February 2, 2007

The Good Ship Mary Nour1

While tycoon Lorenzo Zambrano Treviño was mingling with the princes of Asturias,
Felipe and Letizia in Monterrey, a dispute was brewing about the ship Mary Nour, with
27,000 tons of Russian cement, which was unable to dock in the port of Tampico, due to
the legal strategy undertaken by CEMEX.

A daring group of Mexican entrepreneurs made up of trading experts, including some

former directors of CEMEX, partnered to create the company Comercio para el Desarrollo
Mexicano (CDM) and the new brand - Cementos del Mar.

The plan of these entrepreneurs was to import into Mexico "gray gold," that is to say,
cement from European countries, where there is an oversupply and where the price is
much cheaper than in America.

Background of CEMEX
CEMEX is a global solutions company for the construction industry, offering high quality
products and reliable service to customers and communities. It operates in more than 50
countries worldwide with more than 50,000 employees. CEMEX improves the well-being
of its communities and stakeholders through a process of continuous improvement and
permanent efforts to promote a sustainable future.

Cemex has evolved from being a small local competitor to being one of the leading
companies in solutions for the construction industry. Today, it is strategically located in
America, Europe, Africa, the Middle East and Asia.

The company's cement production capacity is more than 98 million metric tons a year and
is a leader in the ready-mixed concrete and aggregate markets, with annual production
levels of approximately 70 million cubic meters and 160 million metric tons, respectively.

1
This case was written by four students of the EGADE Business School Tecnológico de Monterrey as part of the course, Seminario de Filosofía Empresarial.
This case has been developed only to serve as the basis for discussion in an educational environment and does not constitute an endorsement of any individuals
or organizations, nor does it illustrate effective or ineffective management in an administrative setting, nor should it be considered as a source of primary
information.

1
CEMEX has 66 cement plants, more than 1,900 ready-mixed concrete plants, a minority
stake in 15 cement plants, 390 aggregate quarries, more than 200 land distribution centers
and 89 maritime terminals.

CEMEX's goal is to provide its clients with the most effective and efficient construction
solutions, no matter what their construction project, by doing more than just listening to
the needs of their clients, as they are involved in the development and improvement of
their products and services.

CEMEX in the world

The development of CEMEX dates back to 1906, when it was founded with the opening of
the Cementos Hidalgo plant in northern Mexico. Then, in 1931, Cementos Hidalgo and
Cementos Pórtland Monterrey merged to form Cementos Mexicanos, currently CEMEX. In
1967, it acquired the Mérida de Cementos Maya Plant and built new plants in Ciudad
Valles and Torreón. In 1976 it made an initial public offering in the listing of the Mexican
Stock Exchange, in which year it became the leader of the Mexican market with the
acquisition of three Cementos Guadalajara plants. In 1982 it continued its investments and
expanded its export program, a period in which it more than doubled its export volumes.
In 1995 it acquired Cementos Nacionales in the Dominican Republic and by 1996 became
the third largest company in the world with the acquisition of majority interests in
Cementos Diamante and Samper in Colombia. In 1999, CEMEX Asia Holdings was formed
to develop new partnerships and businesses related to cement in Southeast Asia. In that
same year, it consolidated its presence in Central America and the Caribbean by acquiring
95% of the shares of Costa Rica's largest cement producer, Cementos del Pacifico, as well
as acquiring majority interests in Assiut Cement Company, one of the leading cement
producers in Egypt. In 2000, Standard & Poor's invested in the credit profile of CEMEX
and became the largest cement producer in North America with the acquisition and
integration of Southdown, Inc., based in the United States. In 2001, it entered the Thai
market by acquiring 99% of economic interest from Saraburi Cement Company. In 2002 it
strengthened its presence in the Caribbean by acquiring Puerto Rican Cement Company.
Finally, in 2005, it acquired RMC Group; this integration strengthened CEMEX's position
as one of the leading construction materials companies in the world, with a global
presence in the cement industry and leadership in the ready-mix concrete industry.

The growth of CEMEX in Mexico is the result of strategic investments and internal
expansion. The company has established national coverage with 15 strategically located
cement plants, 238 concrete plants, 68 land distribution centers and 8 maritime terminals.
Its modern facilities on Mexico’s Atlantic and Pacific coasts give CEMEX the ability to take
advantage of low-cost shipping opportunities to the markets of Asia, the Caribbean,

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Central and South America and the United States.

Cement is a product with a high retail level in Mexico. The sale of products in sacks
through distributors represents approximately 74% of the demand for cement. Because
private individuals conduct 50% of housing construction in Mexico, a strong brand image
and an extensive distribution network are needed to succeed in the domestic market.
CEMEX is the owner of Mexico's most popular trademarks, such as Cemento Monterrey,
Cemento Tolteca and Cemento Anáhuac.

Business strategy
CEMEX strengthens its position of world leadership through the following strategies:

• Concentrates in the core business of cement, ready-mixed concrete and aggregates.

• Offers customers the best value proposition.

• Grows profitably through integrated positions across the entire value chain of the
industry.

• Assigns capital effectively.

• Continuously improves productivity and operational efficiency

For management, the Board of Directors is responsible for overseeing the company's
operations, but each and every one of the employees plays a determining role in ensuring
that corporate governance policies and information disclosure practices are applied
correctly.

The president of the company is Lorenzo H. Zambrano, member of the Board of Directors
since 1979 and chairman of the Board of Directors since 1995. He is a member of the Board
of Directors of IBM and the International Advisory Board of Citigroup. He is also a
member of the boards of directors of Fomento Económico Mexicano, S.A. de C.V.,
Empresas ICA, S.A. of C.V., Alfa, S.A. de C.V., Grupo Financiero Banamex, S.A. de C.V.,
Vitro, S.A., and Grupo Televisa, S.A. He is chairman of the Board of Directors of Higher
Education and Research, A.C. (EISAC), which manages the Tecnologico de Monterrey.
Until July 2005, Zambrano served as a counselor for the Presidency of Daimler Chrysler
AG and until January 2006, he was a member of the Postgraduate Business School
Counselors at Stanford. He is also a member of the Board of Directors of the Museum of
Contemporary Art of Monterrey, A.C. (MARCO), Conservation International and the
Americas Society, Inc.

CEMEX has a code of ethics aimed at ensuring that all employees conduct themselves with
high standards of conduct in their daily activities. The code regulates relationships with all

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those who have an interest in the company, including such important areas as
occupational safety, environmental responsibility, information confidentiality, conflict of
interest, financial controls and asset preservation. The values on which they are based to
achieve excellence are:

- Collaboration: Working together and sharing knowledge in a constant pursuit of

excellence.

- Integrity: An honest, responsible and respectful commitment in all interactions.

- Leadership: Vision for the future and an approach emphasizing customer service,
excellence and greater competitiveness.

The CEMEX difference

CEMEX promotes various strategies in the pursuit of sustainable development, such as
using the most modern technology in the operational processes, to ensure energy
efficiency and optimum use of raw materials; and to promote an environmental culture,
industrial safety and health within the company and in the community. It is an active
participant in sustainability, for which it publishes annually reports on environment,
industrial safety and health. It has a long history of supporting communities through
educational, environmental, cultural, health, housing and economic development
initiatives.

- Social and Community Aspects

By investing in programs that promote self-sufficiency, working with community

members, and selling products that help build social infrastructure, the company creates
conditions to meet local needs, promote long-term economic prosperity, and improve
quality. life in the regions where it operates.

With the "Patrimonio Hoy" program, CEMEX has helped 123,000 Mexican families realize
their dream of having their own home. This program organizes low-income families into
self-financing cells that facilitate and expedite the typical housing construction process.

With the "Construrama" program, CEMEX offers distributors the opportunity to

participate in a commercial network with strong brand recognition. Distributors can learn
management skills and access a variety of more affordable and more readily available
products, as well as training opportunities designed to help them build stronger,
competitive and sustainable businesses.

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- Environment

CEMEX's environmental philosophy is based on the conviction that the world we share
has been entrusted to us for safekeeping. Every action taken in relation to soil, water and
atmosphere must be designed to conserve and protect natural resources. CEMEX makes
the greatest effort to reduce the environmental impact of its operations and offer benefits
to society; focused on industrial ecology seeks to minimize what does not bring real value
to the company: waste, emissions and wastewater. By using alternative raw materials and
alternative fuels, reusing and recycling materials, and implementing innovative practices
and technologies in operating processes and in the design of new plants, the environment
and society are protected, while ensuring the highest quality of products.

Given its commitment to finding options for the Earth's biodiversity, "El Carmen" has a
conservation project to guarantee the future of a large eco-region north of Coahuila, which
has 55,000 hectares, of which 60% are part of the El Carmen Woods Protection and
Wildlife Area. It is presented as an alternative to preserve one of the last natural refuges in
North America.

- Safety, Health, and Wellness

The safety and health of employees are priorities at CEMEX. Industrial health and safety is
managed through a wide range of programs and initiatives. The goal is to protect the
integrity of staff inside and outside the workplace, ensure they have access to adequate
medical care, and foster a culture that promotes comprehensive health. Defining
comprehensive health as the ability to achieve physical, mental and social well-being, and
lead a balanced lifestyle. This includes promoting a work-family balance, helping people
cope with stress, and promoting the choice of healthier lifestyles.

The conflict
Steinar Dahl, a Norwegian, and his crew of 40, including a Croatian, a Briton, a Greek and
37 Filipinos, had set sail to Mexico from the port of Novorossysk in Russia in mid-June
2004 in the ship Mary Nour. They carried a cargo of 27,000 tons of ordinary gray cement
purchased by the Mexican Trade and Development Company (CDM) 2, which is made up
of Ricardo Alessio-Robles, a civil engineer graduated from the Technologico de Monterrey
and a CEMEX executive until 1998, as well as Luis Bonales and Ricardo Camacho, both
former employees of CEMEX. The partners formed the construction company Irkon, with
10 employees, in which they soon noticed a business opportunity in the so-called “gray
gold” area.

2
Efraín Barcenas, October 21, 2004

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The Monterrey-based company then partnered with Jordan's CTI Group, the Spanish
Tradeland Commodities, and the Greek company Sekur Holdings, and acquired
Materiales y Componentes Cóndor, which since June 2003 was included in the industrial
register for cement importers.

Since the arrival of the vessel Mary Nour was made public, CEMEX obtained a writ of
amparo (constitutional protection) on July 7, 2004 to prevent the landing of the cement in
the port of Tampico based on the following argument: "A cargo ship requires a stay at port
and regular supply through the power (parallel berthing) of a second vessel. Given the
characteristics of the port of Tampico, this is a very dangerous maneuver, which departs
from accepted safety standards.” 3 Such a docking would prevent the free flow of boats
through the Panuco River since the cement factory has a private terminal in the port.”

"The port of Tampico has the necessary infrastructure to receive ships over 30 meters
wide, such as the Mary Nour," said Nicolás Góngora Coronado, engineering manager of
the port; it is possible to carry out "power" work (parallel berthing of a second ship)
without harming the rest of the traffic. He explained that the Panuco River, which is the
entrance to Tampico, is more than 300 meters wide on average. Even with two ships that
are both 30 meters wide, like the Mary Nour, parallel berthing would still leave more than
200 meters of space for the transit of other ships. 4

On July 12, the Ninth Court of Tampico made a final decision on the amparo 666/2004
requested by CEMEX on July 7 to prevent the ship from arriving at Pier 8, although it
could do so in another.5

Rafael Meseguer, director of the Integral Port Administration (API) in Tampico, said the
port has 11 berth positions that are public. Another nine positions are private, such as the
berth position of CEMEX, where only boats with the permission of the owners can dock.
"For public ships, any boat that complies with international and national standards can
dock," he said.6

On Friday, July 16, CEMEX filed a new amparo 703/2004 so that the authorities of the Port
of Tampico would prevent the access of the vessel Mary Nour to any pier of the port.

The Mary Nour arrived in Tampico at dawn on Saturday, July 17, after more than a month
of crossing, and was not allowed to enter or to load provisions due to the amparo
promoted by CEMEX. The ship was loaded with 27 thousand tons of Portland cement of
Russian origin.

Rafael Meseguer, director of the port of Tampico, said the ship would not enter the port

3
http://www.irkon.com/noticias.php?titulo=Descartan%20en%20Puerto%20problemas%20de%20tráfico
4
Periódico El Economista, 15 de julio de 2004, Nota de César Sánchez.
5
http://www.irkon.com/noticias.php?titulo=Descartan%20en%20Puerto%20problemas%20de%20tráfico
6
Periódico El Economista, 15 de julio de 2004, Cesar Sánchez.

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and would have to remain anchored7 two nautical miles (3.6 kilometers) from the port. On
Monday, the health authorities, immigration and the Attorney General's Office would go
to the ship "Mary Nour" to inspect it, although entry to the port would depend on what
the ninth judge would say.

The Ninth District Judge in the State of Tamaulipas notified the authorities of the Port of
Tampico that the vessel Mary Nour could dock at this maritime terminal, but could not
unload the 27 thousand tons of Russian cement it transports.

At the request of the Port Captain, Judge Víctor Flores issued a clarification with letter
28742 in which he indicated the above and clarified that the vessel could only arrive to
carry out operations of provisioning and maintenance, following an international treaty
that dates from 1923. 8

Already with a week of waiting at sea, on 27 July the vessel-silo Mary Nour was able to
dock, but in Altamira, about 46 kilometers from the terminal of Tampico (original
destination of the vessel), under a provisioning permit,9 it prevented the cement from
being unloaded.10

The National Chamber of Cement filed a lawsuit against "whoever may be responsible"
before the Second Agency of the Federal Public Ministry for the crime of smuggling, since
according to Osmín Ignacio Rendón, President of the National Chamber of Cement, the
port of Altamira does not have permission to import cement, violating Article 102 of the
Tax Code. He also mentioned that: "The maritime terminal in which it docked does not
have adequate facilities to handle this type of materials, which are highly polluting and
harmful to the health of the population of the port of Altamira."

On July 28, Gerardo Zapién Pacheco, administrator of the Customs of Altamira,

embargoed the Mary Nour and its cargo for allegedly violating Article 151 of the Customs
Law. "The maritime terminal at Altamira has no authorization to import cement, so it
violated the aforementioned law upon receiving the cargo ship," Zapien told reporters.

On August 18, CEMEX filed a criminal complaint for defamation against executives of the
CDM company. 11 That same day a federal judge authorized the arrival of the ship to the
Port of Tampico, original destination of the boat. However, due to the existing embargo of
the merchandise, the crew and cargo should remain in the Port of Altamira until their
legal situation was resolved. But on September 13, a federal judge ordered the suspension

7
Fondear: registrar, reconocer una embarcación para ver si trae géneros prohibidos o de contrabando. Fuente:
Real Academia Española, www.rae.es
8
Periódico El Norte, 27 de julio de 2004
9
Avituallar: Acción de proveer víveres. Real Academia Española.
10
Periódico El Norte, 28 de Julio de 2004, nota de César Sánchez
11
http://www.irkon.com/noticias.php?titulo=Juez%20autoriza%20atracar%20a%20barco%20con%20cemento
%20ruso%20en%20Tampico

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of the ship's detention in Tampico because of the amparo suit filed by CEMEX on July 7.

After spending 11 months in Altamira Customs, on June 20, 2005 at 11:00 am the cargo
ship Mary Nour was released and left the Mexican coast for the west of Africa, carrying
with it its entire cargo. The Altamira Customs Office issued an order in which it ordered
the release of the ship and its cargo of 27,000 tons of Portland gray cement. 12

To free the vessel, the company, Trade for the Mexican Development (CDM), through its
subsidiary, Maquinaria Carros y Camiones, opted to pay taxes, infractions, guarantees and
fines, for an amount equivalent to 29,453,622 pesos. Also, the company had to pay about
eight million pesos to the port of Altamira for the stay of the ship to avoid the total loss of
the cargo to which only had five months to expire.

Ricardo Alessio, partner of CDM, said that this ended the project to import cement, at least
during this six-year period, and criticized the SAT's (Servicio de Administración
Tributaria) way of operating that did not respond to the Terminal’s request for permission
to import cement, so that the Customs Office ordered the embargo. 13

Position of CEMEX
In effect, the protection of federal justice was sought against measures that put at risk the
operations of the Port’s navigation channel," said a CEMEX manager. 14 In a statement, the
CEMEX Institutional Director, Javier Prieto de la Fuente, said that the CEMEX Group
would defend its dominance in the domestic market against competition from cement
imports from other countries. 15 He also said: "Letting Mary Nour dock means firing a lot
of Mexican workers." “Winning the domestic market has cost us a lot, we have been
expected to comply with laws and regulations, and we hope that they will apply to
everyone else."

"The United States is a living example of protection, we must demand that the
Government apply rules and regulations, apply them to the whole world, that is to
generate natural protection."

As for CEMEX shares: "It's a normal movement, as one might expect," said Carlos
Hermosillo, an analyst at Vector Casa de Bolsa. "If you stand with your arms crossed, you
would wonder what management was thinking about. From our point of view, they are

12 http://www.sinergiaempresarial.com.mx/articulos.php?id_sec=2&id_art=646&id_ejemplar=16
13 Ibid.
14 Periódico El Norte, 13 de septiembre de 2004, Julián Hernández y César Sánchez

15 Periódico El Norte, 6 de septiembre de 2004, Maria Dolores Ortega

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defending their market and not doing anything illegal." 16

The action was justified, even when Mary Nour's importation did not represent a serious
threat. At most, Alessio and its partners estimated importing up to 500,000 tons of cement
per year, or the equivalent of 1.8% of CEMEX's installed capacity in Mexico. Perhaps the
more serious problem of the success of a project like that of Mary Nour is that it could set a
precedent that others could imitate in the future in other ports and other coasts. 17

Why import cement?

The attempt to import cement is due to the fact that Mexican product prices are between
30% and 40% higher than in the United States. 18 For this reason, the opportunity of
obtaining cheaper cement anywhere in the world and selling it in Mexico is very
attractive. While in the United States and Spain the prices of metric tons of cement are in
the range of 60 to 75 dollars, Mexico has one of the highest costs in the world, from 106 to
108 dollars. 19

Over the years, Monterrey-based CEMEX has benefited from high cement prices in its
domestic market to help finance a takeover streak that has turned it from being a
provincial producer in Mexico to the largest cement maker in the United States and the
third largest in the world. Recently, CEMEX agreed to pay $ 4.1 billion to buy the world's
largest concrete producer, RMC Group, from Britain.

The Mexican cement industry is basically controlled by CEMEX and Holcim Apasco, a
subsidiary of the Swiss company Holcim. In addition to these two companies, Cruz,
Corporación Moctezuma, Grupo Cementos Chihuahua, a company in which CEMEX
holds a minority stake, and the French company Lafarge Azul also produce cement in
Mexico.

However, CEMEX and Apasco together control about 80% of the Mexican cement market.
That has given them, over the years, a dominant position that allows them to charge more
for cement in Mexico than in other countries, more so when cement imports into the
country are practically non-existent due to the difficulties faced by those who want to
bring cement from outside, as demonstrated by the owners and lessors of the Mary Nour.

In contrast, in the United States there are about 38 cement companies. In the US cement
market, the five largest companies, led by Lafarge North America, barely control more

16
www.sentidocomun.com, “CEMEX y su escaramuza con Mary Nour reaviva la polémica sobre la
competencia de la industria” por Eduardo García
17
Ibid.
18
http://www.sentidocomun.com.mx/articulo.phtml?id=3474
19
Periódico el Norte, 21 de Julio 2004, Maria Dolores Ortega

9
than 50% of the market. 20 "It is a fact that we pay for expensive cement to the degree that
cement from the other side of the world, which has to be transported and the freight paid,
can be cheaper here," Alessio said.21

However, CEMEX explains that the reasons why the price of cement in Mexico is higher
are due to the specific characteristics of the Mexican market, in which the sale of cement in
sacks and not in bulk stands out; with this system of sales requires a greater logistics of
distribution and transportation that raises the final price of the product. "In Mexico, most
of the cement is sold in sacks, while in the United States it is in bulk, and in the same
location as the firm," said CEMEX. "The sale in sack implies higher costs (sack, the bagging
process, brand management, distribution logistics) additionally Mexico does not have the
transport infrastructure like the one existing in the United States, a fact that increases the
costs

"The retail price here is a crime," Alessio said. "For someone who has his “jacalito”, paying
1,900 pesos a ton is prohibitive."

Specialized media such as Bloomberg News, the international financial news agency, and
the Wall Street Journal, the second-largest newspaper in the United States, published
extensive articles in 2000 and 2002 on how CEMEX has charged Mexicans with one of
cement prices highest in the world in recent years. "The cement ton is worth in Mexico 120
or 130 dollars, 60 in Spain, 50 in the US and in Asia it does not reach 40 dollars." "There is
much talk about Mexico being a country open to trade, but what we are seeing is the
opposite," says Ricardo Camacho, CDM director.22

Social impact
For a country like Mexico, with a housing deficit of nearly four million units and with
extensive infrastructure needs, it is counterproductive, according to some analysts, for a
group of companies to enjoy an oligopoly condition that allows them to charge more for a
material that is crucial for the construction of bridges, roads, houses, hospitals, and
schools. First of all, according to some analysts, it is a defeat for the Mexican consumer
who, faced with a market controlled by a handful of companies, continues to pay one of
the highest prices of cement in the world in the face of a lack of real competition.

In Mexico, there is a "capitalism of cronies that creates wealth but does not share it," wrote
Denise Dresser, a columnist for the newspaper Reforma recently. It is a "scaffolding of
privileges that imprisons the economy and makes it inefficient. It inhibits the development

20
Periódico Sentido Común, 27 junio 2005, Eduardo García
21
Ibid.
22
www.senado.gob.mx

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of Mexico. . . It operates on the basis of favors and concessions and collusions that the
government grants and the business class requires to invest. It concentrates economic and
political power in a compact network that constrains competition and milks consumers."

For some economists, the real or bureaucratic entry barriers that exist to participate not
only in the cement industry, but also in the brewing, telephone, television, electrical, oil,
banking, and aviation industries have caused Mexicans to end up paying more for cement,
telecommunications, gasoline, light, bank fees, and plane tickets, than in other nations.
Those high prices are thus a heavy drag on lifting welfare.

For Mexico, the controversy that has unleashed the skirmish between the landlords of the
Mary Nour and CEMEX is not a simple academic discussion on the levels of competition
of the cement industry. The dispute, to a certain extent, captures the country's ability to
transform itself into a modern, competitive nation with a free market and good business
ideas can find their proper economic reward for the benefit of those who have and
develop them.

For analysts, regardless of whether CEMEX has used legal tricks to stop a potential
competitor or that the importer has complied with all the requirements set by the laws and
regulations of foreign trade, it is the government that will determine whether Mexico
becomes a land that is propitious for the development of business and for competition in
equal circumstances. The government has the faculty to eliminate the obstacles that do not
allow for competition.23

International scene
In Indonesia, some lawmakers opposed the Mexican company CEMEX taking control of
the country's main cement company, PT Semen Gresik. The reason? They fear, among
other things, that CEMEX, along with other international companies, will control a
substantial part of the Asian country’s cement market and increase cement prices to the
detriment of its citizens.

In Venezuela, for example, CEMEX has already begun to suffer the blows of the socialist
government of President Hugo Chávez, who, faced with high cement prices from CEMEX,
Holcim and Lafarge, has said that producers of the material should reduce their prices or
otherwise they would stop government procurement and "import" cement. In addition,
the government plans to build its own cement plant to intervene directly in the market.
"The cement companies have to reduce their prices more," the Venezuelan president said a
few days ago. "If they do not, we will not buy from them. We will import until our new

23
Periódico Sentido Común, 1 de agosto de 2004, Eduardo García

11
cement company starts operating. "

Reflection questions:
• Did CEMEX act against free competition by preventing the unloading of the ship with
Russian cement?

• Was the strategy against the ship with Russian cement an intelligent strategy by
CEMEX?

• Is CEMEX part of an oligopoly?

• Has the Mexican Trade Development Company (CDM) committed any wrongdoing in
Mexico?

• Why is cement in Mexico more expensive than in other countries?

• Who determines whether or not to enter our country?

• Is it a good idea for more companies to import cement so that the price per ton would
fall and be subject to free market forces, rather than be hostages at the hands of
oligopolies?

12