Kansas City Southern markets border-crossing alternative to trucks.
By Jon Ross
The current boom in Mexican trade has mostly benefitted truck carriers, but Kansas City Southern is trying to corner the market on intermodal moves, even convincing some shippers to jettison their trailered transportation and hop on the tracks.
Nearly a decade ago, KCS established its presence in Mexico by acquiring the holdings of its partner Transportacion Ferroviaria Mexicana. In the past five years, the railroad has accelerated its investment in the Mexican rail market.
Since 2008, KCS has pumped more than $275 million into its border crossing between Houston and Lazaro Cardenas. The company has also added track expansions, upgraded facilities and continued acquiring equipment for its locations in Mexico, all with the aim to beefing up its intermodal network south of the U.S. border.
KCS’ system map now stretches below the border crossing at Laredo, Texas, to Veracruz on the eastern tip of Mexico and Lazaro Cardenas in the west. Along the way, it branches off right and left to port cities and destinations in the heart of the country. In the United States, KCS sticks mostly to the middle of the country. It uses interline partners like Norfolk Southern and CSX to expand their offerings to U.S. markets not currently served and providing a wider portion of America with a rail link to Mexico.
“We’re now in a position where the network is in place. At the same time, we’ve been working on developing the relationships and the engagement of the asset partners,” said the railroad’s Pat Ottensmeyer. “We are a wholesaler, so we are working with asset partners like Schneider, Hunt, and Swift.”
KCS officials have set a goal of achieving as much market share in Mexico as the largest western Class I railroads enjoy in the United States, according to Ottensmeyer. He estimates that western railroad market share is currently in the 40 percent to 45 percent range. KCS’ market share in Mexico is currently 2 percent.
Ottensmeyer thinks KCS’ status in Mexico gives the railroad structural advantages that aren’t available in the United States, which will allow it to grow more quickly in the country. Border crossings, he said, are much smoother and less time-consuming for intermodal shipments than for trucked cargo, which has to deal with a lengthy shuttle-maneuver process. That’s a clear advantage when trying to convince customers to switch over to rail, he said.
Moving forward, KCS management will focus on how the network is expanded, making sure its asset and interline partners are fully engaged. Ottensmeyer admits KCS is at a very low market share, but said the company is now poised to take off. Though it has run growth targets and metrics internally, KCS doesn’t share predictions about rail activity growth and market-share timeline metrics in Mexico.
“All the ingredients are there for us to think that if we do what we need to do, which is continue to build the density, improve the transit times and the service, then we can achieve a pretty high level of growth and market share conversion over time,” he said.
In February, $5.2 million of goods traded between Mexico and the United States were transported by rail, with imports outpacing exports by about $1 million, according to the U.S. Bureau of Transportation Statistics. February’s results represented an 11.9 percent rise over January’s total rail trade, but only a 1.3 percent year-over-year growth rate. For the month, the total value of goods trucked to and from Mexico was $25.7 million, a 3.6 percent decline from January and a 2.3 percent year-over-year drop.
KCS hasn’t accomplished all it has set out to do in Mexico. There are still investments to be made to increase its intermodal activity.
“This is all relatively new,” Ottensmeyer said. “We’ve only been at this for now maybe three, four years at most. There’s a lot of education that needs to take place.”
It’s not all about intermodal, however. While intermodal has achieved double-digit growth over the past few years and shot up by 71 percent, year over year, last quarter, he said KCS’ automotive business has also prospered. Automotive activity increased by 53 percent in the first quarter of 2013 when compared to the same period in 2012.
The company is getting ready for the opening of two new shuttle train-loading facilities this year on its line, which will help its grain-origination business. Ottensmeyer, while allowing that the grain business will fluctuate with the growing season and weather conditions, said KCS’ grain business out of Mexico is strong.
The railroad is also focused on converting steel shippers, battery manufacturers, and heavy and farm machinery companies from truck to rail.
“These new moves were achieved by educating customers about the advantages of rail, as well as the new service offerings available on KCS,” he said. “KCS also has a dedicated energy team focused on increasing length of haul and developing new destinations for frac sand and crude oil.”
Four years ago, KCS didn’t work in the car market, now it has six manufacturers among its customers and recently signed on another Japanese automaker. The auto market, historically, has been cornered by the Union Pacific, but KCS is poised to take some of that activity away. Union Pacific stands as KCS’ largest competitor in Mexico, and Ottensmeyer categorizes the competition as fierce.
“UP’s Mexico business is a lot bigger than ours, and they’ve got a lot bigger network reach than we do,” he said. “But we are having success.”
UP has a very strong presence across all the country’s border crossings and in Laredo, so it’s a constant presence in the market. The other railway with Mexico service, BNSF, doesn’t compete with KCS as much because of where they move freight.
“The markets we serve and the orientation of our network over Laredo is much more about connecting the industrial heart of Mexico with the eastern half of the United States,” Ottensmeyer said. “We don’t move a lot of freight over Laredo that ends up going to the West Coast — we move some — so BNSF is not a big competitor.”
The current trade winds, and the shortage of goods on the southbound side compared to the northbound side, has impacted KCS. As with the trucking industry, KCS must work to ensure equipment is available for northbound demand and create sufficient activity on southbound lanes. There are also regulatory and technology hurdles to overcome. Ottensmeyer called the interconnectivity of railroads and the government “a work in progress.”
