Rising costs for truckers in Mexico will drive more U.S.-bound freight from highways to rail networks, fueling strong intermodal growth, a Kansas City Southern Railway executive told the JOC Inland Distribution Conference.
KCS, which connects to the top six major Class I railroads, is enjoying high double-digit quarterly intermodal growth, as makers of automotive, white goods and other products shift production to Mexico, Chief Marketing Officer Patrick Ottensmeyer said.
That production boom and the $375 million the railroad has invested in its cross-border network helped drive KCS intermodal growth up 27.5 percent year-over-year in the second quarter, the largest gain experienced among Class I railroads in the period.
Trucks still account for the vast majority of cross-border freight traffic between the U.S. and Mexico, hauling 66.8 percent of the $40 billion in trade with Mexico in June, followed by rail at 14.5 percent, according to the U.S. Department of Transportation.
But there’s room for rail to grow, Ottensmeyer said. “There are 2.5 million to 3 million truckloads that cross the border between U.S and Mexico in markets that we serve directly or through our interline services. We are handling about 2 percent of that today.”
Seasonal imbalances in truck capacity, rising fuel costs in Mexico, cargo security and the availability of qualified drivers are all issues that concern shippers and will give intermodal rail an edge, propelling greater growth, Ottensmeyer said.
When Whirlpool began ramping up production in Mexico a few years ago, “our team was really concerned about capacity and long-term sustainable capacity out of Mexico, and what are the costs going to look like,” said Elizabeth Hall, senior transportation manager. “If fuel is going up, that’s only adding cost to our bottom line.” Hall, who spoke during a panel discussion of near-shoring in Mexico at the Inland Distribution Conference, also stressed the importance of managing supply chain risk, which she said is spreading rapidly.
“In the past seven years, we’ve seen everything from Hurricane Alex to drug cartels to border shutdowns,” Hall said. “That’s something that our group wasn’t used to.” Today, 90 percent of the goods Whirlpool ships from Mexico moves by intermodal rail or boxcar, with the 10 percent shipped by truck destined mostly for the Texas market, she said.
The phase-out of a national fuel subsidy will hurt Mexican truckers, particularly as few Mexican carriers levy fuel surcharges, Ottensmeyer said. Mexican diesel prices are now close to those in the U.S., and account for about 33 percent of total transportation costs.
Rising fuel costs are hitting the Mexican trucking industry as carriers struggle to replace aging fleets. The age of the average Mexican truck has increased to 17 years, Ottensmeyer said, and Mexican truckers have poor access to credit.
Intermodal can also provide far better freight security than trucking, an important point, Ottensmeyer said, considering the theft rates are so much higher in Mexico than in the U.S. There were 4,715 cargo thefts in Mexico in 2012, compared with 946 in the U.S., according to statistics from Freight Watch International and the Secretaria de Comunicaciones y Transportes, Mexico’s transport and communications ministry.
Of those Mexican cargo thefts, about 83 percent were truck hijackings and less than 5 percent were rail theft, according to SCT figures quoted by Ottensmeyer.
Aside from better security, shippers can save $100 to $250 on the shuttle driver that moves freight between Mexican and American truck drivers by switching to intermodal, he said. Getting through ports of entry security adds at least another two hours to cross-border truck moves, whereas the customs process for a train hauling 240 containers takes about 30 minutes. Ottensmeyer thinks the U.S.-Mexico cross-border trucking pilot program will have a limited impact on the need for cross-border capacity, because the initiative, part of the North American Free Trade Agreement, has few participants. “We just don’t see this as a threat,” he said. “Most U.S. truckers don’t want to comply with a lot of the (U.S. federal regulations), and none of the Mexican truckers do.”