UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 20-F
 
(Mark One)
 
 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

OR


TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report ________________
 
For the transition period from _________to_____________
 
Commission file number 333-14194
 
GRUPO TMM, S.A.B.
(Exact name of Registrant as specified in its charter)
 
TMM GROUP
(Translation of Registrant’s name into English)
 
United Mexican States
(Jurisdiction of incorporation or organization)
 
Paseo de la Reforma No. 296, P.19.
Colonia Juárez,
06600 México City, México
(Address of principal executive offices)
 
Luis Rodolfo Capitanachi Dagdug
(5255) 5629 8866
luis.capitanachi@tmm.com.mx
Paseo de la Reforma No. 296, P.19.
Colonia Juárez,
06600 México City, México
 (Name, Telephone, E-mail and/or Facisimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
None
N/A
N/A

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Title of each class
American Depositary Shares (“ADSs”), each representing
five Ordinary Participation Certificates
(Certificados de Participación Ordinaria)
(“CPOs”)
 
CPOs, each representing one nominative common share,
without par value (“Share”)
 
Shares



Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
 
102,182,841 Shares
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
☐ Yes           No ☑
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
☐ Yes           No ☑
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
☑ Yes           No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 
☑ Yes           No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑
   
Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP ☐           International Financial Reporting Standards as issued by the International Accounting Standards Board   ☑    Other ☐
 
If  “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
 
Item 17 ☐    Item 18 ☐
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes ☐    No ☑
 
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
 
Yes ☐  No ☐
 

TABLE OF CONTENTS

   
Page
     

2
ITEM 1.
2
ITEM 2.
2
ITEM 3.
2
ITEM 4.
22
ITEM 4A.
45
ITEM 5.
45
ITEM 6.
66
ITEM 7.
72
ITEM 8.
73
ITEM 9.
75
ITEM 10.
77
ITEM 11.
89
ITEM 12.
91
     
 
92
ITEM 13.
92
ITEM 14.
92
ITEM 15.
 92
ITEM 16A.
93
ITEM 16B.
93
ITEM 16C.
93
ITEM 16D.
94
ITEM 16E.
94
ITEM 16F.
94
ITEM 16G.
94
ITEM 16H.
94
     

94
ITEM 17.
94
ITEM 18.
94
ITEM 19.  
EXHIBITS 95

EX-2.5:
      
EX-8.1:
       
EX-12.1:
        
EX-12.2:
         
EX-13.1:
         
EX-13.2:
        

Grupo TMM, S.A.B. and Subsidiaries

Introduction
 
In this Annual Report, references to “$,” “Ps,” “Mx. pesos,” “Pesos” or “pesos” are to Mexican Pesos and references to “US$,” “U.S. dollars,” “Dollars” or “dollar” are to United States Dollars. This Annual Report contains translations of certain Dollar amounts into Pesos at specified rates solely for the convenience of the reader. These translations should not be construed as representations that the Dollar amounts actually represent such Peso amounts or could be converted into Pesos at the rates indicated or at any other rate. In this Annual Report on Form 20-F except as otherwise provided, references to “we,” “us,” “our” and “Company” mean Grupo TMM, S.A.B. and its consolidated subsidiaries, and “Grupo TMM” means “Grupo TMM, S.A.B.”
 
Presentation of Financial Information
 
Our financial statements are reported in Mexican pesos and prepared in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
 
The financial information included in this Annual Report was approved by the Company’s shareholders at the Annual General Shareholders’ Meeting, which took place on April 30, 2021.
 
Forward-Looking Information
 
This Annual Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Such forward-looking statements are based on the beliefs of the Company’s management as well as on assumptions made. Actual results could differ materially from those included in such forward-looking statements. Readers are cautioned that all forward-looking statements involve risks and uncertainty.
 
The following factors, among others described in this Annual Report, could cause actual results to differ materially from such forward-looking statements:
 

our ability to generate sufficient cash from operations to meet our obligations, including the ability of our subsidiaries to generate sufficient distributable cash flow and to distribute such cash flow in accordance with our existing agreements with our lenders and strategic partners and applicable law;
 

Mexican, U.S. and global economic, political and social conditions;
 

conditions affecting the international shipping and transportation markets or the oil and gas industry;
 

uncertainties resulting from the continuing outbreak of COVID-19 and governmental responses thereto;
 

conditions resulting from future pandemics, epidemics or other outbreaks of infectious diseases and governmental responses thereto;
 

our ability to reduce corporate overhead costs;
 

the availability of capital to fund our expansion plans;
 

our ability to utilize a portion of our current and future tax loss carryforwards (“Net Operating Losses” or “NOLs”);
 

changes in fuel prices;
 
Grupo TMM, S.A.B. and Subsidiaries


changes in legal or regulatory requirements in Mexico or the United States;
 

market and interest rate fluctuations;
 

competition in geographic and business areas in which we conduct our operations;
 

the adverse resolution of litigation and other contingencies;
 

the ability of management to manage growth and successfully compete in new businesses;
 

the ability of the Company to diversify its customer base; and
 

the ability of the Company to repay, restructure or refinance its indebtedness.
 
Readers are urged to read this entire Annual Report including, but not limited to, the section entitled “Risk Factors,” and carefully consider the risks, uncertainties and other factors that affect our business. The information contained in this Annual Report is subject to change without notice. Readers should review future reports filed by us with the SEC and the Bolsa Mexicana de Valores (the “Mexican Stock Exchange”). We undertake no obligation to publicly update or revise any forward-looking statements included in this Annual Report, whether as a result of new information, future events or otherwise, except as required by applicable law or stock exchange regulation.
 
PART I
 
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3.
KEY INFORMATION
 
Selected Financial Data
 
The following table sets forth our selected financial data. The financial information presented for the fiscal years ended December 31, 2020, 2019, 2018, 2017 and 2016 was derived from our Audited Consolidated Financial Statements, of which the financial statements for each of the years ended December 31, 2020, 2019, and 2018 are contained elsewhere herein. The Audited Consolidated Financial Statements have been prepared in accordance with IFRS as issued by the IASB.
 
The following data presents selected consolidated financial information of the Company and should be read in conjunction with, and is qualified in its entirety by reference to, the Audited Consolidated Financial Statements of the Company, including the Notes thereto, also included in this Form 20-F, and to Item 5. “Operating and Financial Review and Prospects.”

Grupo TMM, S.A.B. and Subsidiaries

GRUPO TMM, S.A.B. AND SUBSIDIARIES
 
SELECTED CONSOLIDATED FINANCIAL DATA UNDER IFRS
(in millions of Pesos, except per share data)

   
Year Ended December 31,
 
   
2020
   
2019
   
2018
   
2017
   
2016
 
CONSOLIDATED STATEMENT OF INCOME DATA(a):
                             
Transportation revenues
 
$
1,203.3
   
$
1,475.7
   
$
1,523.1
   
$
2,464.9
   
$
2,647.5
 
(Loss) Income on Transportation(b)
   
(71.6
)
   
(21.1
)
   
(4.3
)
   
(177.9
)
   
37.9
 
Other (Expenses) Income — Net(c)
   
(257.2
)
   
233.9
     
102.6
     
3,217.7
     
52.8
 
Operating (Loss) Income(d)
   
(328.8
)
   
212.8
     
98.3
     
3,039.8
     
90.7
 
Interest Income
   
7.1
     
5.1
     
9.1
     
24.8
     
24.7
 
Interest Expense
   
75.7
     
146.9
     
84.9
     
1,210.5
     
869.3
 
Exchange (Loss) Gain
   
(25.1
)
   
24.9
     
5.8
     
(7.8
)
   
(21.3
)
(Loss) Income before Taxes
   
(422.5
)
   
95.9
     
28.3
     
1,846.3
     
(775.2
)
(Provision) Benefit for Income Taxes
   
19.3
     
(64.6
)
   
(4.8
)
   
(516.7
)
   
268.6
 
(Loss) Income from continuing operations
   
(403.2
)
   
31.3
     
23.5
     
1,329.6
     
(506.6
)
Loss from discontinued operations
   
-
     
-
     
-
     
-
     
-
 
Net (Loss) Income
   
(403.2
)
   
31.3
     
23.5
     
1,329.6
     
(506.6
)
Attributable to Non-controlling interest
   
(5.0
)
   
(0.8
)
   
4.5
     
2.0
     
1.4
 
Attributable to stockholders of Grupo TMM, S.A.B.
   
(398.2
)
   
32.1
     
19.0
     
1,327.6
     
(508.0
)
(Loss) Income per Share from continuing operations(e)
   
(3.946
)
   
0.306
     
0.230
     
13.012
     
(4.957
)
(Loss) per Share from discontinued operations(e)
   
-
     
-
     
-
     
-
     
-
 
(Loss) Income per Share from Net (Loss) Income (e)
   
(3.946
)
   
0.306
     
0.230
     
13.012
     
(4.957
)
(Loss) Income per Share attributable to stockholders of Grupo TMM, S.A.B.(e)
   
(3.896
)
   
0.314
     
0.186
     
12.992
     
(4.972
)
Book value per Share(f)
   
21.589
     
23.256
     
20.327
     
21.140
     
8.780
 
Weighted Average Shares Outstanding (000s)
   
102,183
     
102,183
     
102,183
     
102,183
     
102,183
 
                                         
BALANCE SHEET DATA (at end of period)(a):
                                       
Cash and cash equivalents
 
$
143.0
   
$
512.8
   
$
318.2
   
$
461.6
   
$
902.7
 
Total Current Assets
   
722.2
     
1,525.6
     
1,266.2
     
1,318.2
     
2,121.3
 
Property, vessels and equipment – Net
   
2,532.0
     
2,285.4
     
2,313.4
     
2,623.5
     
9,564.9
 
Rights of use(g)
   
354.2
     
560.1
     
-
     
-
     
-
 
Concessions – Net
   
1.9
     
5.7
     
9.5
     
13.2
     
17.0
 
Total Assets
   
4,030.5
     
4,563.8
     
3,781.1
     
4,124.2
     
11,923.3
 
Short-term financial debt
   
129.1
     
139.2
     
223.4
     
502.4
     
740.4
 
Short-term lease debt(g)
   
58.2
     
60.6
     
-
     
-
     
-
 
Long-term financial debt
   
53.6
     
118.7
     
392.1
     
396.3
     
9,330.1
 
Long-term lease debt(g)
   
297.3
     
526.8
     
-
     
-
     
-
 
Capital stock
   
2,169.9
     
2,169.9
     
2,169.9
     
2,169.9
     
2,169.9
 
Stockholders’ Equity attributable to Stockholders of Grupo TMM, S.A.B.
   
2,206.0
     
2,376.4
     
2,077.1
     
2,160.2
     
897.2
 
Non-controlling equity interest in subsidiaries
   
41.4
     
46.4
     
47.2
     
68.8
     
66.8
 
Total Stockholders’ Equity
   
2,247.4
     
2,422.8
     
2,124.3
     
2,229.0
     
964.0
 
                                         
OTHER DATA:
                                       
Incremental Capital Investments(h)
 
$
28.4
   
$
48.3
   
$
86.3
   
$
80.2
   
$
162.1
 
Depreciation and Amortization
   
141.1
     
182.9
     
80.3
     
562.9
     
555.2
 
Net cash provided by (used in):
                                       
Operating activities(i)
   
(212.6
)
   
(40.0
)
   
55.0
     
356.9
     
586.0
 
Investing activities(h)
   
13.3
     
573.9
     
116.6
     
(193.7
)
   
(49.6
)
Financing activities
   
(205.4
)
   
(329.9
)
   
(314.2
)
   
(581.7
)
   
(744.5
)



 (a)
As of December 2017, the Company transferred 85% of the shares of TMM Division Maritima, S.A. de C.V. (“TMMDM”), formerly a wholly owned subsidiary, to the holders of certificates issued under our Mexican Peso-Denominated Trust Certificates Program (the “Trust Certificates Program”). Because the Company ceased to exercise control over TMMDM as of the date of the transfer, we have excluded TMMDM’s income from the consolidated income statement data and its assets and liabilities from the consolidated balance sheet data as of the transfer date.
(b)
Represents “Operating Income” less “Other (Expense) Income  – Net.”
(c)
See quantification of items in “Other (Expense) Income  Integration” table below.
(d)
Operating (Loss) Income is calculated by reconciling “Net (Loss) Income” with the items “Net Financing Cost” and “(Provision) Benefit for Income Taxes.”
(e)
As of December 31, 2020, 2019, 2018, 2017 and 2016 the number of Shares outstanding was 102,182,841.

Grupo TMM, S.A.B. and Subsidiaries

(f)
Book value per Share results from dividing total shareholders’ equity attributable to stockholders of Grupo TMM by the outstanding Shares at the end of each period.
(g)
The Company adopted IFRS 16 "leases", using the modified retrospective approach, as well as the alternative option of valuing the right-of-use asset in an amount equal to the lease liability as of January 1, 2019, the date of adoption.
(h)
See Item 5. “Operating and Financial Review and Prospects — Liquidity and Capital Resources — Capital Expenditures and Divestitures.”
(i)
Restricted cash is included as a part of the cash and cash equivalents line item. See Note 6 to the accompanying Audited Consolidated Financial Statements. Such inclusion has an effect on cash flows from operating activities disclosed in the consolidated statements of cash flows for all fiscal years reported.

GRUPO TMM S.A.B. AND SUBSIDIARIES
SELECTED CONSOLIDATED OPERATING DATA
(in millions of Pesos)

   
Year Ended December 31,
 
   
2020
   
2019
   
2018
   
2017
   
2016
 
TRANSPORTATION REVENUES:
                             
Maritime Operations (a)
   
751.2
     
868.5
     
909.5
     
1,951.3
     
2,167.6
 
Logistics Operations (b)
   
243.8
     
265.5
     
286.6
     
229.5
     
190.9
 
Ports and Terminals Operations (c)
   
69.3
     
169.8
     
166.0
     
134.2
     
116.7
 
Warehousing Operations (d)
   
139.0
     
171.9
     
161.0
     
149.9
     
126.1
 
Other business (e)
   
-
     
-
     
-
     
-
     
46.2
 
Total
 
$
1,203.3
   
$
1,475.7
   
$
1,523.1
   
$
2,464.9
   
$
2,647.5
 
                                         
INCOME (LOSS) ON TRANSPORTATION(f):
                                       
Maritime Operations
   
74.5
     
150.0
     
122.5
     
24.0
     
247.6
 
Logistics Operations
   
3.6
     
13.6
     
35.5
     
34.0
     
30.6
 
Ports and Terminals Operations
   
(20.8
)
   
31.8
     
49.4
     
10.3
     
6.1
 
Warehousing Operations
   
(16.5
)
   
(2.4
)
   
(5.7
)
   
(31.6
)
   
(44.6
)
Shared corporate costs
   
(112.4
)
   
(214.1
)
   
(206.0
)
   
(214.6
)
   
(201.8
)
Total
 
$
(71.6
)
 
$
(21.1
)
 
$
(4.3
)
 
$
(177.9
)
 
$
37.9
 
                                         
OTHER INCOME (EXPENSE):
                                       
Gain from loss of control of TMMDM
 
$
-
   
$
-
   
$
-
   
$
3,458.5
     
-
 
Proceeds from the sale of fixed assets
   
-
     
-
     
-
     
-
     
56.5
 
Proceeds from the sale of subsidiaries
   
0.4
     
279.7
     
111.5
     
(273.0
)
   
-
 
Cancellation of provisions
   
-
     
-
     
-
     
-
     
2.1
 
Reserve for prepayment and arbitration expenses
   
-
     
-
     
-
     
-
     
-
 
Expenses incurred to taxes recovered, net
   
(11.1
)
   
(16.6
)
   
(3.9
)
   
43.9
     
-
 
Goodwill impairment
   
-
     
(9.8
)
   
-
     
-
     
-
 
Cancellation of accounts receivable
   
(98.9
)
                               
Expenses related to termination of building lease for former corporate headquarters
   
(113.5
)
                               
Other – Net
   
(34.1
)
   
(19.4
)
   
(5.0
)
   
(11.7
)
   
(5.8
)
Total
 
$
(257.2
)
 
$
233.9
   
$
102.6
   
$
3,217.7
   
$
52.8
 
 
(a)
Maritime Operations primarily consist of offshore vessels, product tankers, parcel tankers tugboats and shipyard operations.
 
(b)
Logistics Operations consist of container maintenance and repair, automotive services and intermodal terminal operations.
 
(c)
Ports and Terminals Operations consist of a port in Acapulco, Mexico, a terminal at Tuxpan, Mexico, loading and unloading operations at the port of Tampico, Mexico, and the operation of shipping agencies at various ports in Mexico.
 
(d)
Warehousing Operations consist of warehousing and bonded warehousing facility management services and are conducted through our subsidiary, Almacenadora de Depósito Moderno, S.A. de C.V. Auxiliary Credit Organization (“ADEMSA”).
 
(e)
Represents certain new businesses which were in the development process in 2016. There were no further development activities in respect of these businesses in 2020, 2019, 2018 and 2017.
 
(f)
Income (Loss) on Transportation includes loss on revaluation of vessels in 2017 and 2016 of $39.3 million and $16.2 million, respectively.
 
Grupo TMM, S.A.B. and Subsidiaries

Average Shares Outstanding
 
Income per Share is calculated based on the average number of Shares outstanding in each relevant year. The average number of Shares outstanding in 2020, 2019, 2018, 2017 and 2016 was 102,182,841. See Item 4. “Information on the Company — History and Development of the Company” and Item 9. “The Offer and Listing — Trading Markets.”
 
Dividends
 
Pursuant to Mexican law and our bylaws, the declaration, amount and payment of dividends are determined by a majority vote of the holders of the outstanding shares represented at a duly convened shareholders’ meeting. Shareholders have the ability, at their discretion, to approve dividends from time to time. No dividend has been declared since 1997.
 
Risk Factors
 
Risks Relating to our Business
 
Our business has been and may continue to be adversely affected by the outbreak of COVID-19, and may be adversely affected by future pandemics, epidemics or other outbreaks of infectious diseases and governmental responses thereto.
 
Our operations are subject to risks related to pandemics, epidemics or other infectious disease outbreaks. For example, the ongoing outbreak of COVID-19 has been declared a pandemic by the World Health Organization (“WHO”). Government efforts to combat the COVID-19 pandemic, including the enactment or imposition of travel bans, quarantines and other emergency public health measures, have negatively affected economic conditions and the demand for shipping and transportation services globally and within the Gulf of Mexico, which has in turn negatively affected our operations and the operations of our customers. Although such measures may be curtailed or eliminated as vaccination programs expand and the spread of the COVID-19 is reduced, future developments regarding the COVID-19 pandemic remain highly uncertain.  In particular, the emergence and spread of new virus variants, some of which may prove resistant to currently approved vaccines, may result in the reintroduction of or increase in restrictive measures aimed at combating the spread of COVID-19 and its variants.  As a result, our vessels may be unable to call on ports, or may be restricted from disembarking from ports, located in areas affected by COVID-19. Further, such measures may restrict our ability to conduct operations at our ports, terminals and warehousing businesses.
 
To limit the spread of COVID-19, the Mexican government has implemented various enhanced safety measures, including travel restrictions and quarantine orders, restrictions on non-essential activities, social distancing guidelines and various other restrictions on businesses operating in Mexico.  In light of these conditions, we have taken various actions to protect our facilities and employees, strengthen our business and promote financial resiliency.  We have limited access to our facilities, adopted additional cleaning and sanitizing measures, allowed a portion of our employees to work remotely, and implemented new controls for emergency procedures and to mitigate the potential increased cybersecurity risks. Although these actions have helped us to maintain business continuity, they may limit the efficiency and effectiveness of our operations, including our reporting and internal controls.
 
Given the evolving nature of the COVID-19 threat, the ultimate severity of the global economic downturn triggered by the COVID-19 pandemic remains uncertain. The COVID-19 pandemic has led to a significant reduction in our revenues, particularly in our ports and terminals operations. Although we have taken various actions to bolster our financial condition, such as delaying payments to suppliers and creditors, and reducing non-essential expenses and the compensation of certain employees, the continued spread of the virus and its variants, as well as the reintroduction or increase of restrictive measures to combat the pandemic, could have a material adverse effect on our business, operating results, financial condition and liquidity.  Developments in the fight against COVID-19 remain highly uncertain, and we cannot predict the impact it or any future pandemics, epidemics or infectious disease outbreaks may have on our business, results of operations and financial condition, which could be material and adverse.

Grupo TMM, S.A.B. and Subsidiaries

Uncertainties relating to our financial condition in our recent past and other factors raised substantial doubt about our ability to continue as a going concern and could have resulted in our dissolution under Mexican corporate law.
 
In accordance with the Mexican Companies Act (The Ley General de Sociedades Mercantiles), when a company has accumulated losses in excess of two-thirds of its capital stock, the dissolution of the company may be adopted by the shareholders of the company at an Extraordinary Shareholders Meeting called by the company’s board of directors upon the request of shareholders representing at least 33% of the company’s capital stock. At the Extraordinary Shareholders Meeting, the shareholders may vote to either dissolve the company or approve any corporate strategy for addressing the accumulated losses.
 
Additionally, the Mexican Bankruptcy Act (Ley de Concursos Mercantiles) provides that any third party with legal interest may request the judicial authorities to declare the dissolution of the company. A third person is considered to have a legal interest to request dissolution if the person is a creditor of the company and (i) the company has failed continuously with its payment obligations to the third person and the amount of the failure represents at least 35% of all the obligations of the company, and (ii) the company does not have sufficient assets to satisfy at least 80% of the payment obligations in respect of which it has failed to make the required payments at the time of the request.
 
Although we generated a profit for the years ended December 31, 2019, 2018 and 2017, respectively, we accumulated losses in each of the years ended December 31, 2020 and 2016, respectively. Our ability to continue as a going concern is subject to our ability to generate sufficient profits and/or obtain necessary funding from outside sources and there can be no assurance that we will continue to be able to generate such profits or obtain such funding.
 
As of May 10, 2021, the Company had not received any request for an Extraordinary Shareholders Meeting concerning the prior accumulated losses of the Company, nor had the Company received notice of any request to judicial authorities to declare a dissolution of the Company.
 
If the time charter arrangements for the vessels we operate are terminated or expire, our business could be adversely affected.
 
As of March 31, 2021, we operated nine offshore vessels on time charter to PEMEX Exploración y Producción (“PEP”). PEP is a subsidiary of Petróleos Mexicanos, the national oil company of Mexico (“PEMEX”).  In addition, as of March 31, 2021, we operated five offshore vessels under chartering agreements with private companies in the spot market for time periods of one year or less and ten offshore vessels and one product tanker were without a contract. In the event that these time charter agreements are terminated or expire without being renewed, we will be required to seek new bareboat or time charter agreements for these vessels. We cannot be sure that bareboat or time charters will be available for the vessels following termination or expiration, or that bareboat or time charter rates in effect at the time of such termination or expiration will be comparable to those in effect under the existing time charters or in the present market. In the event that bareboat or time charters are not available on terms acceptable to us, we may operate those vessels in the spot market. Because charter rates in the spot market are subject to greater fluctuation than longer term bareboat or time charter rates, any failure to maintain existing, or enter into comparable, charter agreements could adversely affect our operating results.
 
Our results from operations are dependent on fuel expenses.
 
Our parcel tanker operations consume significant amounts of energy and fuel, the cost of which has fluctuated significantly worldwide in recent years. With respect to our other operations, our customers pay for the fuel consumption. We currently meet, and expect to continue to meet, our fuel requirements through purchases from various suppliers at North American market prices. In addition, instability caused by imbalances in the worldwide supply and demand of oil may result in increases in fuel prices. Our fuel expense represents a significant portion of our operating expenses in our parcel tanker operations, and there may be increases in the price of fuel that cannot be hedged or transferred to the final user of our transportation services. We cannot assure you that our operations would not be materially adversely affected in the future if energy and fuel costs increase from current levels.
 
Grupo TMM, S.A.B. and Subsidiaries

We may be unable to successfully expand our businesses.
 
Future growth of our businesses will depend on a number of factors, including:
 

the continued identification, evaluation and participation in niche markets;
 

the identification of joint venture opportunities or acquisition candidates;
 

our ability to enter into acquisitions on favorable terms;
 

our ability to finance any expansion of our business;
 

our ability to hire and train qualified personnel, and to maintain our existing managerial base;
 

the successful integration of any acquired businesses with our existing operations; and
 

our ability to manage expansion effectively and to obtain required financing.
 
In order to maintain and improve operating results from new businesses, as well as our existing businesses, we will be required to manage our growth and expansion effectively. However, the management of new businesses involves numerous risks, including difficulties in assimilating the operations and services of the new businesses, the diversion of management’s attention from other business concerns and the disadvantage of entering markets in which we may have no or limited direct or prior experience. Our failure to effectively manage our businesses could preclude our ability to expand our businesses and could have a material adverse effect on our results of operations.
 
Significant competition could adversely affect our future financial performance.
 
Certain of our business segments face significant competition, which could have a material adverse effect on our results of operations.
 
Our international and domestic maritime operations have faced significant competition, mainly from U.S., Mexican and other international shipping companies acting directly or through a Mexican intermediary. In our logistics operations division, our services have faced intense competition, including price competition, from a large number of U.S., Mexican, and other international logistics companies. Our ports and terminals operations also face significant competition from companies that have expanded Mexican port facilities and related services in recent years. We cannot assure you that we will not lose business in the future due to our inability to respond to competitive pressures by decreasing our prices without adversely affecting our gross margins and operational results.
 
Downturns in certain cyclical industries in which our customers operate could have adverse effects on our results of operations.
 
The shipping, ports and terminals, and logistics industries are highly cyclical, generally tracking the cycles of the world economy. Although transportation markets are affected by general economic conditions, there are numerous specific factors within each particular market segment that may influence operating results. Some of our customers do business in industries that are highly cyclical, including the oil and gas and automotive sectors. The COVID-19 pandemic has precipitated a large drop in demand in these sectors as countries impose and maintain restrictions on domestic and cross-border travel and commercial activity in an effort to prevent or slow the spread of the virus.  Although the full extent and duration of such measures is uncertain, any sustained downturn in these sectors could have a material adverse effect on our operating results. Also, some of the products we transport have had a historical pattern of price cyclicality, which has typically been influenced by the general economic environment and by industry capacity and demand. We cannot assure you that prices and demand for these products will not decline in the future, adversely affecting those industries and, in turn, our financial results.
 
Grupo TMM, S.A.B. and Subsidiaries
 
Grupo TMM is a party to arrangements with other parties as joint investors in non-wholly owned subsidiaries.
 
Grupo TMM is a party to arrangements with other parties under which it and such parties have jointly invested in non-wholly owned subsidiaries, and Grupo TMM may enter into other similar arrangements in the future. Grupo TMM’s partners in these non-wholly owned subsidiaries may at any time have economic, business or legal interests or goals that are inconsistent with our interests or those of the entity in which they have invested with us. Furthermore, any dividends that are distributed from subsidiaries that Grupo TMM does not wholly own would be shared pro rata with its partners according to their relative ownership interests. For these or any other reasons, disagreements or disputes with partners with whom Grupo TMM has a strategic alliance or relationship could impair or adversely affect its ability to conduct its business and to receive distributions from, and return on its investments in, those subsidiaries.
 
Over time, asset values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of an asset, we may incur a loss.
 
The value of our assets may fluctuate substantially over time due to a number of different factors, including:
 

prevailing economic conditions in the market;
 

a substantial or extended decline in world trade;
 

increases in the supply of vessel capacity;
 

increased port and terminal capacity;
 

prevailing charter rates;
 

restrictions arising from emergency public health measures; and
 

the cost of retrofitting or modifying existing ships and other assets, as a result of technological advances, changes in applicable environmental or other regulations or standards, or otherwise.
 
In the future, if the market values of our assets deteriorate significantly, we may be required to record an impairment charge in our financial statements, which could adversely affect our results of operations. If a vessel charter terminates, we may be unable to re-charter the vessel at an acceptable rate and, rather than continue to incur costs to maintain and finance the asset, may seek to dispose of it. Our inability to dispose of a vessel or other asset at a reasonable price could result in a loss on its sale and adversely affect our results of operations and financial condition.
 
Our growth depends upon continued growth and demand for the maritime, ports and terminals, and logistics industries which may have been at or near the peak of their upward trend and rates have already been at or near historical highs. These factors may lead to reductions and volatility in rates and profitability.
 
The maritime, ports and terminals, and logistics industries are cyclical and volatile in terms of rates and profitability. In the future, rates and demand for vessels and other equipment and services may fluctuate as a result of changes in the size of and geographic location of supply and demand for oil and related products, as well as changes in the corresponding industry regulations. These and other factors affecting the supply and demand for maritime, ports and terminals, and logistics services in general are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
 
The factors that influence demand for our services include:
 

supply and demand for products suitable for shipping, ports and terminals, and logistics services;
 

changes in global production of products transported by vessels or for which we render other services;
 

the distance cargo products are to be moved by sea or land;
 
Grupo TMM, S.A.B. and Subsidiaries
 

the globalization of manufacturing;
 

global and regional economic and political conditions;
 

changes in seaborne and other transportation patterns, including changes in the distances over which cargoes are transported;
 

environmental and other regulatory developments;
 

technological advancements;
 

currency exchange rates;
 

weather and natural disasters; and
 

global and regional public health developments.
 
The factors that influence our services capacity include:
 

the number of newbuilding vessel deliveries and the scrapping rate of similar vessels;
 

the Mexican foreign trade balance;
 

the price of steel and other raw materials;
 

changes in environmental and other regulations that may limit the useful life of vessels and other assets;
 

the number of vessels or other assets that are out of service;
 

port congestion; and
 

the existence of emergency public health measures that may require us to suspend or curtail some of our businesses.
 
Our ability to re-charter the vessels we operate upon the expiration or termination of their current charters and the charter rates payable under any renewal or replacement charters will depend upon, among other things, the prevailing state of the charter market for vessels. If the charter market is depressed when vessels’ charters expire, we may be forced to re-charter the vessels at reduced rates or even possibly a rate whereby we incur a loss, which may reduce our earnings or make our earnings volatile. The same issues will exist if we acquire additional vessels and attempt to obtain multi-year time charter arrangements as part of our acquisition and financing plan.  Similarly, in our ports and terminals and logistics divisions, our ability to renew or extend our services agreements will be subject to current market conditions and other competitors.
 
Our growth depends on our ability to expand relationships with existing charterers and other customers and to obtain new charterers and customers, for which we will face substantial competition.
 
Our principal objectives include acquiring and operating additional vessels in conjunction with entering into additional long-term, fixed-rate time charters for these ships, as well as entering into new long-term service contracts for our ports and terminals and logistics businesses. The process of obtaining new long-term contracts is highly competitive and generally involves an intensive screening process and competitive bids, and often extends for several months. Shipping charters and service contracts are awarded based upon a variety of factors relating to the contractor, including:
 

industry relationships and reputation for customer service and safety;

Grupo TMM, S.A.B. and Subsidiaries
 

experience and quality operations (including cost effectiveness);
 

quality and experience of operating personnel;
 

the ability to finance vessels and other assets at competitive rates and financial stability in general;
 

relationships with shipyards and the ability to get suitable berths;
 

relationships with ship owners and the ability to obtain suitable second-hand vessels and equipment;
 

construction management experience, including the ability to obtain on-time delivery of new ships and other assets according to customer specifications;
 

willingness to accept operational risks pursuant to the charter or other services, such as allowing termination for force majeure events, among others; and
 

competitiveness of the bid in terms of overall price.
 
We expect substantial competition from a number of experienced companies, including state-sponsored entities and major shipping, ports and terminals, and logistics companies. Some of these competitors have significantly greater financial resources than we do, and can therefore operate larger fleets, provide additional services, and potentially offer better rates. This competition may cause greater price competition for time charters and the other services we offer. As a result of these factors, we may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which would have a material adverse effect on our business, results of operations and financial condition and our ability to pay dividends to our stockholders.
 
The aging of the vessels we operate may result in increased operating costs in the future, which could adversely affect our earnings.
 
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As the vessels we operate age, we will incur increased costs. Older vessels are typically less fuel efficient and more costly to maintain than more recently constructed vessels. Cargo insurance rates also increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations and safety or other equipment standards related to the age of a vessel may also require expenditures for alterations or the addition of new equipment to vessels and may restrict the type of activities in which vessels may engage. We cannot assure you that, as the vessels we operate age, market conditions will justify such expenditures or will enable us to profitably operate the vessels during the remainder of their expected useful lives.
 
Our results of operations may be adversely affected by operational risks inherent in the transportation and logistics industry.
 
The operation of vessels and other machinery relating to the shipping and cargo business involves an inherent risk of catastrophic marine disaster, mechanical failure, collisions, property losses to vessels, piracy, cargo loss or damage and business interruption due to outbreaks of infectious diseases or political actions in Mexico and in foreign countries. In addition, the operation of any harbor and seagoing vessel is subject to the inherent possibility of catastrophic marine disasters, including oil spills and other environmental accidents, and the liabilities arising from owning and operating vessels in international trade. Any such event may result in a reduction of revenues or increased costs. The Company’s vessels are insured for their estimated value against damage or loss, including war, terrorism acts, and pollution risks and we also carry other insurance customary in the industry.
 
We maintain insurance to cover the risk of partial or total loss of or damage to all of our assets including, but not limited to, harbor and seagoing vessels, port facilities, port equipment, land facilities and offices. In particular, we maintain marine hull and machinery and war risk insurance on our vessels, which covers the risk of actual or constructive total loss. Additionally, we have protection and indemnity insurance for damage caused by our operations to third persons. With certain exceptions, we do not carry insurance covering the loss of revenue resulting from a downturn in our operations or resulting from vessel off-hire time on certain vessels. In certain instances, and depending on the ratio of insurance claims to insurance premiums paid, we may choose to self-insure our over-the-road equipment following prudent guidelines. We cannot assure you that our insurance would be sufficient to cover the cost of damages suffered by us or damages to others, that any particular claim will be paid or that such insurance will continue to be available at commercially reasonable rates in the future.
 
Grupo TMM, S.A.B. and Subsidiaries
 
Additionally, some shipping, ports and terminals, and logistics activities decrease substantially during periods of bad weather. Such adverse weather conditions can adversely affect our results of operations and profitability if they occur with unusual intensity, during abnormal periods, or last longer than usual in our major markets, especially during peak shipping periods.
 
Our operations are subject to extensive environmental and safety laws and regulations and we may incur costs that have a material adverse effect on our financial condition as a result of our liabilities under or potential violations of environmental and safety laws and regulations.
 
Our operations are subject to general Mexican federal and state laws and regulations relating to the protection of the environment. The Mexican Attorney General for Environmental Protection (Procuraduría Federal de Protección al Ambiente) is empowered to bring administrative and criminal proceedings and impose corrective actions and economic sanctions against companies that violate environmental laws, and temporarily or permanently close non-complying facilities. The Mexican Ministry of Environmental Protection and Natural Resources (Secretaría del Medio Ambiente y Recursos Naturales or “SEMARNAT”) and other ministries have promulgated compliance standards for, among other things, water discharge, water supply, air emissions, noise pollution, hazardous substances transportation and handling, and hazardous and solid waste generation. Under the environmental laws, the Mexican government has implemented a program to protect the environment by promulgating rules concerning water, land, air and noise discharges or pollution, and the transportation and handling of wastes and hazardous substances.
 
We are also subject to the laws of various jurisdictions and international conferences with respect to the discharge of hazardous materials, wastes and pollutants into the environment.
 
While we maintain insurance against certain of these environmental risks in an amount which we believe is consistent with amounts customarily obtained in accordance with industry norms, we cannot assure you that our insurance will be sufficient to cover damages suffered by us or that insurance coverage will always be available for these possible damages. Furthermore, such insurance typically excludes coverage for fines and penalties that may be levied for non-compliance with environmental laws and regulations.
 
We anticipate that the regulation of our business operations under federal, state and local environmental laws and regulations will increase and become more stringent over time. We cannot predict the effect, if any, that the adoption of additional or more stringent environmental laws and regulations would have on our results of operations, cash flows, capital expenditure requirements or financial condition.
 
Our maritime operations provide services to transport petrochemical products and refined clean and dirty petroleum products, respectively. See Item 4. “Information on the Company — Business Overview — Maritime Operations.” Under the United States Oil Pollution Act of 1990 (“OPA” or “OPA 90”), responsible parties, including ship owners and operators, are subject to various requirements and could be exposed to substantial liability, and in some cases unlimited liability, for removal costs and damages, including natural resource damages and a variety of other public and private damages resulting from the discharge of oil, petroleum or related substances into the waters of the United States. In some jurisdictions, including the United States, claims for spill clean-up or removal costs and damages would enable claimants to immediately seize the ships of the owning and operating company and sell them in satisfaction of a final judgment. The existence of comparable statutes enacted by individual states of the United States, but requiring different measures of compliance and liability, creates the potential for similar claims being brought in the United States under state law. In addition, several other countries have adopted international conventions that impose liability for the discharge of pollutants similar to OPA. If a spill were to occur in the course of operation of one of our vessels carrying petroleum products, and such spill affected the waters of the United States or another country that had enacted legislation similar to OPA, we could be exposed to substantial or unlimited liability. Additionally, our vessels carry bunkers (ship fuel) and certain goods that, if spilled, under certain conditions, could cause pollution and result in substantial claims against us, including claims under international laws and conventions, OPA and other U.S. federal, state and local laws. Further, under OPA and similar international laws and conventions, we are required to satisfy insurance and financial responsibility requirements for potential oil spills and other pollution incidents. Penalties for failure to maintain the financial responsibility requirements can be significant and can include the seizure of the vessel.
 
Grupo TMM, S.A.B. and Subsidiaries

The vessels we operate must also meet stringent operational, maintenance and structural requirements, and they are subject to rigorous inspections by governmental authorities such as the U.S. Coast Guard for those vessels that operate within U.S. territorial waters. Non-compliance with these regulations could give rise to substantial fines and penalties.
 
We could have liability with respect to contamination at third-party facilities in the United States where we have transported hazardous substances or wastes under the U.S. Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) and comparable state laws (known as state Superfund laws). CERCLA and the state Superfund laws impose joint and several liability for the cost of investigation and remediation, natural resources damages, certain health studies and related costs, without regard to fault or the legality of the original conduct, on certain classes of persons with respect to the release into the environment of certain substances.  These persons, commonly called “potentially responsible parties” or “PRPs,” include the current and certain prior owners or operators of and persons that arranged for the disposal or treatment of hazardous substances at sites where a release has occurred or could occur. In addition, other potentially responsible parties, adjacent landowners or other third parties may initiate cost recovery actions or toxic tort litigation against PRPs under CERCLA or state Superfund law or state common law.
 
The U.S. Clean Water Act imposes restrictions and strict controls regarding the discharge of wastes into the waters of the United States. The Clean Water Act and comparable state laws provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants. In the event of an unauthorized discharge of wastes or pollutants into waters of the United States, we may be liable for penalties and could be subject to injunctive relief.
 
Potential labor disruptions could adversely affect our financial condition and our ability to meet our obligations under our financing arrangements.
 
As of March 31, 2021, we had 954 employees, approximately 14% of whom were unionized. The compensation terms of the labor agreement with these employees are subject to renegotiation on an annual basis and all other terms are renegotiated every two years. If we are not able to negotiate these provisions favorably, strikes, boycotts or other disruptions could occur, and these potential disruptions could have a material adverse effect on our financial condition and results of operations and on our ability to meet our payment obligations under our financing arrangements. As of the date of this Annual Report, the COVID-19 outbreak has not negatively affected our relations with our employees.  We cannot, however, assure you that the effects of COVID-19 will not lead to any labor disruptions in the future.
 
In addition, in connection with the labor commitments included in the United States-Mexico-Canada Agreement (“USMCA”), the successor to the North American Free Trade Agreement (“NAFTA”), the Mexican government has recently enacted significant reforms aimed at protecting the rights of workers. These include ratification of the International Labor Organization’s Convention C098, the “Right to Organize and Collective Bargaining Convention”, and revisions to the Mexican Federal Labor Law (Ley Federal del Trabajo) aimed at prohibiting discrimination and workplace harassment, establishing new labor courts and judicial protections for workers, enhancing the transparency of procedures for the negotiation of collective bargaining agreements, and ensuring the voting rights of workers on matters such as union contracts and representation. These developments, together with substantial increases in Mexico’s general minimum wage, have spurred increased demands from workers and labor unions for salary and benefit increases. We cannot predict how these developments may affect our business, results of operations or its financial condition. Any increased demands by our unionized workers may lead to higher labor costs, which could have a negative impact on our business, results of operations or financial condition.
 
Continuing world tensions, including as the result of wars, other armed conflicts, terrorist attacks, the COVID-19 pandemic and trade disputes could have a material adverse effect on our business.
 
Continuing world tensions, including those relating to the Middle East, North Korea, Russia, Ukraine, Venezuela, Libya and various other African countries, the COVID-19 pandemic, trade disputes between the United States, China, and various other countries, as well as terrorist attacks in various locations and related unrest, have increased worldwide political and economic instability and depressed economic activity in the United States and globally, including the Mexican economy.
 
Grupo TMM, S.A.B. and Subsidiaries

The continuation or escalation of existing armed hostilities or the outbreak of additional hostilities as a consequence of further acts of terrorism or otherwise could cause a further downturn and/or significant disruption to the economies of the United States, Mexico and other countries. The continued threat of terrorism within the United States and abroad and the potential for military action and heightened security measures in response to such threat may cause significant disruption to commerce throughout the world, including restrictions on cross-border transport and trade. Furthermore, the Mexican government’s efforts to combat illegal drug cartels have caused public safety issues that may hinder Mexico’s economic growth and could prompt additional restrictions on cross-border transport and trade.
 
The continued global spread of COVID-19, and the various restrictions on global trade and commerce instituted by countries to combat the spread of the virus, have had a negative impact on the global economy and may trigger significant future cross-border trade disputes. Further increases in global tensions and trade disputes may reduce the demand for our services and have a material adverse effect on our results of operations and financial condition.
 
Our information technology systems may be subject to security incidents or interruptions in network connectivity which could have an material adverse effect on our business.
 
Our business is supported by a robust platform of information and communications technology systems, including hardware and software which are susceptible to security incidents or disconnections from the local and/or global computer networks. We have employed various cybersecurity defenses and measures to protect our systems from the risks of cyberattacks and implemented sophisticated means of monitoring communications. Threats are constantly evolving, however, and our protection measures could be compromised, which could result in unauthorized access to our systems. File abduction, data corruption alteration, spread of computer viruses, installation of malware or ransomware or other malicious acts intended to disrupt our operations are a constant threat, and if our systems are affected by a security incident or service outage, we may experience a decrease in operational performance, an increase in operating costs and damage to our reputation. Any significant security breaches or disruptions to the connectivity or performance of our information technology systems could have a material adverse effect on our operating results and financial condition.
 
Our customers may take actions that may reduce our revenues.
 
If our customers believe that our financial condition will result in a lower quality of service, they may discontinue use of our services. Additionally, some customers may demand lower prices. While we have contracts with some of our customers that prevent them from terminating our services or which impose penalties on customers who terminate our services, it may be impractical or uneconomical to enforce these agreements in Mexican courts. If any of these events occurs, our revenues will be reduced.
 
Our financial statements may not give you the same information as financial statements prepared under United States accounting rules.
 
Our financial statements are prepared in accordance with IFRS. IFRS differs from U.S. GAAP in certain significant respects, including, among others, the recognition of revaluation property, plant and equipment, the classification of minority interest in accordance with net identifiable assets, the nonrecognition of employees’ profit sharing, capitalized interest recognition, consolidation of subsidiaries, the acquisition of shares of subsidiaries from minority stockholders and the determination of deferred income taxes. For this and other reasons, the presentation of financial statements and reported earnings prepared in accordance with IFRS may differ in significant respects from the presentation of financial statements and reported earnings prepared in accordance with U.S. GAAP.
 
Grupo TMM, S.A.B. and Subsidiaries
 
Risks Relating to our Indebtedness
 
Our substantial indebtedness could adversely affect our financial condition and impair our ability to operate our business, and we may not be able to pay the interest on and principal amount of our indebtedness.
 
As of March 31, 2021, Grupo TMM’s total debt amounted to $549.8 million, which includes $131.2 million of bank debt owed to several different banks, $76.0 million owed to non-institutional lenders and $342.6 million of liabilities associated with our long-term leases, primarily the lease of our corporate headquarters; of this debt, $192.2 million is short-term debt, and $357.6 million is long-term debt. Under IFRS, transaction costs in connection with financings are required to be presented as a part of debt.
 
As of December 31, 2020, our total debt amounted to $538.2 million, which includes $108.5 million of bank debt owed to several different banks, $74.2 million owed to non-institutional lenders and $355.5 million of liabilities associated with our long-term leases, primarily the lease of our corporate headquarters; of this debt, $187.3 million is short-term debt, and $350.9 million is long-term debt.
 
Although we have taken various measures to reduce our level of indebtedness, our level of indebtedness remains substantial and could have important consequences, including the following:
 

limiting cash flow available for capital expenditures, acquisitions, working capital and other general corporate purposes because a substantial portion of our cash flow from operations must be dedicated to servicing debt;
 

increasing our vulnerability to a downturn in economic or industry conditions;
 

exposing us to risks inherent in interest rate fluctuations because future borrowings may be at interest rates that are higher than current rates, which could result in higher interest expenses;
 

limiting our flexibility in planning for, or reacting to, competitive and other changes in our business;
 

placing us at a competitive disadvantage compared to our competitors that have less debt and greater operating and financing flexibility than we do;
 

limiting our ability to engage in activities that may be in our long-term best interest; and
 

limiting our ability to borrow additional money to fund our working capital and capital expenditures or to refinance our existing indebtedness, or to enable us to fund the acquisitions contemplated in our business plan.
 
Our ability to service our indebtedness will depend upon future operating performance, including the ability to increase revenues significantly, renew our existing services contracts and control expenses. Future operating performance depends upon various factors, including prevailing economic, financial, competitive, legislative, regulatory, business, public health and other factors that are beyond our control.
 
If we cannot generate sufficient cash flow from operations to service our indebtedness we may default under our various financing facilities. If we default under any such facility, the relevant lender or lenders could then take action to foreclose against any collateral securing the payment of such facility. Certain of our assets have been pledged to secure our financing facilities. See Item 4. “Information on the Company — Property, Vessels and Equipment.”
 
Grupo TMM is primarily a holding company and depends upon funds received from its operating subsidiaries to make payments on its indebtedness.
 
Grupo TMM is primarily a holding company and conducts the majority of its operations, and holds a substantial portion of its operating assets, through numerous direct and indirect subsidiaries. As a result, Grupo TMM relies on income from dividends and fees related to administrative services provided to its operating subsidiaries for its operating income, including the funds necessary to service its indebtedness.

Grupo TMM, S.A.B. and Subsidiaries
 
Under Mexican law, profits of Grupo TMM’s subsidiaries may only be distributed upon approval by such subsidiaries’ shareholders, and no profits may be distributed by its subsidiaries to Grupo TMM until all losses incurred in prior fiscal years have been offset against any sub-account of Grupo TMM’s capital or net worth account. In addition, at least 5% of profits must be separated to create a reserve (reserva legal) until such reserve is equal to 20% of the aggregate value of such subsidiary’s capital stock (as calculated based on the actual nominal subscription price received by such subsidiary for all issued shares that are outstanding at the time).
 
There is no restriction under Mexican law upon Grupo TMM’s subsidiaries remitting funds to it in the form of loans or advances in the ordinary course of business, except to the extent that such loans or advances would result in the insolvency of its subsidiaries, or for its subsidiaries to pay Grupo TMM fees or other amounts for services.
 
To the extent that Grupo TMM relies on dividends or other distributions from subsidiaries that it does not wholly own, Grupo TMM will only be entitled to a pro rata share of the dividends or other distributions provided by such subsidiaries.
 
Restrictive covenants in our financing agreements may restrict our ability to pursue our business strategies.
 
Some of our financing agreements contain a number of restrictive covenants and any additional financing arrangements we enter into may contain additional restrictive covenants. These covenants restrict or prohibit many actions, including our ability, or that of our subsidiaries, to, among others:
 

incur additional indebtedness;
 

create or suffer to exist liens;
 

prepay certain debt;
 

make certain restricted payments, including the payment of dividends;
 

carry out certain investments;
 

engage in certain transactions with shareholders and affiliates;
 

use assets as security in other transactions;
 

issue guarantees to third parties;
 

sell assets; and
 

engage in certain mergers and consolidations or in sale-leaseback transactions.
 
If we fail to comply with these and other restrictive covenants, our obligation to repay our indebtedness may be accelerated. If we cannot pay the amounts due under our financing facilities, the relevant lender or lenders could then take action to foreclose against any collateral securing the payment of such facility or facilities.
 
We have to service our debt with revenues mostly generated in Mexican pesos. This could adversely affect our ability to service our debt in the event of a devaluation or depreciation in the value of the Mexican peso against the dollar.
 
As of March 31, 2021, approximately 39.1% of our debt was denominated in dollars. As of the date of this Annual Report, we do not generate sufficient revenue in dollars from our operations to service all of our dollar-denominated debt. Consequently, we have to use revenues generated in Mexican pesos to service our dollar-denominated debt. A devaluation or depreciation in the value of the Mexican peso, compared to the dollar, could adversely affect our ability to service our debt. During 2020, the Mexican peso depreciated approximately 5.6% against the dollar. From January 1 through March 31, 2021, the Mexican peso depreciated approximately 3.3% against the dollar.
 
Grupo TMM, S.A.B. and Subsidiaries

Fluctuations in the Mexican peso/dollar exchange rate could lead to shifts in the types and volumes of Mexican imports and exports, negatively impacting results on some of our businesses. Although a decrease in the level of exports may be offset by a subsequent increase in imports, any offsetting increase might not occur on a timely basis, if at all. Future developments in U.S.-Mexican trade beyond our control may result in a reduction of freight volumes or in an unfavorable shift in the mix of products and commodities we carry.
 
Our variable rate debt subjects us to risks associated with an increase in interest rates, which could increase the amount of our debt service obligations.
 
We are exposed to the impact of interest rate changes, primarily through our variable rate debt facilities that require us to make interest payments based on the Mexican Interbank Equilibrium Interest Rate (“TIIE”) or the London Interbank Offered Rate (“LIBOR”). If interest rates increase significantly, our debt service obligations on this variable rate debt would increase, which could have an adverse effect on our earnings and cash flow. Furthermore, the U.K. Financial Conduct Authority, which regulates LIBOR, has announced its intention to phase out the use of LIBOR before the end of 2021.  As there remains significant uncertainty as to how the transition away from LIBOR will proceed, we cannot predict the consequences that these developments will have on our debt service obligations and financing costs. A transition away from LIBOR may, however, cause disruptions in financial markets or increase borrowing costs for borrowers, which may in turn result in an increase in our debt service obligations and financing costs.
 
Risks Relating to Mexico
 
Economic, political, social and public health conditions may adversely affect our business.
 
Our financial performance may be significantly affected by general economic, political, social and public health conditions in the markets where we operate. Most of our operations and assets are located in Mexico. As a result, our financial condition, results of operations and business may be affected by the general condition of the Mexican economy, the valuation of the Peso as compared to the U.S. dollar, Mexican inflation, interest rates, regulations, taxation, social or political instability, and economic, political, social and public health developments in Mexico. Many countries in Latin America, including Mexico, have suffered significant economic, political, social and public health crises in the past, and these events may occur again in the future. Instability in the region has been caused by many different factors, including:
 

significant governmental influence over local economies;
 

substantial fluctuations in economic growth;
 

high levels of inflation;
 

changes in currency values;
 

exchange controls or restrictions on expatriation of earnings;
 

high domestic interest rates;
 

wage and price controls;
 

changes in governmental economic or tax policies;
 

imposition of trade barriers;
 
Grupo TMM, S.A.B. and Subsidiaries
 

unexpected changes in regulation; and
 

overall economic, political, social and public health instability.
 
Mexico is an emerging market economy, with attendant risks to our results of operations and financial condition.
 
Mexico has historically experienced uneven periods of economic growth. Mexico’s gross domestic product (“GDP”) increased 2.6%, 2.1%, 2.2% in 2016, 2017 and 2018, respectively, but decreased 0.1% in 2019 and 8.2% in 2020. For 2021, the Banco de Mexico Consensus Board1 estimates that GDP in Mexico is expected to increase by approximately 4.5%, while inflation is expected to be 3.6%. We cannot assure you that these estimates will prove to be accurate. The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican governmental actions concerning the economy and state-owned enterprises could have a significant impact on Mexican private sector entities in general and on us in particular, as well as on market conditions, prices and returns on Mexican securities, including our securities.
 
Currency fluctuations or the devaluation and depreciation of the Peso could limit the ability of the Company and others to convert Pesos into U.S. dollars or other currencies which could adversely affect our business, financial condition and results of operations.
 
Severe devaluation or depreciation of the Peso may also result in governmental intervention or disruption of international foreign exchange markets. This may limit our ability to transfer or convert Pesos into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our dollar-denominated indebtedness and adversely affect our ability to obtain foreign currency and other imported goods. The Mexican economy has suffered current account balance of payment deficits and shortages of foreign exchange reserves in the past. While the Mexican government does not currently restrict, and for more than twenty years has not restricted, the right or ability of Mexican or foreign persons or entities to convert Pesos into U.S. dollars or to transfer other currencies outside of Mexico, the Mexican government could institute restrictive exchange control policies in the future. To the extent that the Mexican government institutes restrictive exchange control policies in the future, our ability to transfer or convert Pesos into U.S. dollars for the purpose of making timely payments of interest and principal on indebtedness would be adversely affected.
 
Pursuant to the provisions of the USMCA, if Mexico experiences serious balance of payment difficulties or the threat thereof in the future, Mexico would have the right to impose foreign exchange controls on investments made in Mexico, including those made by U.S. and Canadian investors. Any restrictive exchange control policy could adversely affect our ability to obtain U.S. dollars or to translate Pesos into U.S. dollars for purposes of making interest and principal payments to our creditors to the extent that we may have to make those translations. This could have a material adverse effect on our business and financial condition.
 
High interest rates in Mexico could increase our financing costs.
 
Although interest rates in Mexico are currently lower than in recent years, Mexico historically has had, and may again have, high real and nominal interest rates. The 28-day TIIE averaged 4.47%, 7.05%, 8.00%, 8.32% and 5.71% in 2016, 2017, 2018, 2019 and 2020, respectively, and for the three-month period ended March 31, 2021, it averaged 4.29%. To the extent our debt is incurred in Mexican Pesos at interest rates linked to the TIIE or any other Mexican interest rate index, any increase in such rates will increase our financing costs.
 
Developments in other emerging market countries or in the United States may affect us and the prices of our securities.
 
The market value of securities of Mexican companies, the economic and political situation in Mexico and our financial condition and results of operations are, to varying degrees, affected by economic and market conditions in other emerging market countries and in the United States. Although economic conditions in other emerging market countries and in the United States may differ significantly from economic conditions in Mexico, investors’ reactions to developments in any of these other countries may have an adverse effect on the market value or trading price of securities of Mexican issuers, including our securities, or on our business.


 
1
The Banco de Mexico Consensus Board comprises 37 economic analysts and consultants specialized in the Mexican and international economies.

Grupo TMM, S.A.B. and Subsidiaries

Our operations, including demand for our products or services and the price of our floating rate debt, have also historically been adversely affected by increases in interest rates in the United States and elsewhere. Although in recent years interest rates have remained low, if interest rates rise, the interest payments on our floating rate debt and the cost of refinancing our financing arrangements at maturity will rise as well.
 
Mexico may experience high levels of inflation in the future, which could adversely affect our results of operations.
 
Mexico has a history of high levels of inflation, and may experience high inflation in the future. The annual inflation rates for the last five years, as measured by changes in the National Consumer Price Index, as provided by Banco de México, were:

       
2016
   
3.36
%
2017
   
6.77
%
2018
   
4.83
%
2019
   
2.83
%
2020
   
3.15
%
2021 (annualized as of April 30)
   
6.08
%
 
Mexico’s current level of inflation has been reported at higher levels than the annual inflation rate of the United States and Canada. The United States and Canada are Mexico’s main trading partners. We cannot give any assurance that the Mexican inflation rate will decrease, increase or maintain its current level for any significant period of time. A substantial increase in the Mexican inflation rate as currently in effect would have the effect of increasing some of our costs, which could adversely affect our financial condition and results of operations, as well as our ability to service our debt obligations. High levels of inflation may also affect the balance of trade between Mexico and the United States, and other countries, which could adversely affect our results of operations.
 
Political events and declines in the level of oil production in Mexico could affect the Mexican economy and our business, financial condition and results of operations.
 
Mexican political events may significantly affect our operations. On December 1, 2018, Andres Manuel Lopez Obrador, a member of the National Regeneration Movement Party (“MORENA”), began a six-year term as president of Mexico following his victory in the July 1, 2018 presidential election. Under the 2012-2018 government of President Enrique Peña Nieto, significant changes in laws, policies and regulations aimed at fostering growth in certain key sectors of the Mexican economy were enacted, including the energy and transportation sectors. Currently, MORENA has a majority in both chambers of the Mexican Congress, giving it considerable power to pass new legislation or modify or terminate existing legislation, including potential modifications to the Mexican Constitution. President Andrés Manuel López Obrador and members of his administration have expressed a desire to modify and/or terminate certain structural reforms to the Mexican economy, including the 2013 Energy Reforms. The new administration has already succeeded in enacting various changes to Mexican laws and public policy and is seeking further changes, which may increase political uncertainty or have negative effects on the Mexican economy. We cannot provide any assurances that political developments in Mexico, over which we have no control, will not have an adverse effect on our business, financial condition or results from operations.
 
Mexico’s daily oil production statistics indicate that production has declined over the past nine years (2012-2020) at a compounded average rate of 5.2%, a trend that could continue in the coming years. In contrast, during the same period of time, imports of gasoline and diesel for domestic consumption grew 3.6%, and currently represent more than 70% of Mexico’s domestic consumption.
 
Experts have concluded that if the Mexican government does not follow through with its implementation of reforms designed to promote private investment in the energy sector, or fails to make further investments to increase PEMEX’s technological capabilities, Mexico’s oil production may drop considerably, weakening the financial position of the Mexican government.  For its part, the administration of President Andrés Manuel López Obrador has taken steps to limit new private investment in Mexico’s oil and gas industry, including the cancellation of bidding rounds for the award of new upstream production sharing contracts and farm-out agreements. Such actions may have a detrimental effect on Mexico’s oil production levels, which may in turn reduce the demand for our transportation services from Pemex and other oil and gas industry customers.
 
Grupo TMM, S.A.B. and Subsidiaries

Finally, the Mexican economy in the past has suffered balance of payment deficits and shortages in foreign exchange reserves, and we cannot assure you that these deficits and shortages will not occur in the future.
 
Political events in the United States could have a material adverse effect on our business, financial condition and results of operations.
 
The United States is Mexico’s primary trading partner, and receives over 80% of Mexico’s total exports. A deterioration in trade relations between Mexico and the United States could have a negative effect on Mexico’s economic growth and its transportation and shipping industry in particular.
 
In January 2021, Joseph R. Biden became the 46th President of the United States of America.  As of the date of this Annual Report, President Biden’s administration and has not proposed substantial revisions to U.S. trade policies, including the renegotiation or termination of trade agreements, or proposed the imposition of border taxes, higher tariffs or other measures which would increase the price of goods imported into the United States, particularly from Mexico. Future decisions by the current U.S. administration, including with respect to U.S. laws and policies governing foreign trade and foreign trade relations, could have a negative impact on the Mexican economy by reducing the level of commercial activity between Mexico and the United States or or effecting a slowdown in direct U.S. foreign investment in Mexico, which could adversely affect our business and our results of operations.
 
In November 2018, the United States, Mexico and Canada signed the USMCA, which replaced NAFTA. The United States, Mexico and Canada ratified the USMCA on January 29, 2020, June 19, 2020 and March 13, 2020, respectively. As a result, the USMCA took effect on July 1, 2020. We cannot predict the impact the USMCA will have on our industry or the changes to international trade that may result, and consequently, we cannot predict what effect it will have on our business and our results of operations. If the United States withdraws from or makes material changes to the USMCA or other international trade agreements to which it is a party, trade barriers and other costs associated with trade between the United States and Mexico may increase, which could have a material adverse effect on our business, financial condition and results of operations.
 
As a result of lower oil prices following declines from 2014 levels, our clients may reduce spending on exploration and production projects, resulting in a decrease in demand for our services.
 
Oil and natural gas prices, as well as market expectations of potential changes in these prices, significantly impact the level of worldwide drilling and production services activities. Reduced demand for oil and natural gas or periods of surplus oil and natural gas generally result in lower prices for these commodities and often impact the economics of planned drilling projects and ongoing projects, resulting in the curtailment, reduction, delay or postponement of such projects for an indeterminate period of time. When drilling and production activity and spending declines, vessel daily rates and utilization for our offshore vessels historically decline as well.
 
Worldwide oil prices suffered a steep decline in 2020, with demand falling as countries enacted restrictions on travel and economic activity in response to the continued spread of COVID-19. Although prices have since risen substantially from their 2020 lows as restrictions have eased and economic activity has resumed, as of the date of this Annual Report they remain well below 2014 levels. If lower oil and natural gas prices persist for a prolonged period, or decline further, oil and gas exploration and production companies are likely to cancel or curtail their drilling programs and lower production spending on existing wells, thereby reducing demand for our services.
 
Any prolonged reduction in the overall level of oil and gas exploration and development activities, whether resulting from changes in the price of oil, natural gas or otherwise, could materially and adversely affect us by negatively impacting:
 

our revenues, cash flows and profitability;
 
Grupo TMM, S.A.B. and Subsidiaries


the fair market value and profitability of our vessels;
 

our ability to maintain or increase our borrowing capacity;
 

or ability to obtain additional capital to finance our business and make acquisitions, and the cost of that capital;
 

the collectability of our receivables; and
 

our ability to retain skilled personnel whom we would need in the event of an upturn in the demand for our services.
 
If any of the foregoing were to occur, it could have a material adverse effect on our business and financial results.
 
The following table shows the high, low, average and period-end spot prices of Mexican crude oil as reported by the Bank of Mexico in U.S. dollars for the periods indicated below.

   
Spot price of Mexican crude oil
 
Year Ended December 31,
 
High(1)
   
Low(1)
   
Average(1)
   
End of
Year(2)
 
                         
2016
   
46.53
     
18.90
     
35.86
     
46.30
 
2017
   
56.19
     
39.20
     
46.36
     
56.19
 
2018
   
77.73
     
44.69
     
62.10
     
44.69
 
2019
   
65.83
     
43.65
     
56.13
     
56.14
 
2020
   
59.35
     
(2.37
)
   
35.70
     
47.16
 

   
Spot price of Mexican crude oil
 
Monthly,
 
High(3)
   
Low(3)
   
Average(3)
   
End of Month(4)
 
Year 2021
                       
January
   
52.25
     
47.12
     
51.06
     
51.18
 
February
   
62.23
     
53.05
     
58.08
     
60.89
 
March
   
64.48
     
56.23
     
60.65
     
58.37
 
April
   
61.12
     
56.62
     
58.38
     
61.39
 
May(5)
   
62.86
     
61.60
     
62.25
     
62.28
 
 

 
(1)
The highest, lowest and average spot price of Mexican crude oil in U.S. dollars reported by Banco de México during the relevant year.
 
(2)
The spot price on the last day of each relevant year.
 
(3)
The highest, lowest and average spot price in the relevant month.
 
(4)
The spot price on the last day of each relevant month.
 
(5)
Through May 7, 2021.
 
Mexican antitrust laws may limit our ability to expand through acquisitions or joint ventures.
 
Mexico’s federal antitrust laws and regulations may affect some of our activities, including our ability to introduce new products and services, enter into new or complementary businesses or joint ventures and complete acquisitions. In addition, the federal antitrust laws and regulations may adversely affect our ability to determine the rates we charge for our services and products. Approval of the Comisión Federal de Competencia, or Mexican Antitrust Commission, is required for us to acquire and sell significant businesses or enter into significant joint ventures and we cannot assure you that we would be able to obtain such approval.
 
Grupo TMM, S.A.B. and Subsidiaries
 
Investors may not be able to enforce judgments against the Company.
 
Investors may be unable to enforce judgments against us. We are a stock corporation, organized under the laws of Mexico. Substantially all our directors and officers reside in Mexico, and all or a significant portion of the assets of those persons may be located outside the United States. It may not be possible for investors to effect service of process within the United States upon those persons or to enforce judgments against them or against us in U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws. Additionally, it may not be possible to enforce, in original actions in Mexican courts, liabilities predicated solely on the U.S. federal securities laws and it may not be possible to enforce, in Mexican courts, judgments of U.S. courts obtained in actions predicated upon the civil liability provisions of the U.S. securities laws.
 
Risks Relating to Ownership of our Equity
 
The protection afforded to minority shareholders in Mexico is different from that afforded to minority shareholders in the United States.
 
Under Mexican law, the protections afforded to minority shareholders are different from, and may be less than, those afforded to minority shareholders in the United States. Under Mexican law, there is no procedure for class actions as such actions are conducted in the United States and there are different procedural requirements for bringing shareholder lawsuits against companies. Therefore, it may be more difficult for minority shareholders to enforce their rights against us, our directors or our controlling shareholders than it would be for minority shareholders of a U.S. company.
 
In accordance with the Mexican Companies Act (Ley General de Sociedades Mercantiles), shareholders representing at least 33% of our capital stock can request that the Board of Directors call an Extraordinary Shareholders Meeting to vote on proposals included by the shareholders in their request to the Board.
 
Holders of ADSs may not be entitled to participate in any future preemptive rights offering, which may result in a dilution of such holders equity interest in our company.
 
Under Mexican law, if we issue new shares for cash as a part of a capital increase, we generally must grant our stockholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage in our company. Rights to purchase shares in these circumstances are commonly referred to as preemptive rights. We may not be legally permitted to allow holders of ADSs in the United States to exercise preemptive rights in any future capital increase unless (1) we file a registration statement with the SEC with respect to that future issuance of shares or (2) the offering qualifies for an exemption from the registration requirements of the U.S. Securities Act of 1933, as amended. At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the SEC, as well as the benefits of preemptive rights to holders of ADSs in the United States and any other factors that we consider important in determining whether to file a registration statement.
 
If we do not file a registration statement with the SEC to allow holders of ADSs in the United States to participate in a preemptive rights offering or if there is not an exemption from the registration requirements of the U.S. Securities Act of 1933 available, the equity interests of holders of ADSs would be diluted to the extent that ADS holders cannot participate in a preemptive rights offering.
 
The Company is controlled by the Serrano Segovia family.
 
The Serrano Segovia family controls the Company through José Serrano Segovia’s direct and indirect ownership of our Shares, and members of the Serrano Segovia family serve as members of our Board of Directors. Holders of our ADSs may not vote at our shareholders’ meetings. Each of our ADSs represents five CPOs. Holders of CPOs are not entitled to exercise any voting rights with respect to the Shares held in the Master Neutral Investment Trust (Fideicomiso Maestro de Inversion Neutra) (the “CPO Trust”). Such voting rights are exercisable only by the trustee, which is required by the terms of the trust agreement to vote such Shares in the same manner as the majority of the Shares that are not held in the CPO Trust that are voted at any shareholders’ meeting. Currently the Serrano Segovia family owns a majority of the Shares that are not held in the CPO Trust. As a result, the Serrano Segovia family will be able to direct and control the policies of the Company and its subsidiaries, including mergers, sales of assets and similar transactions. See Item 7. “Major Shareholders and Related Party Transactions — Major Shareholders.”
 
Grupo TMM, S.A.B. and Subsidiaries

A change in control may adversely affect us.
 
In the past, a portion of the Shares and ADSs of the Company held by the Serrano Segovia family was pledged to secure indebtedness of the Serrano Segovia family and entities controlled by them and may from time to time in the future be pledged to secure obligations of other of their affiliates. A foreclosure upon any such Shares held by the Serrano Segovia family could result in a change of control under the various debt instruments of the Company and its subsidiaries. Such debt instruments provide that certain change of control events with respect to us will constitute a default and that the relevant lenders may require us to prepay our debt obligations including accrued and unpaid interest, if any, to the date of such repayment. If such a default occurs, we cannot assure you that we will have enough funds to repay our debt.
 
Our ADSs trade on the over-the-counter (“OTC”) market, which may limit the liquidity and price of our ADSs more than if the ADSs were quoted or listed on a national securities exchange.
 
Our ADSs currently trade on the OTC market under the ticker symbol GTMAY. The OTC market is a significantly more limited market than a national securities exchange such as the New York Stock Exchange (“NYSE”) or NASDAQ, with generally lower trading volumes and higher price volatility.  Quotation of the ADSs on the OTC market may limit the liquidity and price of the ADSs and could adversely impact our ability to raise capital in the future.
 
ITEM 4.
INFORMATION ON THE COMPANY
 
History and Development of the Company
 
We were formed on August 14, 1987, under the laws of Mexico as a variable capital corporation (sociedad anónima de capital variable) to serve as a holding company for investments by certain members of the Serrano Segovia family.
 
TMM merged with and into Grupo TMM (formerly Grupo Servia, S.A. de C.V. (“Grupo Servia”)), which was effected on December 26, 2001, leaving Grupo TMM as the surviving entity. Under the terms of the merger, all of the assets, privileges and rights and all of the liabilities of TMM were transferred to Grupo TMM upon the effectiveness of the merger. TMM was founded on September 18, 1958 by a group of private investors, including the Serrano Segovia family.
 
In December 2001, the boards of directors of TMM and Grupo TMM unanimously approved a corporate reorganization and merger in which TMM was merged with and into Grupo TMM. After the merger, each shareholder of TMM continued to own the same relative economic interest in Grupo TMM as the shareholder owned in TMM prior to the merger. In preparation for the merger, the shareholders of Grupo TMM approved the division (escisión) of Grupo TMM into two companies, Grupo TMM and a newly formed corporation, Promotora Servia, S.A. de C.V. (“Promotora Servia”). Under the terms of the escisión, Grupo TMM transferred all of its assets, rights and privileges (other than its interest in TMM) and all of its liabilities to Promotora Servia. The transfer of assets to Promotora Servia was made without recourse and without representation or warranty of any kind, and all of Grupo TMM’s creditors expressly and irrevocably consented to the transfer of the liabilities to Promotora Servia.
 
On September 13, 2002, we completed a reclassification of our Series L Shares of stock as Series A Shares. The reclassification combined our two classes of stock into a single class by converting each share of our Series L Shares into one share of our Series A Shares. The reclassification also eliminated the variable portion of our capital stock and we became a fixed capital corporation (sociedad anónima). Following the reclassification, we had 56,963,137 Shares outstanding. As a result of the elimination of the variable portion of our capital stock, our registered name changed from Grupo TMM, S.A. de C.V. to Grupo TMM, S.A.
 
As a result of a reform to the securities law in Mexico promulgated in June 2006, publicly traded companies in Mexico were transformed by operation of law into Sociedades Anónimas Bursátiles (Public Issuing Corporation) and were required to amend their bylaws to conform them to the provisions of the new law. Accordingly, on December 20, 2006, the Company added the term “Bursátil” to its registered name to comply with the requirements under Mexico’s new securities law, or Ley del Mercado de Valores. As a result, the Company is known as Grupo TMM, Sociedad Anónima Bursátil, or Grupo TMM, S.A.B. In addition, the Series A Shares of the Company were renamed as nominative common shares without par value (“Shares”). The rights afforded by the new Shares are identical to the rights afforded by the former Series A Shares.
 
Grupo TMM, S.A.B. and Subsidiaries

On December 15, 2017, as part of corporate restructuring to improve our debt profile, we transferred 85% of the shares of our wholly owned subsidiary, TMM Division Maritima, S.A. de C.V. (“TMMDM”), an owner and operator of supply vessels, tankers and tugboats, to the holders of certificates issued by TMMDM under our Mexican Peso-Denominated Trust Certificates Program (the “Trust Certificates Program”). The Trust Certificates Program involved the issuance to investors of certificates secured by trust assets and denominated in Mexican Pesos, the proceeds of which were used by us to consolidate and refinance the debt related to those vessels, as well as to finance the acquisition of additional vessels as contemplated by our expansion program. As a result of the transfer, we no longer exercise control over TMMDM and our financial statements no longer include TMMDM’s assets, liabilities, and income or loss. Going forward, we continue to operate the supply vessels and tankers owned by TMMDM pursuant to a maritime services contract.
 
Today, we are a fixed capital corporation listed on the Mexican Stock Exchange (Bolsa Mexicana de Valores) incorporated under the Ley General de Sociedades Mercantiles for a term of 99 years. We are headquartered at Paseo de la Reforma No. 296, P.19. Col. Juárez, C.P. 06600, Alcaldía Cuauhtémoc, México City, México, and our telephone number is +52-55-5629-8866. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, such as Grupo TMM, at http://www.sec.gov. Grupo TMM’s Internet website address is www.tmm.com.mx. The information on Grupo TMM’s website is not incorporated into this Annual Report.
 
Business Overview
 
General
 
We are one of the largest logistics and transportation companies in Mexico, providing a variety of integrated and dynamic logistics and transportation services to premium clients throughout Mexico, including maritime transportation services, ports and terminals management, logistics services and warehousing services.
 
Maritime Operations. Our Maritime Operations division provides maritime transportation services, including the operation of offshore vessels that provide transportation and other services to the Mexican offshore oil industry, tankers that transport petroleum products within Mexican and international waters, parcel tankers that transport liquid chemical and vegetable oil cargos from and to the United States and Mexico, and dry bulk carriers that transport unpackaged commodities such as steel between South America, the Caribbean and Mexico. As of March 31, 2021, we operate a fleet of 29 vessels, which includes product and chemical tankers and a variety of offshore supply vessels.  Of these vessels, 23 are owned by TMMDM and managed, operated and marketed by us pursuant to a maritime services contract.
 
In addition, we operate a shipyard with integrated services based in the port of Tampico, Mexico through our subsidiary, Inmobiliaria Dos Naciones, S.R.L. de C.V. (“IDN”). IDN is located near offshore oil and gas facilities and key commercial routes between the Southeastern United States and Mexico. IDN provides ship repair services and has two floating drydocks with a capacity of 3,000 metric tons each. IDN services more than 30 vessels per year and provides us with the necessary capabilities to build additional vessels.
 
Ports and Terminals Operations. We presently operate two Mexican port facilities, Tuxpan and Acapulco, under concessions granted by the Mexican government, which provide for certain renewal rights. This business unit also provides port agent services to vessel owners and operators in the main Mexican ports.
 
Logistics Operations. We provide dedicated logistics services to major manufacturers, including automobile manufacturers and retailers with facilities and operations throughout Mexico. The services that we provide include consulting, analytical and logistics outsourcing services, which encompass the management of inbound movement of parts to manufacturing plants consistent with just-in-time inventory planning practices; logistics network (order-cycle) analysis; logistics information process design; intermodal transport; supply chain and logistics management; product handling and repackaging; local pre-assembly; maintenance and repair of containers in principal Mexican ports and cities and inbound and outbound distribution using multiple transportation modes. Due to the scope of our operations, together with the extent of our experience and resources, we believe that we are uniquely positioned to coordinate the entire supply chain for our customers.

Grupo TMM, S.A.B. and Subsidiaries

Warehousing Operations. Through our subsidiary, Almacenadora de Depósito Moderno, S.A. de C.V. Auxiliary Credit Organization (“ADEMSA”), we provide warehousing and bonded warehousing facility management services. ADEMSA currently operates over 250,000 square meters of warehousing space throughout Mexico, including 67,353  square meters of direct warehouse space (the largest of which is located in northern Mexico City). Due to its regulated nature, ADEMSA is one of a limited number of warehousing companies authorized by the Mexican government to provide bonded warehousing services and to issue negotiable certificates of deposit.
 
Set forth below are our total revenues over the last three fiscal years for each of our business segments:

   
Consolidated Transportation Revenues
(in millions of Pesos)
Years Ended December 31,
 
   
2020
   
2019
   
2018
 
Maritime Operations
 
$
751.2
   
$
868.5
   
$
909.5
 
Ports and Terminals Operations
   
69.3
     
169.8
     
166.0
 
Logistics Operations
   
243.8
     
265.5
     
286.6
 
Warehousing Operations
   
139.0
     
171.9
     
161.0
 
Total
 
$
1,203.3
   
$
1,475.7
   
$
1,523.1
 
 
Recent Developments

COVID-19 Pandemic
 
On March 11, 2020, the WHO declared COVID-19 a pandemic.  In response, governments worldwide, including Mexico, have implemented various extraordinary measures to control its spread, including travel restrictions, quarantines and the suspension of non-essential activities. The full effect of the COVID-19 pandemic on our business remains uncertain, and will depend on its duration and its impact on the Mexican and global economies.  Nevertheless, as of the date of this Annual Report, various international banks and multilateral institutions such as the International Monetary Fund have assessed that the COVID-19 pandemic resulted in the worst global economic recession since the Great Depression.  For fiscal year 2020, our revenues, particularly in our Ports and Terminals business, decreased significantly due to the COVID-19 pandemic and the various emergency public health measures enacted by governments to combat it.  Although we expect our revenues will improve as extraordinary government measures are lifted and emergency public health restrictions are repealed, as the date of this Annual Report we cannot quantify the adverse effect COVID-19 will have on our results of operations for fiscal year 2021.
 
In light of these and other conditions beyond our control, our results of operations may be volatile and subject to change rapidly as the COVID-19 situation develops. Accordingly, we have taken various actions to maintain business continuity and strengthen our financial condition, including deferring payments to suppliers and creditors, maintaining our early payment program to help offset the effect of customer payment delays, and other actions to reduce overall expenses.  We are complying with the health and safety protocols established by the Mexican government and have taken steps and implemented policies to safeguard our businesses, employees, and the communities in which we operate from the threats posed by the COVID-19 pandemic.  These steps include, among others, actively cleaning and sanitizing open public areas where we operate and establishing appropriate information technology (“IT”) systems to enable our employees to work remotely.  To ensure the continuity of our operations under pandemic conditions, our IT department quickly implemented a sophisticated video conferencing and collaborative teamwork platform while also strengthening our cybersecurity policies, allowing our employees to engage remotely in Company activities from the safety of their homes. In addition, we continue to provide health benefits to our employees on temporary leave until the end of the pandemic. Moving forward, we will continue to monitor the development of the COVID-19 pandemic closely, including its effect on our business, financial condition and results of operations.
 
Grupo TMM, S.A.B. and Subsidiaries
 
Digital Transformation Project
 
In 2019, we initiated an ambitious Digital Transformation Project under a technology infrastructure strategy based on cloud-based services, updating our technology and telecommunications capabilities by implementing advanced service platforms across each of our business and operational venues. In particular, we have (1) upgraded our enterprise resource planning (ERP) platform to the latest version of SAP (s4/Hana) in order to optimize the administrative, financial, and accounting processes of our businesses, (2) implemented an advanced warehouse management system (WMS) and (3) deployed an advanced sales and customer relationship management (CRM) platform. These three platforms form the backbone of our Digital Transformation Project, allowing us to operate horizontally across the Company, as data created and hosted on each platform can be easily extracted, integrated and represented graphically in dashboards and in executive reports, facilitating rapid business decision making via analysis of key performance indicators (KPI). In addition to implementing advanced technologies at a corporate level, we have deployed microservices-based desktop and mobile applications to optimize processes specific to each of the core activities of our businesses to achieve greater efficiency and operational control. By implementing world-class technology solutions across the Company and developing specific vertical applications for each business unit, we have been able to improve the operational efficiency of our employees and better serve our customers.
 
Relocation of Corporate Office
 
As part of our cost reduction efforts, in 2020 we relocated our corporate office to a new location in Mexico City, which we expect will generate significant savings by lowering our lease payments and other corporate costs.
 
Vessel Sales
 
In accordance with our fleet modernization plan, in recent years we have sold or otherwise ceased to operate a number of vessels.  On September 4, 2017, we sold the tugboat “Rey de Coliman” to Servicios Portuarios Generales, S.A. de C.V.  On May 17, 2018, we sold the parcel tanker M/T “Maya” to Yangzijiang Express Shipping PTE, LTD.  On August 30, 2019, we terminated service to the tugboat “SMR Manzanillo” in connection with its sale to Bricor Servicios Portuarios Mexicanos S.A. de C.V. by TMMDM.  Also, we terminated service to the tankers “Veracruz” and “Durango” when TMMDM’s sold those vessels to Mercantile and Maritime Trading PTE LTD on January 29, 2020 and February 6, 2020, respectively, and terminated service to the tanker “Tajín” when TMMDM sold it to Shannon Trading S.A. on February 10, 2020.  Most recently, on January 8, 2021, we sold the parcel tanker M/T “Olmeca” to Athene Shipping Limited.  See Note 29 of the accompanying Audited Consolidated Financial Statements.
 
RTG Crane Acquisition
 
In June 2019, we entered into a financing agreement with PNC Bank, N.A., guaranteed by the U.S. Export-Import Bank, to acquire a rubber tyred gantry (“RTG”) crane to replace the the crane used in our automotive sector operations at Aguascalientes. Pursuant to the agreement, the Company received loan proceeds in the amount of US$860 thousand (approximately 85% of the purchase price of the crane), at a fixed rate of 4.40% per annum, with semiannual payments of principal and interest, and maturing in July 2024.
 
Termination of Tugboats Business in the Port of Manzanillo
 
Since January 1997, TMM (formerly Servicios Mexicanos en Remolcadores, S.A. de C.V.) has held a concession to provide tugboat services in the port of Manzanillo, including port docking and navigation in and out of channels and port facilities into open waters. In December 2019, TMM sold this concession, 100% of the shares in its tugboat business subsidiary, Snekke S.A. de C.V. and the harbor tugboat “TMM Colima” to an unrelated third party. Following the sale, we exited the harbor towing business, terminating our tugboat services in Manzanillo. In connection with the sale, tugboats “TMM Cuyutlan” and “TMM Tepalcates” were sold to Snekke S.A. de C.V. by TMMDM.
 
Loss of Offshore Vessel “Subsea 88”
 
In November 2018, the offshore vessel “Subsea 88” suffered an onboard fire, rendering it inoperable.  The Company reported the incident to its insurance companies, Mexican authorities and the financial institution that provided the capital lease in respect of the vessel.  In June 2019, the Company received the insurance proceeds for the loss of the vessel, the value of the asset was written off and the associated capital lease was terminated.
 
Grupo TMM, S.A.B. and Subsidiaries
 
Acquisition of Liquid Terminal Project in Tuxpan
 
In light of the liberalization of refined products included in the Mexican Energy Reforms and the Company’s ownership of land strategically located in Tuxpan, in August 2016 we announced a new venture with TransCanada and Sierra Oil & Gas to jointly develop a mid-stream infrastructure in Tuxpan as well as an inland distribution center to serve the growing demand for refined products such as gasoline, diesel and jet fuel in the central region of Mexico.  In February 2019, we agreed to purchase from Sierra Oil & Gas their 50% interest in the project’s joint venture company, Services and Solutions Optimus S. de R.L. de C.V. (“Optimus”), for US$2.6 million, resulting in Optimus becoming a wholly owned subsidiary of the Company. Once completed, the liquid terminal infrastructure being developed by Optimus should allow us to supply up to 80,000 barrels per day of refined products to Mexico City and the central Mexican states from our facilities in Tuxpan. See Notes 1 and 5 of the accompanying Audited Consolidated Financial Statements.

Spin-off of TMMDM

On December 15, 2017, as part of corporate restructuring to improve our debt profile, we transferred 85% of the shares of our wholly owned subsidiary, TM DM, an owner and operator of supply vessels, tankers and tugboats, to the holders of certificates issued by TMMDM under our Trust Certificates Program.  As a result of the transfer, we no longer exercise control over TMMDM and our financial statements no longer include TMMDM’s assets, liabilities, and income or loss. Going forward, we continue to operate the supply and tanker vessels owned by TMMDM pursuant to a maritime services contract.  The terms of the contract provide for TMMDM to pay us a service fee based on the revenues generated by the vessels and their operating costs. The contract does not include a non-compete restriction, allowing us to continue our efforts to expand our existing fleet and develop new maritime business.
 
Refinancing of Parcel Tankers Debt

                In May 2018, following the sale of the parcel tanker M/T “Maya” the Company prepaid the full US$25 million outstanding on a line of credit from DVB Bank America, N.V. which had been incurred to finance the purchase of that vessel.  In addition, in September 2018, the Company obtained a new line of credit from ACT Maritime LLC, a subsidiary of Alterna Capital Partners, LLC, in the amount of US$5.25 million, at a variable rate of LIBOR 90 days plus 750 points, with quarterly payments of principal and interest, and maturing in September 2023.  The proceeds of this new line of credit were used to pay off the remaining balance of the 10-year line of credit in the original amount of US$27.5 million that the Company had obtained from DVB Bank America, NV in May 2007 to purchase the parcel tanker M/T “Olmeca.” In December 2020, we used the funds obtained from Athene Shipping Limited as an advance on the sale of the “Olmeca” to prepay in full the US$3.5 million outstanding on the ACT Maritime LLC line of credit.    See Item 5. “Liquidity and Capital Resources – Purchase of Two Parcel Tankers” and Note 29 of the accompanying Audited Consolidated Financial Statements.
 
Commencement of Bulk Carrier Service
 
In August 2017, we started to transport unpackaged commodities such as steel between South America, the Caribbean and Mexico in specialized ships called bulk carrier vessels.
 
The Mexican Market
 
Since TMM’s formation in 1958, the growth and diversification of the Mexican economy have largely driven our growth. Following the enactment of NAFTA, which became effective January 1, 1994, trade with and investment in the Mexican economy has significantly increased, resulting in greater traffic along the North-South cross-border trade routes that extend from Canada to the United States and Mexico. The USMCA, the successor to NAFTA, entered into force on July 1, 2020. Although the USMCA aims to support mutually beneficial trade and robust economic growth among parties, we cannot predict the impact the USMCA will have on the Mexican economy or our operating results.  The following table illustrates the growth of the foreign trade segment of the Mexican economy over the last three years:
 
Grupo TMM, S.A.B. and Subsidiaries

   
Foreign Trade 2018-2020(a)
 
   
As of December 31,
(in millions of Dollars)
 
   
2020
   
2019
   
2018
 
Total Exports
 
$
417,670
   
$
460,704
   
$
450,713
 
Total Imports
 
$
383,194
   
$
455,295
   
$
464,302
 
Total Trade Flows
 
$
800,864
   
$
915,999
   
$
915,015
 
Growth Rate—Exports
   
(9.3
)%
   
2.2
%
   
10.1
%
Growth Rate—Imports
   
(15.8
)%
   
(1.9
)%
   
10.4
%
Growth Rate—Total
   
(12.6
)%
   
0.1
%
   
10.3
%
Growth Rate—GDP(b)
   
(8.2
)%
   
(0.3
)%
   
2.2
%



(a)
The figures include the in-bound (maquiladora) industry.
 
(b)
The methodology for calculating Growth Rate-GDP was modified by the Instituto Nacional de Estadistica, Geografia e Informatica (INEGI) and is based on 2013 prices.
 
Source: Instituto Nacional de Estadistica, Geografia e Informatica (INEGI).
 
Business Strategy

As part of our continued effort to achieve the Company’s goals, throughout the past five years we have accomplished the following:
 

We have continued to implement our strategic plan to offset recent financial instability resulting from the COVID-19 pandemic and the downturn in the oil industry by taking the following actions: (i) reducing our overhead costs and selling, general and administrative (“SG&A”) expenses, (ii) working with Nacional Financiera, S.N.C. to maintain our early payment program to reduce our liquidity risk and mitigate payment delays resulting from changes in the payment policies of PEMEX and other key customers, (iii) diversifying our customer base, and (iv) negotiating with our lenders to delay our payment obligations and extend the applicable maturity date under various loans and financing agreements.
 

We have taken various measures to help ensure our financial reporting and auditing processes remain robust and as timely as possible amidst the COVID-19 pandemic. These actions have included, among others, (i) the implementation of new controls for emergency procedures, (ii) close monitoring of IT access controls to enable our employees to work remotely where possible, (iii) controls to mitigate the potential increase in cybersecurity risks arising from a higher level of remote work, and (iv) where existing controls are unable to be performed safely or effectively, identifying and implementing appropriate alternative controls to compensate for the lack of information. In addition, given the continued travel restrictions in effect in Mexico, we have implemented an alternative audit plan to remotely test the operating effectiveness of our internal controls.
 

In response to the COVID-19 pandemic, we are taking various actions to protect our communities and the places where we operate.  For example, at certain locations we are actively cleaning and sanitizing open public areas, allowing our employees to work remotely where possible and providing health benefits to employees on temporary leave due to the pandemic.
 

We have expanded the customer base in all of our business segments, resulting in better operating margins while strengthening our market position.
 

In August 2016, we announced a venture with TransCanada and Sierra Oil & Gas to jointly develop a refined products storage, transportation, and distribution infrastructure to serve the growing demand for refined products such as gasoline, diesel and jet fuel from Tuxpan, Veracruz to the central region of Mexico. In February 2019, we purchased from Sierra Oil & Gas 50% of the shares of Optimus, the joint venture company developing the liquid terminal project in Tuxpan.  As a result, Optimus is now a wholly owned subsidiary of the Company.
 
Grupo TMM, S.A.B. and Subsidiaries
 

In December 2017, we restructured our Maritime Operations to decrease our consolidated debt and improve our debt profile by transferring 85% of the shares of our wholly owned subsidiary, TMMDM, an owner and operator of supply vessels, tankers and tugboats, to the holders of certificates issued by TMMDM under our Trust Certificates Program.  As a result of the transfer, we no longer exercise control over TMMDM and our financial statements no longer include TMMDM’s assets, liabilities, and income or loss. This has allowed us to reduce our comprehensive financing cost by approximately 90%, improving our debt to capital ratio and providing us with greater free cash flow. Going forward, we continue to operate TMMDM’s vessel fleet pursuant to a maritime services contract under which we are paid a service fee based on the revenues generated by the vessels and their operating costs. The contract does not include a non-compete restriction, allowing us to continue our efforts to expand our existing fleet and develop new maritime business.
 

With respect to our liabilities, in addition to continuing to service our debt obligations and improving our debt profile through the TMMDM spin off in 2017, in 2018, we further improved our debt profile by retiring in full our indebtedness to DVB Bank SE, which consisted of two outstanding 10-year lines of credit with DVB Bank SE’s subsidiary, DVB Bank America, N.V. The first line of credit, with an original principal amount of US$25 million, was prepaid in May 2018 following our sale of the parcel tanker M/T “Maya.” The second, with an original principal amount of US$27.5 million, was retired in September 2018 with the proceeds of a new, 5-year line of credit from ACT Maritime LLC, a subsidiary of Alterna Capital Partners, LLC, in the amount of US$5.25 million. In December 2020, we prepaid the full US$3.5 million outstanding of the ACT Maritime LLC line of credit with proceeds from our sale of the parcel tanker M/T “Olmeca”.

Moving forward, our business strategy is focused on the following:

Expansion and Improvement of our Maritime Operations

The recent Mexican Energy Reforms have the potential to increase oil and gas activity in Mexico by PEMEX and other industry participants, both domestic and international. To better capitalize on any such increase in light of the preferences granted to Mexican ship-owners under the Mexican Navigation Law (Mexican flagged vessels have a preference to perform cabotage in Mexican waters), our Maritime Operations division is focused on consolidating and expanding operations by: (i) increasing cabotage services with medium and long-term contracts; (ii) satisfying demand for exploration and distribution services in Mexico and abroad by meeting market requirements for new generation vessels with higher-rated and deeper-water capabilities; and (iii) increasing the current capacity of our shipyard repair services to more than 30 vessels per year, including the vessels we operate and, in the long term, to have the capacity to build vessels, enabling us to compete to satisfy the expected demands of currrent and future customers.  In support of this effort, we recently entered into a construction agreement with Westport Orange Shipyard to build a new 6,600 short-tons floating dry-dock to increase the capacity of our shipyard operations. The project is supported by a 7-year financing agreement with Amegy Bank (Zions Bancorporation N.A.), guaranteed by EXIM Bank, for up to 85% of the purchase price of the floating dry-dock.

Expansion of our Ports and Terminals Operations
 
Tuxpan is the closest port to Mexico City and the central Mexican states, which account for more than 50% of Mexico’s GDP. It is also the main port of entry of gasoline and diesel imports, which account for more than 70% of domestic consumption.
 
In light of the liberalization of refined products included in the Mexican Energy Reforms and the Company’s ownership of land strategically located in Tuxpan, in August 2016 we announced a new venture with TransCanada and Sierra Oil & Gas to jointly develop a mid-stream infrastructure in Tuxpan as well as an inland distribution center to serve the growing demand for refined products such as gasoline, diesel and jet fuel in the central region of Mexico. The project includes a liquid terminal being developed by Optimus, a company which had been jointly owned 50% by the Company and 50% by Sierra Oil & Gas.  In February 2019, we purchased the Optimus shares held by Sierra Oil & Gas for a total amount of US$2.6 million, giving us full ownership of the company as well as the development of the project.

Grupo TMM, S.A.B. and Subsidiaries
 
To capitalize on the growth potential of this market, we continue our efforts to develop port facilities and storage terminals in order to meet the future demand for gasoline and diesel imports.
 
We retain a significant portion of land in Tuxpan and continue to develop projects associated with that region, such as a general cargo terminal.

Expansion of our Logistics Operations

We are looking to leverage our experience and knowledge of Mexico and its laws, our customer relationships, and our skills in managing union and non-union labor resources to further expand our business with the automotive industry and in general in all activities related to yards and storage management, with an emphasis on “just-in-time” inventory planning, store, subassemblies and yards administration.

We expect to meet all of the above mentioned goals through a series of financial and commercial strategies that are described in greater detail under Item 5. “Operating and Financial Review and Prospects—Business Plan.”

Improvement of our Warehousing Operations

We are working to improve our bonded warehousing services as well as import duties service. Additionally, we are focusing our growth through providing an integral logistic service to our customers, encompassing bonded warehousing services, inventories management, value-added services, and delivery to the end consumer.

Certain Competitive Advantages

We believe that we benefit from the following competitive advantages:
 

We are one of the largest and leading Mexican owned and operated maritime and logistics companies in Mexico.
 

We have extensive and proven experience in ports, terminals and integrated services, such as yards operations, vessels and intermodal equipment maintenance, repair and warehousing in Mexico.
 

We have a demonstrated ability to contract vessels with limited disruptions.
 

The Mexican Navigation Law requires that Mexican flag carriers receive preferential treatment.
 

We are poised to capitalize on future growth in the Mexican energy sector.
 

We are certified by the Institute of International Container Lessors (“IICL”) for our maintenance and repair of containers.
 

Our operations in Tuxpan, Veracruz are in a prime location to capitalize on the growth of trade via the Gulf of Mexico.
 
Maritime Operations
 
Our Maritime Operations include: (a) supply and logistics services to the oil offshore industry at offshore facilities in the Gulf of Mexico and between ports, moving crews and/or cargo to and from oil platforms; (b) a product tanker for the transportation in cabotage of petroleum products, such as the distribution of gasoline to a variety of Mexican and international ports where the gasoline is further distributed inland; (c) parcel tankers, also known as chemical tankers, for the transportation of liquid chemical cargoes between ports in Mexico and the United States; (d) bulk carrier vessels that transport unpackaged general commodities between South America, the Caribbean and Mexico; and (e) shipyard services, including ship repair and dry docking services. This segment accounted for 62.4%, 58.9% and 59.7% of consolidated revenues for the years 2020, 2019, and 2018, respectively.
 
Grupo TMM, S.A.B. and Subsidiaries
 
Fleet Management

As of March 31, 2021, we operated 29 vessels comprised of a product tanker, parcel tankers, a bulk carrier and offshore vessels.  Following the spin-off of TMMDM in December 2017, we entered into a maritime services contract with TMMDM pursuant to which we manage, operate and market the 23 ships belonging to TMMDM (22 offshore vessels and 1 tanker) for a fee based on the shipping revenues and the cost of services required to operate the vessels.
 
The table below sets forth information as of March 31, 2021, about the fleet we operate by type, size and capacities:

 
 
 
Vessel Type
 
Number of
Vessels
   
Total Dead
Weight Tons
(in thousands)
   
Total Cubic
Meter Capacity
(in thousands)
   
BHP(*)
 
Offshore vessels
   
25
     
35.7
       
**
   
6,051
 
Product tankers
   
1
     
46.9
     
51.6
       
**
Parcel tankers
   
2
     
30.5
     
32.9
       
**
Bulk carriers
   
1
     
30.0
       
**
     
**
                                 
Total
   
29
     
143.1
     
84.5
         



*
Average Brake Horse Power.
 
**
Not applicable.
 
Offshore Vessels
 
We have been participating in this business for more than 25 years. Our offshore division provides supply and logistics services to the offshore industry between the ports and the offshore facilities in the Gulf of Mexico through a specialized fleet that includes fast and conventional crew vessels, supply vessels, anchor handling tug supply vessels, floating production, storage and offloading (“FPSO”) vessels and Dynamic Positioning (“DP”) vessels. Other services include supply and administration of onboard personnel, coordination and supervision of the maritime transport of staff, materials and equipment from the base on shore to operational points of the vessels within the oil-drilling zone of the Gulf of Mexico, and coordination and supervision of catering and accommodation matters onboard the vessels. In 2020, the vessels we operate represented 9.4% of Mexico’s offshore fleet. As of March 31, 2021, nine vessels were hired by PEMEX or its subsidiaries, six vessels were hired by private oil companies, companies engaged in the construction and maintenance sectors, or in the spot market, and ten vessels were available for hire.
 
Set forth below is information regarding the offshore vessels fleet as of March 31, 2021:
 
Vessel
Year
Flag

DWT(1)


LOA(2)(m)(3)


Beam (m)


BHP


Charterer(s)
 
*Eco III
2008
Mexico
 
10,306
   
117.0
   
21.0
   
3,618
   
-
 
+ Doña Hilda
2009
Mexico
 
317
   
53.4
   
9.8
   
7,200
   
Fieldwood
 
*Isla Arboleda
2002
Mexico
 
417
   
46.0
   
8.0
   
5,400
   
PEP
 
*Isla Arcas
2001
Mexico
 
224
   
50.3
   
9.1
   
7,200
   
-
 
*Isla Azteca
1998
Mexico
 
1,000
   
61.9
   
14.0
   
3,900
   
PEP
 
*Isla Blanca
2008
Mexico
 
480
   
49.4
   
11.0
   
1,700
   
Sky-Mar
 
*Isla Ciari
2009
Mexico
 
480
   
49.4
   
11.0
   
1,700
   
PEP
 
Isla Colorada
2001
Mexico
 
540
   
44.0
   
11.0
   
1,700
   
-
 
*Isla Creciente
2002
Mexico
 
357
   
42.7
   
9.0
   
6,750
   
PEP
 
*Isla de Cedros
1999
Mexico
 
2,000
   
67.0
   
14.9
   
8,000
   
-
 
*Isla San Jose
2006
Mexico
 
1,660
   
68.0
   
16.0
   
12,240
   
-
 
*Isla Grande
2004
Mexico
 
2,800
   
75.0
   
16.0
   
12,000
   
ENI
 
*Isla Guadalupe
1998
Mexico
 
1,598
   
61.0
   
13.8
   
5,300
   
-
 
*Isla Janitzio
2008
Mexico
 
480
   
49.3
   
11.0
   
1,700
   
PEP
 
*Isla León
2008
Mexico
 
1,350
   
63.4
   
15.6
   
6,500
   
-
 
*Isla Miramar
2000
Mexico
 
255
   
48.8
   
9.1
   
6,750
   
PEP
 

Grupo TMM, S.A.B. and Subsidiaries

Vessel
Year
Flag


DWT(1)



LOA(2)(m)(3)



Beam (m)



BHP


Charterer(s)
 
*Isla Monserrat
2007
Mexico
   
3,250
     
71.9
     
16.0
     
5,450
   
PEP
 
*Isla San Gabriel
2009
Mexico
   
369
     
55.6
     
10.4
     
7,200
   
Sky-Mar
 
*Isla San Ignacio
2009
Mexico
   
488
     
50.0
     
11.0
     
7,200
   
PEP
 
*Isla San Luis
2009
Mexico
   
381
     
55.5
     
10.4
     
7,200
   
ENI
 
*Isla Santa Cruz
2008
Mexico
   
1,900
     
63.4
     
15.8
     
6,800
   
PEP
 
*Isla Verde
2001
Mexico
   
540
     
44.0
     
11.0
     
1,700
   
-
 
*Isla San Diego
2009
Mexico
   
552
     
55.2
     
10.4
     
7,200
   
-
 
+ Maersk Transporter
2009
Mexico
   
3,370
     
73.2
     
20.0
     
13,872
   
ENI
 
*Nevado de Colima
1983
Mexico
   
606
     
28.4
     
9.0
     
3,000
   
-
 



(1)
Dead weight tons.
(2)
Overall length.
(3)
Meters.
*
TMMDM vessel.
+
Chartered vessel.
 
In November 2018, the vessel “Subsea 88” suffered an onboard fire, rendering it inoperable. The Company reported the incident to its insurance companies, Mexican authorities and the financial institution that provided the capital lease in respect of the vessel. In June 2019, the Company received the insurance proceeds for the loss of the vessel, the value of the asset was written off and the associated capital lease was terminated.
 
Product Tankers
 
Since 1992, we have provided product tanker chartering services to PEMEX and its subsidiaries for the transportation of clean and dirty petroleum products from refineries to various Mexican ports. As of December 31, 2020, the fleet we operated was comprised of one product tanker without a contract.
 
Set forth below is information regarding the product tanker fleet as of March 31, 2021:

Vessel
Year
Flag
Hull

DWT(1)


LOA(3)(m)(4)


Beam (m)


Charterer
 
*Tula
2005
Mexico
DH(2)
 
46,911
   
183
   
32
   
-
 
 

 
(1)
Dead weight tons.
(2)
Double hull.
(3)
Overall length.
(4)
Meters.
*
TMMDM vessel.
 
We have a competitive advantage in the Mexican market as Mexican Maritime law establishes that cabotage services should be provided by Mexican flag vessels and only Mexican companies are allowed to fly the Mexican flag.
 
OPA 90 established that vessels that do not have double-hulls will be prohibited from transporting crude oil and petroleum products in U.S. coastwise transportation after a certain date based on the age and size of the vessel unless they are modified with a double-hull. In addition, Annex II (Rules 13G and 13H) from MARPOL 73/78 establishes a phase out calendar for single hull tankers. We are aware of this regulation and do not charter or intend to acquire vessels that do not comply with these rules.
 
Parcel Tankers
 
Our parcel tanker business operates between Mexican and American ports in the Gulf of Mexico, transporting chemicals, vegetable and animal oils and molasses. The majority of the transported cargo is under contracts of affreightment (“COAs”) in which the customers commit the carriage of their cargo over a fixed period of time on multiple voyages, with a minimum and a maximum cargo tonnage at a fixed price. The vessel operator is responsible for the vessel, the fuel and the port expenses. Currently, our parcel tanker fleet is comprised of two chartered vessels. We transported 606 thousand tons of chemical products in our parcel tankers during 2020, 586 thousand tons during 2019, and 595 thousand tons during 2018. Our primary customers for our parcel tanker services include major oil and chemical companies.
 
Grupo TMM, S.A.B. and Subsidiaries

Set forth below is information regarding our parcel tankers as of March 31, 2021:
 
Vessel
Flag
Year

LOA


Beam


Draft


DWT(1)


Capacity M3
Total
 
       
(m)(2)
   
(m)
   
(m)
             
Chemical Atlantik
Turkey
2018
   
145.0
     
21.0
     
11.0
     
15,081
     
15,154
 
Oriental Marguerite
Panama
2008
   
134.2
     
20.5
     
11.6
     
14,367
     
16,232
 
                       
Total
     
29,448
     
31,386
 



(1)
Dead weight tons.
 
(2)
Meters.
 
Bulk Carrier
 
In August 2017, we commenced transporting unpackaged general commodities such as steel between South America, the Caribbean and Mexico in specialized ships called bulk carrier vessels. Our bulk carrier services typically involve the hiring of a bulk carrier vessel approximately once per month.
 
Shipyard
 
The Company holds a concession to operate a shipyard in the port of Tampico, Mexico. The shipyard is strategically positioned in the Gulf of Mexico, in close proximity to offshore oil and gas facilities and other key commercial routes between the Southeastern United States and Mexico. The shipyard provides ship repair services and enables us to provide dry docking services to more than 30 vessels per year. In addition, we expect to expand and diversify our services to develop the necessary capabilities to build vessels at the shipyard, taking advantage of the opportunities created by new participants in the Mexican market.
 
Customers and Contractual Arrangements
 
The primary purchasers of our Maritime Operations services are multi-national oil, gas and chemical companies. These services are generally contracted for on the basis of short-term or long-term time charters, voyage charters, COAs or other transportation agreements tailored to the shipper’s requirements. In 2020, excluding customers contracted through TMMDM, our ten largest customers accounted for approximately 57% and 36% of Maritime Operations revenues and consolidated revenues, respectively.  The loss of one or more of our customers could have a material adverse effect on the results of our Maritime Operations.
 
The services we provide are arranged through different contractual arrangements. Time charters are the principal contractual form for our Maritime Operations.
 
In the case of a time charter, the charterer is responsible for the hire, fuel and port expenses, and the shipowner is responsible for the nautical operation of the vessel, including the expenses related with the crew, maintenance and insurance. When we bareboat charter a vessel, the charterer is responsible for the hire, fuel and port expenses but also assumes all risk of the nautical operation, including the associated expenses. COAs are contracts with a customer for the carriage of cargoes that are committed on a multi-voyage basis over a period of weeks or months, with minimum and maximum cargo tonnages specified over the period at fixed rates per ton depending on the duration of the contract. Typically, under voyage charters and COAs, the shipowner pays for the fuel and any applicable port charges.
 
Markets
 
The demand for offshore vessels is affected by the level of offshore exploration and drilling activities, which in turn is influenced by a number of factors including:
 
Grupo TMM, S.A.B. and Subsidiaries
 

expectations as to future oil and gas commodity prices;
 

customer assessments of offshore drilling prospects compared to land-based opportunities;
 

customer assessments of cost, geological opportunity and political stability in host countries;
 

worldwide demand for oil and natural gas;
 

the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and pricing;
 

the level of production of non-OPEC countries;
 

the relative exchange rates for the U.S. dollar; and
 

various government policies regarding exploration and development of their oil and gas reserves.
 
Ports and Terminals Operations
 
We conduct operations at the Mexican ports of Acapulco and Tuxpan. We have been granted a permit to operate at the public berth in the port of Tuxpan. Additionally, we own land in Tuxpan on which we are developing various terminals, including a liquid oils terminal and a general cargo terminal. Our concession in Acapulco and permit in Tuxpan give us the right of first refusal to continue operations for a second term once the term of the original instrument expires. In 2019, our permit in Tuxpan was extended for an additional 10 years. Ports and Terminals operations accounted for 5.6%, 11.5% and 10.9% of consolidated revenues in 2020, 2019, and 2018, respectively.
 
The following table sets forth our existing port facilities and concessions:

Port
Concession/Permit
Date Awarded
Duration
Acapulco
Integral port administration
June 20, 1996
25 years (with the possibility of extension)
       
Tuxpan
Stevedoring services
August 4, 1999
20 years (with the possibility of successive 10-year extensions, which were exercised in 2009 and 2019, respectively).
 
Acapulco
 
In June 1996, we received a 25-year concession to operate the tourist port of Acapulco and commenced operations in July 1996 and we have initiated administrative proceedings to obtain a further 25-year extension. Our port interests in Acapulco are operated through a joint venture with SSA called Administración Portuaria Integral de Acapulco, S.A. de C.V. (“API Acapulco”), in which we have a 51% interest.
 
Through API Acapulco, we operate and manage an automobile terminal, a cruise ship terminal with a capacity to receive two cruise ships simultaneously and an automobile warehouse with a capacity to store up to 1,700 automobiles.
 
In 2020, we handled 19,310 automobile exports for Volkswagen, Chrysler and Nissan to South America and Asia, reflecting a decrease of 40.0% from 2019, when we handled 32,271 automobiles at our terminal.
 
Acapulco is one of the main tourist ports in Mexico. During 2020, we received 4 cruise ship calls in Acapulco, representing a decrease of 86.0% from 2019, when we received 29 cruise ship calls.
 
Grupo TMM, S.A.B. and Subsidiaries

The significant decrease in volumes at Acapulco in 2020 is attributable to the effects of the COVID-19 pandemic on the global shipping and tourism industries.
 
Tuxpan
 
Since 1999, we have held a permit to provide general cargo operations at the public berths in the port of Tuxpan,  such as the loading and unloading of grain and gravel for the construction of a gas pipeline. We also offer container-warehousing services at this port.  In addition, we own approximately 1,780 acres of land in the port of Tuxpan through our wholly owned subsidiaries, Bimonte S.A. de C.V., Prestadora de Servicios MTR, S.A. de C.V. and Services and Solutions Optimus, S. de R.L. de C.V., which we are using to develop a general cargo terminal, a liquid oils terminal and logistic facilities.
 
In August 2016 we announced a new venture with TransCanada and Sierra Oil & Gas to jointly develop a mid-stream infrastructure in Tuxpan as well as an inland distribution center to serve the growing demand for refined products such as gasoline, diesel and jet fuel in the central region of Mexico.  The site includes a liquid oils terminal being developed by Services and Solutions Optimus, S. de R.L. de C.V., which had been jointly owned 50% by the Company and 50% by Sierra Oil & Gas. In February 2019, we purchased the 50% interest held by Sierra Oil & Gas for US$2.6 million.  With this purchase, we acquired full ownership and control of the project and Services and Solutions Optimus, S. de R.L. de C.V. became a wholly owned subsidiary of the Company. Once completed, the liquid oils terminal should allow us to supply up to 80,000 barrels per day of refined products.
 
Shipping Agencies
 
We operate shipping agencies at ports throughout Mexico, including the ports of Acapulco, Veracruz, Coatzacoalcos, Ciudad del Carmen, Dos Bocas, Tuxpan, Cozumel, Costa Maya, Progreso and Zihuatanejo. Our shipping agencies provide services to vessel owners and operators in Mexican ports, including (i) port agent services, including the preparation of the required documentation with the relevant port authorities for the dispatch of vessels; (ii) protective agent services, which support the rotation of crew members and the supply of spare parts; (iii) cargo and multimodal supervision; (iv) ship chandler services, which include the procurement of food, water and supplies and (v) bunkering services, which include the coordination of fuel delivery services. Our shipping agencies also provide shipping agency services at other major ports through agreements with local agents.
 
Logistics Operations
 
Through TMM Logistics, S.A. de C.V. (“TMM Logistics”), a wholly owned subsidiary of Grupo TMM, we provide dedicated logistics services to major manufacturers, including automobile manufacturers, and retailers with facilities and operations throughout Mexico. The services that we provide include consulting, analytical and logistics outsourcing services, which encompass the management of inbound movement of parts to manufacturing plants consistent with just-in-time inventory planning practices; logistics network (order-cycle) analysis; logistics information process design; supply chain and logistics management; product handling and repackaging; local pre-assembly; and maintenance and repair of containers in principal Mexican ports and cities. Due to the scope of our operations, together with the extent of our experience and resources, we believe that we are uniquely positioned to coordinate the entire supply chain for our customers. This segment accounted for 20.4%, 18.0% and 18.8% of consolidated revenues in 2020, 2019, and 2018, respectively.
 
Automotive Services
 
We provide specialized logistics support for the automotive industry within Mexico. Services include the arrangement and coordination of the movement of motor vehicle parts or sub-assemblies from supplier facilities to assembly plants, warehousing, inspection and yard management. Our logistics services can be provided as end-to-end integrated logistics programs (bundled) or discrete services (unbundled) depending on customer needs.

Grupo TMM, S.A.B. and Subsidiaries
 
Container Repair and Maintenance
 
We offer maintenance and repair services for dry and refrigerated containers in Manzanillo, Veracruz, Altamira, Ensenada, Aguascalientes, and Mexico City (Pantaco). These services involve keeping refrigerated components and other parts of a container in useable condition, including mechanical repair, welding and repainting of such containers.
 
Warehousing Operations
 
We offer warehousing and bonded warehousing facility management services through our subsidiary, ADEMSA. ADEMSA currently operates over 250,000 square meters of warehousing space throughout Mexico, including 67,353 square meters of direct warehouse space (the largest of which is located in northern Mexico City). Due to its regulated nature, ADEMSA is one of a limited number of warehousing companies authorized by the Mexican government to provide bonded warehousing services and to issue negotiable certificates of deposit.
 
Grupo TMM’s Strategic Partners
 
We are currently a partner in the following strategic arrangements:

Business
Partner
Ports (Acapulco)
SSA Mexico, Inc.
Projects and Commercialization
Irkon Concesiones, S.A. de C.V.
Energy Infrastructure
EGI Oil & Gas, S.A. de C.V.
 
Sales and Marketing
 
Much of the success of our business depends on our marketing network. Our marketing network includes affiliated offices, agencies at Mexican ports and a sales force based throughout Mexico to sell our logistics, warehousing, ports and specialized maritime services. Our marketing and sales efforts are designed to grow and expand our current customer base by initiating long-term contracts. We have devised, implemented and will continue to implement several customer service initiatives in connection with our marketing efforts, which include the designation of customer sales territories and assignment of customer service teams to particular customers.
 
Since we commenced operations, we have been actively seeking to obtain new customer contracts with the expectation of entering into long-term contracts with such new clients or with existing customers. Although written customer contracts are not customary in Mexico, we have succeeded in negotiating written contracts with a number of our major customers.
 
Systems and Technology

      We continually seek to update and improve our technology systems and processes to improve our operations. Our systems and applications are regularly updated following industry best practices and applying an agile methodology that ensures an efficient and cost-effective implementation process. In terms of on-premises IT security, we have implemented advanced devices and applications to increase the accuracy and security of our information, and at the cloud and data network level, we constantly monitor the environments hosting each platform as well as the performance, data traffic and stability of our communications networks to ensure the continuity of our business operations.
 
When implementing the technology platforms that support the operations across our business units, we work hand in hand with specialized teams of IT consultants and globally recognized companies such as Microsoft, SAP, RackSpace, Salesforce and Amazon Web Services. In collaboration with these companies, we have implemented IT best practices and jointly developed a technology strategy to enable us to respond swiftly to the current needs of our businesses, while simultaneously laying the groundwork for future evolution in our IT systems.  Underlying our technology strategy is an understanding that our IT systems must remain flexible and able to adapt to changes in the financial conditions of the Company and emerging national and international trends, practices or circumstances.
 
Grupo TMM, S.A.B. and Subsidiaries
 
Competition
 
Maritime Operations
 
The Company’s primary competitors in the offshore vessel business are Tidewater de Mexico, S. de R. L. de C.V., Naviera Bourbon Tamaulipas, S.A. de C.V., Mantenimiento Express Marítimo, S.R.L., Naviera Integral, S.A. de C.V., Blue Marine Technology Group, Harvey Gulf, and Hornbeck Offshore Services de Mexico S de RL de CV.
 
The Company’s primary competitor in the parcel tanker business is Stolt-Nielsen Transportation Group Ltd. Some other competitors in this business include Team Tankers, Ace Tankers, Eitzen and Caribbean Tankers, Inc. and Nordic Tankers.
 
The Company’s primary competitors in the product tanker business are Scorpio Tankers, Maersk Tankers, and PEMEX Refinación.
 
The primary competitors of our shipyard business are Talleres Navales del Golfo, Astilleros Mexicanos JP, Astilleros de Marina Tampico, Astilleros de Marina Coatzacoalcos, and Reparaciones Navales Zavala.
 
The Company believes the most important competitive factors concerning the Maritime Operations segment are pricing, the flying of the Mexican flag and the availability of equipment to fit customer requirements, including the ability to provide and maintain logistical support given the complexity of a project and the cost of transferring equipment from one market to another. The Company believes it can capitalize on opportunities as they develop for purchasing, mobilizing, or upgrading vessels to meet changing market conditions.
 
Ports and Terminals Operations
 
The Company’s key competitors in its ports business are Hutchinson Ports, SSA Mexico and Amports.
 
In its shipping agencies business, the Company’s primary competitors are Representaciones Marítimas, Meritus and Aconsur.
 
The Company believes the most important competitive factors concerning the Ports and Terminals Operations segment are customer service, experience and operating capabilities.
 
Logistics Operations
 
In the logistics business, the Company faces competition primarily from Car Logistics S.A. de C.V., Axis Logistics S.A. de C.V., Wallenius, SEGLO, Ceva Logistics, Syncreon, Keuhne-Nagel, SeSe, Amport, DHL, SSA, CPV and CSI.
 
In its maintenance and repair business, the Company faces competition primarily from Container Care International Inc., CIMA and Grupo SLTC.
 
The Company believes the most important competitive factors in the Logistics Operations segment are price, customer service, brand name, experience, operating capabilities and state-of-the-art information technology.
 
Warehousing Operations
 
Our warehousing business’ main competitors are Almacenadora Mercader, Afirme Almacenadora, Almacenadora Sur and, ACCEL.
 
The Company believes the most important competitive factors in the Warehousing Operations segment are value-added services, competitive rates, nationwide coverage, customer service, brand name, experience, operating capabilities and state-of-the-art information technology.
 
Grupo TMM, S.A.B. and Subsidiaries
 
Regulatory Framework
 
Certain countries have laws which restrict the carriage of cargos depending upon the nationality of a vessel or its crew or the origin or destination of the vessel, as well as other considerations relating to particular national interests. In accordance with Mexico’s Navigation Law (Ley de Navegación y Comercio Marítimos), cabotage (intra-Mexican movement) is reserved for ships flying the Mexican flag. We believe we are currently in material compliance with all restrictions imposed by the jurisdictions in which we operate. However, we cannot predict the cost of compliance if our business is expanded into other jurisdictions which have enacted similar regulations.
 
We are also subject to the laws of various jurisdictions and international conferences with respect to the discharge of materials into the environment. See “— Environmental Regulation” and “— Insurance.”
 
Our port operations are subject to the Ley de Puertos. Port operations require a concession title granted by the Mexican government to special companies incorporated under the Ley de Puertos, which companies may partially assign their concession title to third parties for the use and exploitation of assets owned by the Mexican government in the different port facilities (subject to the Ley de Puertos and the terms and conditions of the concession title). Various port services require a special permit granted by the Ministry of Communications and Transportation of Mexico. Concession titles may be revoked under certain circumstances in accordance with applicable law and the terms of the concession title. Partial assignments of concession titles may be rescinded under certain circumstances established in the corresponding assignment agreements. Foreign investment in special companies incorporated under the Ley de Puertos (such as API Acapulco) may not exceed 49%, except through vehicles or securities deemed by applicable Mexican law as “neutral investments.”
 
Mexican Navigation Law
 
The Mexican Navigation Law (Ley de Navegación y Comercio Marítimos) was enacted in 2006, with its most recent amendments effective as of January 23, 2014.  This law: (i) strengthens the reservation of cabotage services for Mexican individuals dedicated to shipping or Mexican shipping companies; (ii) establishes mechanisms and procedures for the resolution of maritime controversies or disputes and (iii) in general terms, is protective of the Mexican shipping industry. Nevertheless, there can be no assurance that the percentage of Mexican-flagged vessels operating in Mexico will continue to increase in the future.
 
The law gives precedence to international treaties ratified by Mexico to foster uniformity in the type of regime applicable to specific circumstances such as the Hague Visby Rules, CLC/FUND Conventions, 1976 Limitation Convention, Salvage Convention, COLREGS, and MARPOL. (All vessels navigating Mexican waters must enter into protection and indemnity insurance agreements.)
 
Listed below are some of the salient points of the legislation:
 

customary provisions enabling authorities to carry out inspections of vessels and investigations of incidents;
 

regulations concerning registration of vessels and waivers allowing Mexican companies to operate foreign flag vessels in otherwise reserved domains;
 

foreign vessels are obliged to designate a shipping agent in order to call at Mexican ports;
 

Mexican flag vessels are required to operate with Mexican crews only and cabotage is in principle reserved for Mexican vessels;
 

when a foreign vessel is abandoned by the owners with cargo on board, provisions of the legislation coordinate repatriation and temporary maintenance of the crew which the law deems ultimately to be the joint and several liability of the owner and agent;
 

the carriage of passengers, cargo and towage in ports and pilotage are also regulated;

Grupo TMM, S.A.B. and Subsidiaries
 

captains are responsible for damage and loss caused to vessels or ports due to negligence, lack of proper qualification, carelessness or bad faith, but are not responsible for damages caused by an act of God or force majeure;
 

companies providing towage services must carry insurance to cover their liabilities to the satisfaction of the authorities;
 

pollution is regulated by international treaties; however this only covers CLC-type liabilities. Pollution in respect of other substances is dealt with under local legislation which has no limitation. This is irrespective of any criminal proceedings or sanctions against the party responsible for the incident; and
 

maritime privileges are also considered within the law.
 
The law establishes time limits for commencement of proceedings with respect to 7 specific types of contracts as follows:
 

bareboat charter;
 

time charter;
 

voyage charter;
 

carriage of goods;
 

passengers;
 

salvage; and
 

towage.
 
Regulations of the Mexican Navigation Law
 
On March 4, 2015, the Regulations of the Mexican Navigation Law (“Reglamento de la Ley de Navegación y Comercio Marítimos”) were published in Mexico’s Official Gazette and became effective 30 days thereafter. Enactment of the regulations represented a significant event in the merchant maritime sector and were aimed at enhancing legal certainty and promoting trade. In particular, the regulations reduced administrative complexity by consolidating several existing laws or regulations into a single set of regulations.
 
The regulations develop various substantive aspects of the Mexican Navigation Law, including:
 

general provisions (definitions, guarantees, and maritime insurance);
 

extraordinary specialization of vessels, registration, national maritime registry, maritime agents and nautical education;
 

temporary navigation permits and permits for permanent stay, maneuver, nautical tourism and pollution prevention; and
 

revisions to conform hydrocarbons terminology to the new Hydrocarbons Law.
 
Following the adoption of the regulations, several topics covered by the Mexican Navigation Law are addressed in a single document, including merchant marine education, maritime insurance, vessel inspection, maritime public registry, flag and registration of vessels and naval crafts, and marine prevention.

Grupo TMM, S.A.B. and Subsidiaries
 
Mexican Energy Reforms

On December 12, 2013, the Mexican government passed legislation amending articles 25, 27 and 28 of the Mexican Constitution (Constitución Política de los Estados Unidos Mexicanos) and providing 21 transitional articles to establish the legal framework for reforming the Mexican energy sector. The reforms aim to modernize the Mexican energy sector and increase private investment by, inter alia:
 

providing for PEMEX and CFE to become state-owned, for-profit companies (empresas productivas del estado);
 

establishing a contractual regime to allow the Ministry of Energy (Secretaría de Energía or SENER), with the technical assistance of the new National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos or CNH), to award to PEMEX and private entities the right to participate in upstream oil and gas operations through the use of service contracts, profit-sharing agreements, production sharing agreements and license agreements, with the Ministry of Energy authorized to determine the best contractual form in each case so as to maximize revenue to the Mexican government;
 

allowing private entities that have entered into a contract with PEMEX or the Mexican government to report, for accounting and financial purposes, the awarding of the contract, the related oil and gas reserves and the contract’s forecasted benefits, provided the private entities affirm that all oil and gas within the subsoil remains the property of Mexico;
 

requiring PEMEX to participate in a “round zero” and submit to SENER for consideration a list of the areas where it intends to continue conducting exploration or production operations pursuant to the new contractual regime, establish that it has the technical, financial and execution capabilities needed to explore for and develop the oil and gas from those areas in an efficient and competitive manner, and provide a work program and budget for those areas;
 

allowing PEMEX to transfer its rights to explore for and develop oil and gas resources to private entities upon application to SENER;
 

allowing the Energy Regulatory Comission (Comisión Reguladora de Energia or CRE) to grant permits for the storage, transport and distribution of oil and gas through pipelines as well as for the generation and commercialization of electricity;
 

creating the Mexican Petroleum Fund for Stabilization and Development (Fondo Mexicano del Petróleo para la Estabilización y el Desarollo) to act as a government trust fund for the collection and administration of income received by the Mexican government from contracts with PEMEX and private entities;  and
 

creating the National Agency of Industrial Security and Environmental Protection of the Hydrocarbon Sector (Agencia Nacional de Seguridad Industrial y de Proteccion al Medio Ambiente del Sector de Hidrocarburos) to regulate and supervise matters concerning operational security and environmental protection in the oil and gas industry.
 
In August 2014, SENER and CNH announced the results of PEMEX’s “round zero” lease allocation, awarding PEMEX approximately 83% of Mexico’s proven and probable (2P) reserves and 21% of its prospective resources. In connection with the energy reforms, SENER released a five-year oil and gas tender plan (2015 – 2019), which was intended to showcase the Mexican government’s strategy for revitalizing the domestic oil and gas sector and maximize interest from industry participants in future tenders. “Round one”, which consisted of four phases that took place in July, September, and December 2015 and December 2016, respectively, awarded to various international oil and gas companies the right to conduct oil and gas operations in shallow water exploration and production areas, onshore production areas and deepwater exploration areas. “Round two”, which began in June 2017, was divided into four tenders, the first of which involved the award of production sharing contracts, while the following three rounds involved the award of license contracts. “Round three” began in September 2017 and consisted of three tenders, the first of which involved the award of production sharing contracts, with the following two rounds featuring license contracts. Additionally, there are the so-called “farmouts” in which PEMEX will conduct oil and gas operations jointly with a third party, either to increase production, share risks, obtain geological information or access new technology. Farmouts were scheduled to be divided into four tenders, the first of which resulted in the signing of a license contract in March 2017. The bidding process for the remaining farmout tenders began in 2017 and resulted in two license contracts signed in March 2018. As of the date of this Annual Report, CNH has not published new calls for bids and has not released an update of the five-year tender plan.  At a press conference held on January 24, 2020, the head of SENER stated that the Mexican government had no plans to conduct further tenders aimed at increasing oil and gas production.
 
Grupo TMM, S.A.B. and Subsidiaries
 
On March 26, 2021, President Andrés Manuel López Obrador proposed legislation to amend certain provisions of the Hydrocarbons Law (the “Amendment”) to, among other things, prevent speculation in the oil market and curtail the illegal trafficking of gasoline. Following a spirited legislative debate, the Amendment was passed by the Mexican government and became effective on May 5, 2021 following its publication in the Federal Official Gazette.
 
This Amendment introduces key modifications to the regulatory structure for the granting of permits for midstream and downstream activities under the Hydrocarbons Law, establishing heightened requirements on companies applying for permits to refine oil, process natural gas, or engage in various other activities including transportation, storage, distribution, compression, liquefaction, decompression, regasification, commercialization, and retail of hydrocarbons, fuels and petrochemicals. In particular, the Amendment:
 

requires that companies applying for a permit to conduct midstream or downstream activities first demonstrate that they meet certain minimum storage requirements established by SENER;
 

modifies the procedure for the approval of applications to assign a permit, moving from the current “deemed approval” system under which an assignment application is deemed approved if the authorities fail to respond within the relevant time period, to one in which the failure of the authorities to respond within such period will result in denial of the application;
 

establishes new grounds for the revocation of permits, including where CRE or SENER determine that the permit holder (i) has committed the crime of hydrocarbons, fuels and petrochemicals smuggling or (ii) is otherwise in breach of the permit conditions or the provisions of the Hydrocarbons Law;
 

expands the discretionary authority of CRE and SENER, allowing them to suspend permits on a temporary basis or revoke them permanently, including for reasons of national security, energy security or to protect the national economy, and giving them the power to assume control of the permit holder’s administration and operations (or transfer such control to PEMEX) to ensure the continuous operation of the permit holder’s activities;
 

allows CRE or SENER to determine the length of any permit suspension, hire a new operator, use (or authorize PEMEX to use) the personnel of the permit holder to continue the permit holder’s operations,  or use a combination of the foregoing;
 
 
allows CRE or SENER to revoke permits for storage activities in cases where the holder has failed to meet and comply with the authorized storage capacity; and
 

provides that where a permit holder has failed to exercise their rights or perform their duties within the time period specified in the permit, or within 365 days if no period is specified, CRE or SENER may declare the permit to have expired and be of no further legal validity.
 
The Amendment may have a significant impact on the future development of Mexico’s hydrocarbons industry, particularly, the midstream, downstream, and retail sectors, as it grants authorities the discretionary power to revoke permits, considerably expands administrative power to issue temporary or permanent suspensions for reasons of national security, energy security, or to protect the national economy, and allows authorities to assume control of a permit holder’s operations or assign control of those operations to a third party. Although the permit holder may request the end of the permit suspension once the stated reasons for the suspension no longer eixst, the authority has no obligation to compensate the permit holders for their losses during the period of suspension.
 
Grupo TMM, S.A.B. and Subsidiaries
 
We continue to analyze the scope and implications of the Mexican Energy Reforms and the recent Amendment on our business. We cannot predict the full impact that these changes will have on our business, financial condition and results of operations once they are fully implemented. Despite the uncertainties introduced by the recent Amendment, we believe that the reforms have the potential to significantly increase Mexican oil and gas production in the coming years. Although there is no guarantee that such an effect will materialize, we believe that an increase in Mexican oil and gas production would likely have a positive impact on our business, financial condition and results of operations.
 
Mexican Tax Reforms
 
During the 2018 fiscal year, the Mexican government, through the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público), announced certain new federal tax provisions. These include provisions allowing taxpayers to offset accrued amounts only against contributions those taxpayers must pay on their own liabilities, provided both derive from the same federal tax, including ancillary charges.  This change eliminates the ability of taxpayers to offset accrued amounts against withholdings by third parties or against taxes other than the one to be offset. The changes which were included in the Federal Tax Code effective January 1, 2020.

On October 30, 2019, the Mexico’s Congress approved various amendments to different federal tax provisions. Key changes include:


The tax authorities are empowered to presume, during the exercise of their powers of verification, that legal acts lack a business reason when they generate tax benefits, directly or indirectly, which are greater than the reasonably expected economic benefit.


The deferral in the deduction of net interests, up to 30% of the adjusted tax profit determined per year, to be deducted up to a period of 10 fiscal years following the one in which they have not been deducted, provided that accrued interests exceed $20 million.


An increase in the income tax withholding rate, on interests earned through the financial system, from 1.04% to 1.45%.
 
We cannot predict the full impact that the changes described above will have on our business, financial condition and results of operations upon implementation, including the effect on our business of higher costs due to additional compliance measures. Our initial assessments indicate that the changes will increase our income tax base in the coming years, primarily as a result of the new limitations on tax deductions. In addition, we cannot predict the indirect impact that this legislation could have on our customers and shareholders. It is possible that our shareholders may be required to pay more taxes than they would have paid prior to the implementation of the tax reforms.
 
Environmental Regulation
 
Our operations are subject to Mexican federal and state laws and regulations relating to the protection of the environment, as well as technical environmental requirements issued by the SEMARNAT. Under the General Law of Ecologic Equilibrium and Protection of the Environment (Ley General de Equilibrio Ecológico y Protección al Ambiente) and the General Law for Integral Prevention and Handling of Residues (Ley General de Prevención y Gestión Integral del Residuos), the SEMARNAT and other authorized ministries have promulgated standards, for, among other things, water discharge, water supply, emissions, noise pollution, hazardous substances, transportation and solid waste generation. The terms of the port concessions also impose on us certain environmental law compliance obligations. See “— Insurance.”
 
Grupo TMM, S.A.B. and Subsidiaries
 
Under OPA, responsible parties, including owners and operators of ships, are subject to various requirements and could be exposed to substantial liability, and in some cases, unlimited liability for removal costs and damages, including natural resource damages and a variety of other public and private damages, resulting from the discharge of oil, petroleum or related substances into United States waters by their vessels. In some jurisdictions, claims for removal costs and damages would enable claimants to immediately seize the ships of the owning and operating company and sell them in satisfaction of a final judgment. The existence of comparable statutes enacted by individual states of the United States, but requiring different measures of compliance and liability, creates the potential for similar claims being brought under state law. In addition, several international conventions that impose similar liability for the discharge of pollutants have been adopted by other countries. If a spill were to occur in the course of the operation of one of our vessels carrying petroleum products, and such spill affected the United States or another country that had enacted legislation similar to OPA, we could be exposed to substantial or unlimited liability.
 
The U.S. Clean Water Act imposes restrictions and strict controls regarding the discharge of wastes into the waters of the United States, including discharges incidental to the normal operation of commercial vessels, such as ballast water. The Clean Water Act and comparable state laws, provide for civil, criminal and administrative penalties for unauthorized discharges of wastes or pollutants, including harmful organisms that can travel in ballast water. In the event of an unauthorized discharge of wastes or pollutants into waters of the United States, we may be liable for penalties and could be subject to injunctive relief.
 
In addition, our seagoing transport of petroleum and petroleum products subjects us to additional regulations and exposes us to liability specific to this activity. Laws and international conventions adopted by several countries in the wake of the “Exxon Valdez” accident, most notably OPA (discussed above), could result in substantial or even unlimited liability for us in the event of a spill. Moreover, these laws subject tanker owners to additional regulatory and insurance requirements. We believe that we are in compliance with all material requirements of these regulations.
 
We could have liability with respect to contamination at our former U.S. facilities or third-party facilities in the United States where we have sent hazardous substances or wastes under the U.S. Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) and comparable state laws (known as state Superfund laws). CERCLA and the state Superfund laws impose joint and several liability for the cost of investigation and remediation, natural resources damages, certain health studies and related costs, without regard to fault or the legality of the original conduct, on certain classes of persons with respect to releases into the environment of certain substances. These persons, commonly called “potentially responsible parties” or “PRPs” include the current and certain prior owners or operators of a facility and persons that arranged for the disposal or treatment of certain substances at a facility where a release has or could occur. In addition, other potentially responsible parties, adjacent landowners or other third parties may initiate cost recovery actions or toxic tort litigation against PRPs under CERCLA, state Superfund laws or state common law.
 
Noncompliance with applicable environmental laws and regulations may result in the imposition of considerable administrative or civil fines, temporary or permanent shutdown of operations or other injunctive relief, or criminal prosecution. We currently believe that all of our facilities and operations are in substantial compliance with applicable environmental regulations. There are currently no material legal or administrative proceedings pending against us with respect to any environmental matters, and we do not believe that continued compliance with environmental laws will have a material adverse effect on our financial condition or results of operations.
 
We cannot predict the effect, if any, that the adoption of additional or more stringent environmental laws and regulations would have on the operations of companies that are engaged in the type of business in which we are engaged, or specifically, on our results of operations, cash flows, capital expenditure requirements or financial condition.
 
Insurance
 
Our business is affected by a number of risks, including mechanical failure of vessels and other transportation equipment, collisions, property loss of vessels and other transportation equipment, piracy, cargo loss or damage, as well as business interruption due to political circumstances in Mexico and in foreign countries, hostilities and labor strikes. In addition, the operation of any oceangoing vessel is subject to the inherent possibility of catastrophic marine disaster, including oil spills and other environmental accidents, and the liabilities arising from owning and operating vessels in international trade.
 
Grupo TMM, S.A.B. and Subsidiaries
 
We maintain insurance to cover the risk of partial or total loss of or damage to all of our assets, including, but not limited to, harbor and seagoing vessels, port facilities, port equipment, land facilities and offices. In particular, we maintain marine hull and machinery and war risk insurance on our vessels, which covers the risk of actual or constructive total loss. Additionally, we have protection and indemnity insurance for damage caused by our operations to third persons. With certain exceptions, we do not carry insurance covering the loss of revenue resulting from a downturn in our operations or resulting from vessel off-hire time on certain vessels. In certain instances, and depending on the ratio of insurance claims to insurance premiums paid, we may choose to self-insure our over-the-road equipment following prudent guidelines. We believe that our current insurance coverage is adequate to protect against the accident-related risks involved in the conduct of our business and that we maintain a level of coverage that is consistent with industry practice. However, we cannot assure you that our insurance would be sufficient to cover the cost of damages suffered by us or damages to others, that any particular claim will be paid or that such insurance will continue to be available at commercially reasonable rates in the future. OPA 90, by imposing potentially unlimited liability upon owners, operators and bareboat charters for certain oil pollution accidents in the United States, made liability insurance more expensive for ship-owners and operators.
 
Organizational Structure
 
We hold a majority of the voting stock in each of our subsidiaries. The most significant subsidiaries, as of March 31, 2021, include:

 
Name
 
Country of
Incorporation
 
Ownership
Interest
 
Voting
Interest
 
Administración Portuaria Integral de Acapulco S.A. de C.V. (Ports)*
 
Mexico
   
51
%
   
51
%
 
Autotransportación y Distribución Logística, S.A. de C.V. (Logistics)
 
Mexico
   
100
%
   
100
%
 
TMM Logistics, S.A. de C.V. (Logistics)
 
Mexico
   
100
%
   
100
%
 
Transportación Marítima Mexicana, S.A. de C.V. (Product and parcel tankers, offshore vessels, harbor tugboat operations, and shipping agencies)
 
Mexico
   
100
%
   
100
%
 
Prestadora de Servicios MTR, S.A. de C.V. (Ports)
 
Mexico
   
100
%
   
100
%
 
Bimonte, S.A. de C.V. (Ports)
 
Mexico
   
100
%
   
100
%
 
Services and Solutions Optimus, S. de R.L. de C.V. (Ports)
 
Mexico
   
100
%
   
100
%
 
Administradora Marítima TMM, S.A.P.I. de C.V. (Ports)
 
Mexico
   
100
%
   
100
%
 
TMM Parcel Tankers, S. A. de C. V. (Tanker vessels)
 
Mexico
   
100
%
   
100
%
 
Almacenadora de Deposito Moderno, S. A. de C. V. (Warehousing)
 
Mexico
   
100
%
   
100
%
 
Inmobiliaria Dos Naciones, S. R. L. de C. V. (Shipyard)
 
Mexico
   
100
%
   
100
%
 

(*)
Less than wholly owned by the Company.
 
Property, Vessels and Equipment
 
Our principal executive offices are located in Mexico City, and are currently under lease from October 2020 through September 2029. Our business activities in the logistics and transportation fields are conducted with both owned and leased equipment, and, in certain instances, through concessions granted to us by the Mexican government. We were granted the right to operate certain facilities, including certain warehouses, cruise ship terminals and ports, as part of franchises awarded through the Mexican government’s privatization activity. We operate facilities, either through leases or with direct ownership interests, in Acapulco, Aguascalientes, Altamira, Cancun, Ciudad del Carmen, Ciudad Juarez, Ciudad de Mexico, Celaya, Coatzacoalcos, Dos Bocas, Ensenada, Guadalajara, Veracruz, Manzanillo, Monterrey, Nuevo Laredo, Puebla, Reynosa, Tapachula, Tampico, Toluca and Tuxpan. See Item 4. “Information on the Company — Business Overview,” and Notes 9, 10 and 11 to the accompanying Audited Consolidated Financial Statements contained elsewhere herein.
 
Concession Rights and Related Assets are summarized below:
   
Years Ended December 31,
       
   
2020
   
2019
   
Estimated
Amortization
Life
(Years)
 
   
(in thousands of Pesos)
 
API Acapulco
 
$
94,607
   
$
94,607
     
8
 
Tugboats in the port of Manzanillo
   
-
     
-
     
*
 
     
94,607
     
94,607
         
Accumulated amortization
   
(92,715
)
   
(88,931
)
       
Concession rights and related assets – net
 
$
1,892
   
$
5,676
         



(*)
Fully amortized.

Grupo TMM, S.A.B. and Subsidiaries

Property, Vessels and Equipment are summarized below:

   
Years Ended December 31,
       
   
2020
   
2019
   
Estimated Total
Useful Lives
(Years)
 
   
(in thousands of Pesos)
 
Vessels
 
$
182,055
   
$
214,938
     
25
 
Shipyard
   
190
     
232
     
40
 
Drydocks (major vessel repairs)
   
6,858
     
15,180
     
2.5
 
Buildings and installations
   
286,232
     
299,660
   
20 and 25
 
Warehousing equipment
   
450
     
205
     
10
 
Computer equipment
   
397
     
456
   
3 and 4
 
Terminal equipment
   
24,309
     
26,035
     
10
 
Ground transportation equipment
   
3,730
     
5,027
   
4, 5 and 10
 
Other equipment
   
9,500
     
10,892
         
   
$
513,721
   
$
572,625
         
Land
   
1,934,345
     
1,597,923
         
Construction in progress
   
83,930
     
114,872
         
Total Property, Vessels and Equipment—net
 
$
2,531,996
   
$
2,285,420
         

On March 31, 2014, the Company, through its subsidiary IDN, entered into a “sale and leaseback” arrangement with UNIFIN Financiera, S.A.P.I. de C. V., SOFOM E.N.R. (“UNIFIN”) whereby IDN sold to UNIFIN the floating dry-dock “ARD-10”, the floating dry-dock “ABDF 2”, and the towing vessel “Catherine M” for an amount of approximately $55.6 million. At the same time, IDN and UNIFIN entered into a four-year operating leasing arrangement for the three assets in order to maintain their ability to operate and generate income.  In 2018, the Company repurchased the floating dry-dock “ARD-10” and the towing vessel “Catherine M” from UNIFIN, and IDN extended the operating lease of the floating dry-dock “ABDF 2” by two years.  In April 2020, IDN and UNIFIN entered into an additional four-year extension of the “ABDF 2” operating lease.

On May 14, 2014, the Company, through its subsidiary TMM, entered into a “sale and leaseback” arrangement with UNIFIN, whereby TMM sold to UNIFIN the vessels “Isla Passavera” and “Margot Marianne” for approximately $22.7 million.  At the same time, TMM and UNIFIN entered into a four-year operating leasing arrangement for the two vessels in order to maintain their ability to operate and generate income.  In 2018 TMM redelivered both vessels to UNIFIN, ending the leasing arrangement.

Since January 1, 2014, the Company has applied the revaluation model for its assets in accordance with IAS 16 “Property, Plant and Equipment”. The revalued amounts for the majority of its assets are determined at market values calculated by professional appraisers, with the values of certain vessels determined using other valuation techniques. As a result, in December 2020, the Company recognized a gain on revaluation of assets of $314.4 million, while in December 2019, the Company recognized gain on revaluation of assets of $379.4 million. See Notes 4.8 and 25 of the Audited Consolidated Financial Statements contained elsewhere herein.
 
In November 2018, the offshore vessel “Subsea 88” suffered an onboard fire, rendering it inoperable.  The Company reported the incident to its insurance companies, Mexican authorities and the financial institution that provided the capital lease in respect of the vessel.  In June 2019, the Company received the insurance proceeds for the loss of the vessel, the value of the asset was written off and the associated capital lease was terminated.
 
Grupo TMM, S.A.B. and Subsidiaries

In June 2019, we entered into a financing agreement with PNC Bank, N.A., guaranteed by EXIM Bank, to acquire an RTG crane to replace the the crane used in our automotive sector operations at Aguascalientes. Pursuant to the agreement, the Company received loan proceeds in the amount of US$860,000 (approximately 85% of the purchase price of the crane), at a fixed rate of 4.40% per annum, with semiannual payments of principal and interest, and maturing in July 2024.
 
In December 2019, our subsidiary TMM sold its concession to provide tugboat services in the port of Manzanillo to an unrelated third party together with 100% of the shares in its tugboat business subsidiary, Snekke S.A. de C.V., and the harbor tugboat “TMM Colima”.

As of December 31, 2020, one RTG crane has been pledged to secure our obligations under the financing agreement with PNC Bank, N.A. In addition, four properties have been pledged to secure our obligations under our lines of credit with Banco Autofin, Banco del Bajio and another financial institution.
 
ITEM 4A.
UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
Executive Overview
 
We generate our revenues and cash flows by providing our customers with value-added multimodal transportation and logistics services, such as warehousing, storage management, ports and terminals operations, cargo handling and logistics support. Our commercial and strategic alliances allow us to market a full range of services in the context of a total supply chain distribution process. Through such alliances, we have been able to benefit not only from synergies, but also from the operational expertise of our alliance partners, enhancing our own competitiveness.
 
Our operating results are generally affected by a variety of factors, including macroeconomic conditions, fluctuations in exchange rates, operating performance of our business units, changes in applicable regulations and fluctuations in oil prices. The effect of changes in these factors impacts our revenues and operating results.
 
Over the last few years, we have made and continue to make significant changes to our business, including:
 

COVID-19 crisis actions. In response to the recent financial instability resulting from the COVID-19 pandemic, we have taken a number of actions to strengthen our business, ensure the integrity of our financial reporting and audit processes, and protect the health and safety of our employees and the communities in which we operate.  See Item 4. “Information on the Company — Recent Developments – COVID-19 Pandemic” and “Information on the Company – Business Strategy.”
 

Changes in management. We have recently made various changes to our senior management team.  Effective September 1, 2020, Vanessa Serrano Cuevas assumed the role of Chief Executive Officer and Flor de María Cañaveral Pedrero assumed the role of Deputy Chief Executive Officer.  Most recently, effective January 4, 2021, Luis Rodolfo Capitanachi Dagdug assumed the role of Chief Financial Officer.
 

Updating our digital technology platforms: We continue to improve our technology and information systems capabilities through our Digital Transformation Project. Supported by integrated cloud-based platforms, we have developed specific systems for each business unit, and have improved our telecommunications connectivity and internet speed across all locations to ensure business continuity on and off site. The efforts of our internal information technology employees have been fundamental to this transformation, working in close collaboration with our business partners to keep our operations running. As a result of these efforts, today our companies are aligned in a digital information platform that will enable them to operate efficiently, effectively, flexibly and with an eye toward future changes impacting our businesses and our customers. See Item 4. “Information on the Company — Systems and Technology.”
 
Grupo TMM, S.A.B. and Subsidiaries
 

Termination of Tugboats Business. In December 2019, we exited the harbor towing business following the sale by our subsidiary TMM of its concession to provide tugboat services in the port of Manzanillo to an unrelated third party.  As part of the transaction, TMM also sold 100% of the shares in its tugboat business subsidiary, Snekke S.A. de C.V., and the harbor tugboat “TMM Colima”.  See Item 4. “Information on the Company — Recent Developments – Termination of Tugboats Business in the Port of Manzanillo.”
 

Acquisiton of an RTG Crane. In June 2019, we entered into a financial agreement with PNC Bank, N.A. , guaranteed by EXIM Bank, to acquire an RTG crane to replace the the crane used in our operation for the automotive industry at Aguascalientes. See Item 4. “Information on the Company — Recent Developments – RTG Crane Acquisition.”
 

Enhancing our Maritime Operations: We have strengthened and streamlined our Maritime Operations in recent years, developing the business into our most profitable segment. We remain focused on expanding our Maritime Operations to add specialized vessels to our fleet in order to meet market requirements for new generation vessels with higher-rated and deeper-water capabilities. In addition, we have continued our efforts to diversify our customer base in the product tankers and offshore vessels segments, as well as implemented a strategic cost reduction plan to offset some of the instability in the oil industry. See Item 4. “Information on the Company — Business Strategy – Expansion and Improvement of our Maritime Operations.”
 

Developing our shipyard operations in the port of Tampico: We continue to develop our shipyard operations in the port of Tampico, where we provide ship repair and drydock services to more than 33 vessels per year, of which approximately 29% have been vessels we operate, which has reduced our vessel maintenance and repair costs. In the long term, we expect to have the capacity to be able to build vessels at the shipyard, enabling us to compete to satisfy the expected demands of PEMEX and future customers for new offshore vessels. In addition, we recently entered into a construction agreement with Westport Orange Shipyard to build a new 6,600 short-tons floating dry-dock to increase the capacity of shipyard operations.  The project is supported by a 7-year financing agreement with Amegy Bank (Zions Bancorporation N.A.), guaranteed by EXIM Bank, for up to 85% of the purchase price of the floating dry-dock. See Item 4. “Information on the Company — Business Strategy – Expansion and Improvement of our Maritime Operations.”
 

Commencement of bulk carrier service: In August 2017, we started to transport unpackaged commodities such as steel between South America, the Caribbean and Mexico in specialized ships called bulk carrier vessels. See Item 4. “Information on the Company — Recent Developments – Commencement of Bulk Carrier Service.”
 

Expansion of our stevedoring services at Tuxpan: In June 2018, our stevedoring service began handling gravel at the port of Tuxpan for use in connection with the construction of a gas pipeline.
 

Developing a liquid oils terminal at the port of Tuxpan: We continue developing storage and transportation infrastructure to serve the growing demand for refined products, including through our acquisition of 100% of the shares of Services and Solutions Optimus S. de R.L. de C.V., which is developing a liquid oils terminal at the port of Tuxpan,. The Mexican Energy Reforms include refined products liberalization, which should result in new mid-stream infrastructure to meet the demand for gasoline and diesel imports. The liquid oils terminal should help us capitalize on current and future demand for gasoline and diesel imports, which currently account for more than 55% of domestic consumption. See Item 4. “Information on the Company — Business Strategy – Expansion of our Ports and Terminals Operations.”
 

Developing a general cargo terminal at the port of Tuxpan: Through our wholly owned subsidiaries, Bimonte S.A. de C.V. and  Prestadora de Servicios MTR, S.A. de C.V., we are developing a general cargo terminal at the port of Tuxpan. See Item 4. “Information on the Company — Business Strategy – Expansion of our Ports and Terminals Operations.”
 

Partnership diversification: Through our wholly owned subsidiary, Servicios Tecnológicos ST, S.A. de C.V. we entered into an association with Irkon, S.A. de C.V. to develop a project for the commercialization of hydrocarbons. We also entered into a partnership with EGI Oil & Gas, S.A. de C.V. through our wholly owned subsidiary, Trinidad Energy, S.A. de C.V., to provide state-of-the-art pipelines for the construction and maintenance of the hydrocarbons sector.
 
Grupo TMM, S.A.B. and Subsidiaries
 

Reducing our corporate overhead: Over the last few years, we have significantly reduced our operating costs by reducing our corporate executive headcount through the elimination of redundant functions and the transfer of certain employees to other business areas within the Company. We also relocated our corporate headquareters to a new location in Mexico City, reducing our lease expenses and other corporate overhead costs.  For 2021, we aim to optimize the size of our corporate staff as necessary to implement our business strategy.
 

Sale of certain subsidiaries: We have sold certain non-strategic subsidiaries in an effort to streamline our operations and reduce operating costs. During 2016 we did not sell any subsidiaries. During 2017, we sold various non-strategic subsidiaries, including Dibacar Servicios, S.A.P.I. de C.V., Darcot Services, S.A. de C.V., Logística Asociada a su Negocio, S.A. de C.V., STK Logistics, S.A. de C.V., Logística en Administración y Construcciones EDAC, S.A. de C.V. to unrelated third parties for a total loss on sale of $273.0 million. During 2018, we sold 100% of the shares of the subsidiaries Impact Engine, S.A. de C.V., Talocaan Services, S.A. de C.V., and Ditermax Corporate, S.A. de C.V. to an unrelated third party. During 2019, we sold 100% of the shares of the subsidiaries Bamorau Servicios S.A.P.I. de C.V. and Snekke S.A. de C.V. related to the tugboats business to unrelated parties for a total gain on sale of $279.7 million. Finally, in 2020, we sold 100% of the shares of our subsidiaries Siremirta Corporate, S.A. de C.V., Ricalme Services, S.A. de C.V., Dogoubert, S.A.P.I. de C.V. and Judsony, S.A.P.I. de C.V. to an unrelated third party for a total gain on sale of $451,000.
 
Operating Results
 
The following discussion should be read in conjunction with, and is qualified in its entirety by reference to our Financial Statements and the notes thereto appearing elsewhere in this Annual Report. Our Financial Statements have been prepared in accordance with IFRS, which differ in certain respects from U.S. GAAP.
 
General
 
Set forth below is a summary of the results of operations:
   
Year Ended December 31,
 
   
2020
   
2019
   
2018
 
   
(in millions of Pesos)
 
Consolidated Transportation Revenues
                 
Maritime Operations
 
$
751.2
   
$
868.5
   
$
909.5
 
Ports and Terminals Operations
   
69.3
     
169.8
     
166.0
 
Logistics Operations
   
243.8
     
265.5
     
286.6
 
Warehousing Operations
   
139.0
     
171.9
     
161.0
 
Total
 
$
1,203.3
   
$
1,475.7
   
$
1,523.1
 
Income (Loss) on Transportation
                       
Maritime Operations
 
$
74.5
   
$
150.0
   
$
122.5
 
Ports and Terminals Operations
   
(20.8
)
   
31.8
     
49.3
 
Logistics Operations
   
3.6
     
13.6
     
35.5
 
Warehousing Operations
   
(16.5
)
   
(2.4
)
   
(5.7
)
Shared corporate costs
   
(112.4
)
   
(214.1
)
   
(206.0
)
Total
 
$
(71.6
)
 
$
(21.1
)
 
$
(4.4
)

Fiscal Year ended December 31, 2020 Compared to Fiscal Year ended December 31, 2019
 
Revenues from operations for the year ended December 31, 2020 were $1,203.3 million compared to $1,475.7 million for the year ended December 31, 2019.
 
Grupo TMM, S.A.B. and Subsidiaries

   
Consolidated Transportation Revenues
(in millions of Pesos)
Years Ended December 31,
 
   
2020
   
% of Net
Revenues
   
2019
   
% of Net
Revenues
   
Y2020 vs.
Y2019
% Change
 
Maritime Operations
 
$
751.2
     
62.4
%
 
$
868.5
     
58.9
%
   
(13.5
)%
Ports and Terminals Operations
   
69.3
     
5.8
%
   
169.8
     
11.5
%
   
(59.2
)%
Logistics Operations
   
243.8
     
20.2
%
   
265.5
     
18.0
%
   
(8.2
)%
Warehousing Operations
   
139.0
     
11.6
%
   
171.9
     
11.6
%
   
(19.1
)%
Total
 
$
1,203.3
     
100.0
%
 
$
1,475.7
     
100.0
%
   
(18.5
)%
 

Maritime Operations
 
Maritime Operations’ revenues decreased 13.5% to $751.2 million in 2020 compared to $868.5 million in 2019 and represented 62.4% of our total revenues. The reduction in revenue is attributable mainly to the sale of the Tugboats business, the decrease in the number of calls in our bulk carrier business, and deferred works in the shipyard business, partially offset by increased activity in the offshore vessels business and larger transport volumes in our parcel tankers business.
 
Ports and Terminals Operations
 
Ports and Terminals Operations’ revenues decreased 59.2% to $69.3 million for the year ended December 31, 2020 compared to $169.8 million for the year ended December 31, 2019, and accounted for 5.8% of total revenues. This decrease is mainly due to the sharp drop in cruise ship calls beginning in mid-March 2020 because of the mobility restrictions and border closures caused by the COVID-19 pandemic, as well as the interruption of gravel handling in the port of Tuxpan, partially offset by a gradual increase in automobile exports at the port of Acapulco.
 
Logistics Operations
 
Logistics Operations’ revenues decreased 8.2% to $243.8 million in 2020 compared to $265.5 million in 2019 and accounted for 20.2% of total revenues. This decrease was mainly due to the decrease in export activity in all main ports of Mexico, which affected the operations in our maintenance and container repair business, partially offset by an increase in activity in our intermodal terminal and automotive business due to the gradual recovery in this sector.
 
Warehousing Operations
 
Warehousing Operations’ revenues decreased 19.1% to $139.0 million in 2020 compared to $171.9 million in 2019 and accounted for 11.6% of total revenues. This decrease is primarily due to the slowdown of the Mexican economy caused by the COVID-19 pandemic.
 
Income (Loss) on Transportation
 
Income (loss) on transportation reflects revenues on transportation less operating costs and expenses. References to operating income (loss) in this Annual Report refer to income (loss) on transportation, plus/minus the effect of other income (expenses) as presented in the Financial Statements included elsewhere in this Annual Report. Total costs and expenses for the year ended December 31, 2020 decreased 14.8% to $1,274.8 million from $1,496.8 million for the year ended December 31, 2019. This decrease was mainly due to a decrease of 34.5%, or $154.7 million, in contracted services, a decrease of 22.9%, or $ 41.8 million, in depreciation and amortization, and a decrease of 17.4%, or $36.1 million, in fuels and materials. Operating loss increased significantly to $328.8 million for the year ended December 31, 2020 compared to an operating profit of $ 212.8 million for the year ended December 31, 2019, primarily due to non-recurring expenses of $ 257.2 million, which largely consist of expenses related to the termination of the building lease for our former corporate headquarters, cancellation of accounts receivable and cancellation of projects.
 
Grupo TMM, S.A.B. and Subsidiaries

The following table sets forth information concerning the Company’s operating income (loss) on transportation by business segment for the years ended December 31, 2020 and 2019, respectively.

   
Grupo TMM Operations
Income (Loss) on Transportation (1)(2)
(in millions of Pesos)
Year Ended December 31,
 
   
2020
   
2019
   
Y2020 vs.
Y2019
%
Change
 
Maritime Operations
 
$
74.5
   
$
150.0
     
(50.3
)%
Ports and Terminals Operations
   
(20.8
)
   
31.8
     
(165.4
)%
Logistics Operations
   
3.6
     
13.6
     
(73.4
)%
Warehousing Operations
   
(16.5
)
   
(2.4
)
   
587.5
%
Shared Corporate Costs
   
(112.4
)
   
(214.1
)
   
47.5
%
Total
 
$
(71.6
)
 
$
(21.1
)
   
239.6
%



(1)
Income (Loss) on Transportation reflects revenues on transportation less operating costs and expenses. References to “Operating Income (Loss)” in this Annual Report refer to Income (Loss) on Transportation, plus/minus the effect of “Other Income (Expense) – Net” as presented in the accompanying Audited Consolidated Financial Statements.
 
(2)
To better reflect Grupo TMM’s corporate costs, human resources and information technology costs are allocated separately to each business unit in accordance with their use. Income on transportation includes the following allocated total administrative costs: In 2020: $0.5 million in Ports and Terminals Operations, $9.5 million in Maritime Operations and $96.3 million in shared corporate costs. Income on transportation includes the following allocated total administrative costs: In 2019: $11.6 million in Ports and Terminals Operations, $5.9 million in Maritime Operations and $173.1 million in shared corporate costs.
 
Maritime Operations
 
Maritime Operations’ operating income for the year ended December 31, 2020 decreased to $74.5 million compared to $150.0 million for the year ended December 31, 2019, after deducting $9.5 million of administrative costs in 2020 compared with $5.9 million of such costs in 2019. The decrease in income was mainly due to the sale of our tugboats business, as well as reduced performance at our offshore vessels and shipyard businesses, partially offset by improved margins in our parcel tanker and bulk carrier businesses.
 
Ports and Terminals Operations
 
Ports and Terminals Operations’ operating loss for the year ended December 31, 2020 decreased to $20.8 million compared to $31.8 million for the year ended December 31, 2019, after deducting $0.5 million of administrative costs in 2020 compared to $11.6 million of such costs in 2019. This decrease was mainly due to a reduction in operating activity at API Acapulco, passenger’s mobility restrictions caused by the COVID-19 pandemic as well as poor performance in our shipping agencies business due to the cancellation of cruise ship calls.
 
Logistics Operations
 
Logistics Operations operating income for the year ended December 31, 2020 decreased to $3.6 million, compared to $13.6 million for the year ended December 31, 2019. This decrease was mainly due to the drop in export activity in all of Mexico’s main ports, which reduced activity in our maintenance and container repair business, partially offset by increased activity in our intermodal terminal and automotive business due to the gradual recovery in this sector.
 
Warehousing Operations
 
Warehousing Operations’ operating loss in the year ended December 31, 2020 increased to $16.5 million, compared to $2.4 million for the year ended December 31, 2019. This increase is primarily due to the slowdown of the Mexican economy caused by the COVID-19 pandemic.
 
Grupo TMM, S.A.B. and Subsidiaries
 
Net Financing Cost
   
(in millions of Pesos)
Year Ended December 31,
 
                   
   
2020
   
2019
   
Y2020
vs.
Y2019
% Change
 
Interest income
 
$
7.1
   
$
5.1
     
39.2
%
Interest expense
                       
Interest in leases
 
$
33.6
   
$
70.2
     
(52.1
)%
Interest on other loans
   
38.6
     
69.8
     
(44.7
)%
Amortization of expenses associated with other loans
   
1.5
     
1.6
     
(6.2
)%
Other financial expenses
   
2.0
     
5.3
     
(62.3
)%
Subtotal
 
$
75.7
   
$
146.9
     
(48.5
)%
(Loss) gain on exchange, net
 
$
(25.1)    
$
24.9      
(200.8
)%
Net financing cost
 
$
93.7
   
$
116.9
     
(19.8
)%

Net financing cost recognized during the year ended December 31, 2020 was a $93.7 million debit compared to a $116.9 million debit incurred during the year ended December 31, 2019. The net financing cost in 2020 included net exchange loss of $25.1 million and in 2019 included a net exchange gain of $24.9 million as a result of fluctuations in the relative value of the Peso against the Dollar. Interest expense decreased $67.8 million in 2020 mainly due to repayment of the balance of the debt associated with the vessel “Subsea 88”.

Other (Expenses) income – Net
   
(in millions of Pesos)
Year Ended December 31,
 
                   
   
2019
   
2019
   
Y2020
vs.
Y2019
% Change
 
Other (expenses) income – net
 
$
(257.2
)
 
$
233.9
     
(210.0
)%

Other (expenses) income – net for the year ended December 31, 2020 was $(257.2) million, including $113.5 million of expenses related to the cancellation of the building lease of our former corporate headquarters, $98.9 million of expenses associated with the write-off of accounts receivable, $31.8 million of project cancellation expenses, and $11.1 million of net expenses associated with the recovery of taxes paid in prior years. Other income – net for the year ended December 31, 2019 was $233.9 million, including a gain of $279.7 million on the sale of subsidiaries, which was partially offset by a loss of $18.9 million attributable to project cancellation expenses and $16.6 million of net expenses associated with the recovery of taxes paid in prior years.
 
Income Tax Expense

   
(in millions of Pesos)
Year Ended December 31,
 
   
2020
   
2019
   
Y2020
vs.
Y2019
% Change
 
Income tax gain (expense)
 
$
19.3
   
$
(64.6
)
   
129.9
 
 
In the year ended December 31, 2020, income tax expenses of $10.9 million were partially offset by deferred income tax benefit of $30.2 million, resulting in a gain from income tax of $19.3 million compared to a provision for income tax expense of $64.6 million in the year ended December 31, 2019. During the 2019 financial year, we reached a partial payment agreement with the Tax Administration Service regarding a tax credit that had been determined for the 2010 financial year. The agreement requires us to pay $2.6 million over a 36-month period beginning November 2019.
 
Grupo TMM, S.A.B. and Subsidiaries

Non-controlling Interest

   
(in millions of Pesos)
Year Ended December 31,
 
   
2020
   
2019
   
Y2020
vs.
Y2019
% Change
 
Non-controlling interest
 
$
(5.0
)
 
$
(0.8
)
   
(725.0
)%


Non-controlling interest decreased to a loss of $5.0 million for the year ended December 31, 2020, from an income of $0.8 million for the year ended December 31, 2019. The decrease is largely attributable to a decrease in income at API Acapulco, the company that runs our Acapulco operations, in which SSA has a non-controlling interest.
 
Net (Loss) Income for the year attributable to stockholders of Grupo TMM

   
(in millions of Pesos)
Year Ended December 31,
 
   
2020
   
2019
 
Y2020
vs.
Y2019
% Change
 
                    
Net (Loss) Income for the year attributable to stockholders of Grupo TMM
 
$
(398.2
)
 
$
32.1
 
Null
 

In the year ended December 31, 2020, we recognized net Loss of $398.2 million, or $3.9 per Share. In the year ended December 31, 2019, we recognized net income of $32.1 million, or $0.3 per Share.
 
Fiscal Year ended December 31, 2019 Compared to Fiscal Year ended December 31, 2018
 
For a comparison of our operating results for the fiscal year ended December 31, 2019 to our operating results for the fiscal year ended December 31, 2018, see Item 5. “Operating and Financial Review and Prospects—Fiscal Year ended December 31, 2019 Compared to Fiscal Year ended December 31, 2018” in our Annual Report on Form 20-F for the fiscal year ended December 31, 2019.
 
Critical Accounting Policies
 
Our Financial Statements have been prepared in accordance with the IFRS as issued by the IASB.
 
We have identified certain key accounting policies on which our financial condition and results of operations are dependent. These key accounting policies most often involve complex matters, may be based on estimates and involve a significant amount of judgment. In the opinion of our management, our critical accounting policies under IFRS are those related to revenue recognition, translation to a foreign currency, valuation of property and vessels, deferred income taxes, labor obligations and impairment of long-lived assets. For a full description of all of our accounting policies, see Note 4 to the accompanying Audited Consolidated Financial Statements contained elsewhere herein.
 
Revenue Recognition. The Company follows a five-step process when determing whether to recognize revenue:
 

Identifying the contract with a customer;
 

Identifying the performance obligations;