DC Velocity - May 2012

newsworthy

truckers, and intermodal marketing companies worried about driver shortages and rising diesel fuel prices will divert freight from the highways and onto the rails. The potential payoff for KCS and other U.S. rails in the market could be even higher on the north-south routes because the U.S.-Mexico market is currently dominated by truck transport. Intermodal accounts for about 6 percent of the total cross-border market, according to KCS’s estimates.

Ottensmeyer said that between 2. 5 million and 3 million truckloads annually move across the border over lanes that his railroad serves. Of those, about 40 percent exhibit the characteristics—namely a truckload move of 800 to 1,000 miles or more—that would make those loads viable for intermodal diversion, he said.

“We’ve talked to truckers and intermodal marketing companies, and they are very interested in the opportunities here,” Ottensmeyer said.

Between 1 million and 1. 2 million truckloads originate in or are destined for Texas alone, a key factor in KCS’s growth prospects since one of its units owns track that connects the rail’s U.S. and Mexican operations at its main border gate-

accolades

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way in Laredo. Included in the unit’s portfolio is the only rail bridge that links the two countries through Laredo and over which 40 percent of all southbound rail traffic crosses.

Trucks move about 62 percent of shipments through Laredo, and Ottensmeyer sees this as a fertile proving ground for KCS’s intermodal conversion efforts. Demand is fairly balanced in each direction, he said.

“I don’t see any structural impediment” to expanding KCS’s intermodal business, said Ottensmeyer. The one obstacle Ottensmeyer sees is more financial than operational; because ownership of the cargo changes at the border, the financial terms of sale could be different and could cause confusion, he said.

LOW-COST OPTION

According to a slide in a 2011 KCS presentation, rail transport from Monterrey, Mexico, to Chicago costs 40 cents per cubic foot, and has a six- to seven-day time in transit. Truck transport on the same lane has a shorter transit time—four to five days—but costs more than double that of rail shipping, according to the KCS presentation.

The combination of ocean and rail transportation from Shanghai, China, to Chicago would cost $2.91 per cubic foot and take up to 25 days in transit, according to the slide. One of the goals of the presentation was to showcase Mexico’s economic vibrancy and to highlight the potential advantages for U.S. companies of “nearshoring” their manufacturing and distribution closer to their end markets, especially as an increase in wages for Chinese workers narrows the gap with their Mexican counterparts.

KCS is not the only U.S. rail with its finger in the Mexican intermodal pie. Union Pacific Corp. touches about 95 percent of all intermodal freight running in and out of Mexico, though it doesn’t operate trains into Mexico and interlines at the border with Ferromex—a big Mexican railroad in which UP owns about a one-quarter stake—and with KCS’s Mexican operations. UP says it is the only railroad with access to the six U.S. gateways in and out of Mexico.

BNSF Railway uses trucks to move cross-border intermodal traffic to and from its hubs in Los Angeles, Houston, and El Paso, Texas. BNSF’s 2011 U.S.-Mexico intermodal volume increased 14 percent over 2010 levels, according to Krista York-Woolley, a company spokeswoman.

Because KCS’s route network is limited relative to those of its larger peers, it relies on interchange agreements with other railroads to feed U.S.-Mexican freight to points along the Great Lakes, the Southeast, and Southwest. For example, KCS relies on Norfolk Southern Corp. to move freight between KCS’s hub in Meridian, Miss., and Atlanta, and it uses UP and BNSF to interline traffic between its Dallas hub and Los Angeles.