Transport and Mexico Trade Boom

When it comes to trade, growing concerns about the rising costs of good, exchange rates, freight costs, and surcharges from some of America’s top exporters, such as China, has led some to look a little closer to home.

While only about six Kansas City Southern (KSU.N) trains crossed the border back and forth between Laredo, Texas and Mexico just a few years ago, today, ten trains are making the run with everything from chemicals to cars.

In fact, some of America’s biggest and brightest trucking and rail companies are making some substantial investments to take advantage of the South America manufacturing boom and the emerging trade boom between Mexico and the U.S. This includes one of the top five largest publicly traded railroads in the U.S. – Kansas City Southern.

At a cost of around $300 million, Kansas City Southern has laid in excess of 90 miles of new track in Texas. They’ve even been buying and upgrading Mexican terminals and networks. In fact, Kansas City Southern bought out a Mexican railroad in 2005, renaming it Kansas City Southern de Mexico and was the first to build and intermodal network between the U.S. and Mexico.

Kansas City Southern started placing their investment bets over a decade ago that the North American Free Trade Agreement would indeed alter shipping. Today, the company’s cross-border volume is up 21% so far this year compared to its 6% rise in overall volume. A fourth of the company’s $1.67 billion revenue comes from transporting parts and goods across the U.S./Mexico border.

Even the largest U.S. railroad company, Union Pacific Corp (UNP.N), now owns 26% of Ferromex, a Mexican railway company. And, the company has seen a 6% rise in cross-border carloads so far this year compared to its 1% rise in overall volume.

The rises in cross-border shipments are at least in part due to the automobile industry in Mexico seeing a boost in export demand and double-digit production numbers.

Some are predicting vehicle output from Mexico to jump 30% to 40% over the next two to three years as Honda Motor Co. Ltd, Mazda Motor Corp, Audi, and Nissan Motor Corp all have plants set to open. It also doesn't hurt that five steel plants are set to open in Mexico over the next two years.

Kansas City Southern says that intermodal shipping, which is container goods that are shifted from train to ship or truck to train, and moving vehicles from Mexico into the U.S. are two transportation areas that are surging.

Government data shows a 35% surge in total cross-border train and truck freight over the last five years. The volume of goods crossing the border this year is also on track to top the $308 billion that crossed in 2010 and $352 billion that crossed in 2011.

After being approached by Kansas City Southern, Schneider and Swift Transportation is running around 700 trucks into Mexico, with 100 more trucks expected to be added by next year.

America’s Growing Transportation Footprint In Mexico

Kansas City Southern, Union Pacific, and Swift aren’t the only ones eying Mexico.

USA Dry Van’s equipment and drivers were recently taken over by Celadon Group Inc (CGI.N). FedEx Corp added two Mexican service centers. Pacer International Inc (PACR.O) will be providing transport, container management, and chassis management for Union Pacific in Mexico. U.S. Xpress Enterprises entered a joint venture with Mexican-based Logisti-K and is set to buy 90% of Xpress International.

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