mexican businesses so that producers depend less on the US and build new bridges with buyers in other nations on other continents too. This applies to all sectors especially auto in light of NAFTA uncertainties next year, she adds. A potential TPP trade deal was revived last week in Vietnam with 11 nations taking part in the new talks. Latin American nations are represented by Mexico, Chile and Peru % European Exports 12% 7%

4 4 TOP 20 COMMODITIES ASIA + EUROPE IMPORTS Growth Q3 17 vs Q3 16 RELIEF GOODS 3 ELECTRONICS, ELECTRONIC APPLIANCES, AUDIO, VIDEO EQUIPMENT, TELECOMS EQUIPMENT 31% AUTOPARTS, CAR PARTS, VEHICLE PARTS, MOTORCYCLE PARTS, BICYCLE PARTS 27% RUBBER ARTICLES, RUBBER GOODS 26% CERAMICS, STONEWARE 2 WHITE GOODS 22% MOTORIZED VEHICLES, CARS, BUSES, TRUCKS, LORRIES, MOTORCYCLES, MINIVAN 19% IRON, STEEL, IRON AND STEEL ARTICLES, METAL 14% PAPER, PAPERBOARD, PACKING MATERIAL 14% PLATES, SHEETS, FILM, FOIL, PLASTIC 14% ORGANIC CHEMICALS, NOS 13% PLASTIC, PLASTIC ARTICLES 12% MACHINERY OR MECHANICAL APPLIANCES 9% FURNITURE, NOS 9% TOYS AND GAMES 6% MISCELLANEOUS MANUFACTURED MATERIALS 6% CHEMICALS, NOS 3% GARMENTS, APPAREL 1% NEW - TIRES, TYRES, RUBBER MAN-MADE FILAMENTS, TEXTILES Top 20 commodities ASIA + EUROPE EXPORTS -2% Growth Q3 17 vs Q3 16 SCRAP METAL 74% SALT, SULPHUR, EARTHS AND STONE, PLASTERING MATERIALS, LIME, CEMENT, MARBLE, GRANITE 42% BEER, BEVERAGES 3 ORES, NOS 3 ELECTRONICS, ELECTRONIC APPLIANCES, AUDIO, VIDEO EQUIPMENT, TELECOMMUNICATION EQUIPMENT 28% WHITE PIGMENTS, TITANIUM DIOXIDE 21% VEGETABLES, NOS, VEGETABLES 18% PORK, SWINE, MEAT 18% MOTORIZED VEHICLES, CARS, BUSES, TRUCKS, LORRIES, MOTORCYCLES, MINIVAN 9% CHEMICALS, NOS 7% BANANA, PLANTAINS, FRUIT IRON, STEEL, IRON AND STEEL ARTICLES, METAL 4% MACHINERY OR MECHANICAL APPLIANCES AUTOPARTS, CAR PARTS, VEHICLE PARTS, MOTORCYCLE PARTS, BICYCLE PARTS - AVOCADO, FRUIT CITRUS VARIOUS, ORANGE, FRUIT ORGANIC CHEMICALS, NOS PLASTIC, PLASTIC ARTICLES WASTEPAPER WHITE GOODS -1% -12% -8% -8% -13% -18% -21%

5 5 About Maersk Line Maersk Line is the world s largest container shipping company. Maersk Line employs 7,800 seafarers and 21,800 land-based employees and operates 639 container vessels. Maersk Line serves customers through 306 offices in 114 countries. Latin America represents around 12% of Maersk Line s global volumes. About Moller-Maersk Maersk has more than 6,800 staff in Latin America and 89,000 in the world. About APM Terminals APM Terminals is a leading global port and cargo inland services provider, part of AP Moller-Maersk, with a presence in 59 countries providing the world s most geographically balanced global terminal network. Based in The Hague, Netherlands, the company works with shipping lines, importers/exporters, governments, business leaders and the entire global supply chain to provide solutions that help nations achieve their ambitions and businesses reach their performance goals. The company has 20,000 employees in 59 countries. Maersk is present in more than 130 countries. For more information please contact: Rafael Luna rafael@prconsultingmexico.com