When it comes to Mexican rail growth, you haven’t seen anything yet.
Mexican railroads’ share of surface freight moves has doubled to roughly a quarter in the last 50 years, said Isaac Franklin, president of the Mexican Association of Intermodal Transportation. “We’re building more inland terminals, speeding up corridor travel and providing more reliable service,” said Franklin, who is also chief financial officer of Ferromex, one of Mexico’s largest railroads.
But the ramp-up in traffic — spurred by government privatization, manufacturing growth and intermodal network investments — pales in comparison to the potential. Despite total cross-border volume jumping 106 percent year-over-year in the second quarter, Kansas City Southern Railway still only handles less than 2 percent of the available intermodal loads moving between U.S. and Mexico. The rest are handled by trucks. The railroad gains about $120 million quarterly in total cross-border business, accounting for about a quarter of total revenue.
By comparison, intermodal service between Los Angeles and Chicago has a percentage market share in the mid-40s of all surface moves, said Patrick Ottensmeyer, KCS’s executive vice president and chief marketing officer. He doesn’t see any reason why the railroad can’t gain the “same level of penetration.”
Add faster customs clearance and roughly 20 percent cheaper shipping rates than trucking, and you’ve got a very attractive proposition for shippers.
Compared to Ferromex, Kansas City Southern de Mexico, wholly owned by KCS, appears best positioned to tap the boom in manufacturing for U.S. and Canadian markets. The railroads’ network connects to the top six major North American railroads, providing shippers access to major markets, including Charlotte, Chicago, Detroit and New York. KCS estimates it’s primarily north-south network channels about 70 percent of Mexico’s gross domestic product and roughly 75 percent of foreign direct investment.
KCS’s dominance and establishment of a “modern U.S. standard” of service results from hundreds of millions of dollars in investment in lines and terminals. Traffic flow collaboration with intermodal intermediaries J.B. Hunt, Schneider National and Swift Transportation, as well as the other Class I railroads, also has helped boost volume.
KCS, for example, is working with Norfolk Southern Railway to shift cross-border traffic through the Meridian Speedway — a joint venture linking Meridian, Miss., and Shreveport, La., to NS’s Crescent Corridor, a line connecting the South to the Northeast. Although some Mexican traffic already is flowing between the two major intermodal corridors, KCS expects volume to rise when NS opens its $97.5 million intermodal terminal in Birmingham, Ala., later this year.
The railroad’s revenue from cross-border intermodal service in the second quarter jumped 94 percent year-over-year to $10.3 million. KCS de Mexico serves the nine automotive plants run by Chrysler, Chrysler Fiat, Ford, General Motors, Nissan and Volkswagen, along with their suppliers. Honda, Mazda, Nissan, Audi and BMW are expected to open their plants by the end of 2014. Automotive production is expected to grow more than 30 percent by 2015. The newest surge in volume growth likely will come from the expanding steel industry, with manufacturers Ternium, Deacero, Steel Technologies and Metal One expected to handle 3.5 million metric tons of steel annually starting in 2014.
The railroad’s reach in Mexico stretches beyond serving the maquiladoras. KCS de Mexico’s largest southbound commodity is U.S. corn, some $6 billion worth of which was exported to Mexico last year. The carrier hauls 3.1 metric tons of grain to Mexico annually, and is working with Canadian Pacific Railway to further boost shipments out of the nation’s breadbasket.
Besides gaining faster and more reliable intermodal service, shippers also are attracted to cross-border intermodal service’s ability to get shipments through customs much quicker than trucking. The customs process for a train hauling 250 containers takes roughly 30 minutes compared with a minimum two-hour wait for a single-load carrying truck. Plus, for nearly all cross-border trucking moves, it costs $150 to $200 to shuttle the load across because few U.S. trucking operators operate south of the border. These cost and service advantages should embolden shippers wary to dip into the Mexican market.