UP’s New Mexico Hub Expands Shippers’ Cross-Border Options

UP’s New Mexico Hub Expands Shippers’ Cross-Border Options

Union Pacific Railroad locomotives in Santa Teresa, N.M.

SANTA TERESA, N.M. — There’s not much out here other than roads, warehouses and cacti — and now a sprawling Union Pacific Railroad intermodal terminal and fueling station. Secluded as it is, what happens at this $400 million facility in a desert framed by mountains ripples through UP’s 32,000-mile U.S. network and taps into one of the largest trends in rail transportation: domestic rail growth.

The facility — situated about eight miles from the Santa Teresa-San Jeronimo, Mexico, border crossing — is part of a broader push to attract U.S. and Mexican loads that normally would move by truck. The terminal also allows UP to refuel its longer trains more efficiently than it could in El Paso, Texas, site of its former intermodal ramp about 15 miles to the southeast. Those longer trains, often more than a mile long, are key to UP’s drive to gain economies of scale. Since 2004, UP has spent more than $1 billion to double-track the Sunset Route from Los Angeles to El Paso.

Four years after the railroad put the project on hold following the 2008-09 recession, the Santa Teresa terminal also underscores UP’s increasing confidence in future growth. In June, UP plans to expand existing connections with Chicago and the Port of Long Beach to the Pacific Northwest and Southeast. At 250,000 lifts a year, the 2,200-acre facility will have 70 percent more capacity than the El Paso terminal, so there’s plenty of room for new business, said Scott Moore, UP’s vice president of public affairs.

UP is seeing “strong growth with our (intermodal) products and services across-the-board. Certainly new product offerings from Santa Teresa will add to that,” Eric Butler, executive vice president of marketing and sales, told investors during an April 17 first quarter earnings call.

Map of location of Santa Teresa, New MexicoThe Santa Teresa terminal, equipped with four gantry cranes, already handles Mexican-made auto parts bound for Chicago and is poised to benefit from booming manufacturing in Juarez. The Mexican manufacturing resurgence began in the automobile and aerospace industries and is spreading into white goods production. Electrolux, which operates one of Juarez’s largest maquiladoras, uses the UP terminal to ship Mexican-made refrigerators to American consumers, for example.

Mexican shippers can access the UP terminal via El Paso or Santa Teresa. The New Mexico crossing generally has shorter wait times than El Paso and is a better fit for shippers in southern and western Juarez, said Jim Creek, a border and infrastructure consultant at the New Mexico Border Authority, a state agency tasked with developing surface gateways. The gateway also handles substantial trade originating and destined for the city of Chihuahua, about 100 miles south. From the Mexican side, the crossing is accessible via a 12-mile, two-lane highway extending to Mexico Highway, a major four-lane highway. On the U.S. side, New Mexico State Road 136 connects the Santa Teresa to Interstate 10.

Each day, 300 to 400 trucks cross from Mexico to the U.S. using the Santa Teresa-San Jeronimo border crossing, and another 200 trucks move southbound. About $20 billion worth of trade, including U.S. cattle and used vehicle exports to Mexico, flowed through the border crossing last year, up from a mere $1.2 billion in 2005.

The border crossing got a big boost in 2009 when Taiwanese electronics manufacturer Foxconn began operations adjacent to the border on the Mexican side in San Jeronimo. Some 5,700 workers at the 1.6 million-square-foot Foxconn factory complex produce Dell computers for U.S. consumers. Logistics provider RR Donnelly & Sons operates a plant adjacent to the Foxconn complex.

Foxconn, which has two other plants in Juarez, one of which builds Hewlett-Packard computers, will open a third factory in San Jeronimo, boosting the complex’s work force to 9,700 and increasing truck traffic serving production lines from 200 daily to 300, Francisco Uranga, vice president and chief operations for Latin America, told the Albuquerque Journal News.

The UP terminal is unlikely to benefit much from the Foxconn expansion because the factories’ time-sensitive products are hauled by FedEx trucks, but the growth still bodes well for the region’s manufacturing base.

Back in 2009, there were 800,000 square feet of warehouse space in Santa Teresa; now only about 41,000 square feet out of 3 million square feet of warehouse space are empty, said Jerry Pacheco, an industrial business recruiter. Interceramic, Georgia Pacific, and FXI, a maker of foam for vehicles, are some of the largest tenants. Many of the new tenants were attracted to the region after the state allowed Mexican trucks hauling up to 96,000 pounds to come into the U.S. side up to six miles north of the border. The companies no longer have to break up shipments at the border to meet the U.S. truck weight limit of up to 80,000 pounds.

With so much warehouse space filling up in Santa Teresa, Pacheco said he’s working to attract more industrial space developers. His efforts are complicated by slower-to-rebound El Paso being able to offer industrial rates half those found in Santa Teresa. But Pacheco thinks the faster border times at Santa Teresa make the area indispensable not only to Juarez shippers in the south and west, but also to those more centrally located. That improved access is made possible through a Mexican road, known as Boulevard Fronterizo, that runs along the border to the east, connecting to the heart of Juarez.

All that activity will be good for UP’s domestic intermodal business, which is classified as domestic by type of equipment used, 53-foot trailers, not the origin of the goods being transported.

Even before the terminal opened, UP was seeing growth in its domestic intermodal business. That traffic jumped 8 percent in the first quarter, offsetting a 1 percent decline in international intermodal traffic, and helping the railroad post an overall intermodal gain of 3 percent. That’s a significant increase in growth compared to the past two quarters. In the last three months of 2013, UP’s domestic intermodal volume rose 5 percent, helping lift total intermodal traffic 1.7 percent. UP’s domestic intermodal traffic expanded 4 percent in 2013’s third quarter.

The intermodal growth is equating to more revenue for the railroad — revenue in the division increased 4 percent in the fourth quarter year-over-year, to $1 billion, and accounted for slightly less than 20 percent of UP’s total business.

Two new intermodal services focusing on the cross-border markets are driving some of that growth. Most recently, the railroad began a service between Laredo, Texas, and Memphis, giving shippers better access to growing automotive manufacturing across the border. In a partnership with Mexican railroad Ferromex, UP launched a six-day-per-week service between Chicago and Monterrey, Mexico. The railroad also expanded services from Monterrey to St. Louis and Los Angeles.

The Monterrey services, which involve an interchange of goods at Eagle Pass, Texas, demonstrate how UP is gaining greater access to the Mexican market even if it doesn’t have a cross-border network like Kansas City Southern Railway. Instead, UP appears to making the most of its six major Mexico-U.S. gateways of Laredo, Eagle Pass, El Paso and Brownsville, Texas; Calexico, Calif.; and Nogales, Ariz.

Contact Mark Szakonyi at mszakonyi@joc.com and follow him on Twitter:@szakonyi_joc.