Friday, March 30, 2012

South of the Border

Mexican rail traffic heating up with ‘nearshoring’ trend.

For something Mexican that’s hot and on a roll, think railroads. Train-based freight in Mexico has spiked, both internally and for shipments between Mexico and the United States. Ferrromex, the country’s largest rail carrier, experienced a 6.6 percent increase in carload volume and 13.9 percent revenue jump in 2011, and number two Kansas City Southern de Mexico (KCSM) moved 15.9 percent more carloads during the first three quarters of 2011 than in the same period the year before.

Positioned between two hot markets in North and South America, Mexico is the beneficiary of a “nearshoring” trend. Industrial activity in the country has picked up as high fuel prices and rising Asian labor costs have made our southern neighbor a more attractive option for manufacturing.

Transportation costs from Mexico into the U.S. are 75 to 80 percent lower than from Asia, and shipping from Mexico avoids some wildcards from geopolitics and ocean shipping. Mexican factories use many U.S. materials to provide finished goods, so traffic is increasingly two-way.

Intermodal traffic, a much lower percentage of freight in Mexico than here, is seeing large increases, as investments in infrastructure increase efficiency and shippers become more sophisticated. Major industries, including all significant auto manufacturers in North America, routinely use intermodal shipping in both directions.

Improved cross-border cooperation, technology, and new facilities have increased security. Keeping trains moving limits opportunities for theft, and KCSM reported just 0.02 percent of shipments were subject to customer claims of any sort in 2010.

There is still room for growth in Mexican rail. While trains carry approximately 42 percent of freight in the U.S., and 60 percent in Canada, the figure for Mexico is just 26 percent. Is it time for your operations to head south?

Kirk Shearer
800-989-0054 x103

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