Twenty years ago, there was only one railroad in Mexico, which was run by a public agency and broken into three regional classes. At that time, there needed to be tremendous improvements to rail service, engines and cars, and to key infrastructure such as bridges and tracks. Then in 1995, the Mexican government announced that a railroad privatization project would begin.
The private railroad companies that now manage the railroad lines currently have a 50-year concession from the federal government to operate them (while the land that the railroads operate on is still government property). With the private sector’s takeover of railroad operations, dedicated investments started to make real improvements to the entire system. And to date, over 5 Billion U.S. dollars from these private companies have been invested into the Mexican rail system.
Today, the Mexican rail system is expansive and highly efficient. It is currently the best railway system in Latin America in terms of train productivity, and is certainly comparable to other systems around the world. Through private investments, the entire supply chain has been improved. For example, terminals, inland ports and customs facilities have all become much more efficient in the past few years, incorporating electronic systems to speed up processes.
The system is also fully compatible with the U.S. and Canada, with the same standards for both operating the railroads and for building and maintaining them. Thousands of rail cars cross the borders between the U.S., Canada and Mexico each day using this efficient North American/Latin American rail network.
Industry Opens Up Intermodal Opportunities
Rail transportation, including bulk, general cargo and intermodal, has been a key factor in the expansion of trade between the U.S. and Mexico. Currently, the automotive industry and the opportunity for truck to intermodal conversion for non-auto industries are the two highest growth areas for the railroads in Mexico, and are making a significant impact on the system.
- The automotive industry, which includes all of the parts and components that are manufactured in Mexico and then exported to the U.S., is a very large market, and has paved the way for market growth in other industries. For example, manufacturers and suppliers of floor tiles and home appliances are taking advantage of these efficient rail options and routes already established by the automotive industry.
- Intermodal has also helped grow the rail network in Mexico, and the already vast intermodal networks throughout North America are continuing to expand. Intermodal succeeds in imbalanced markets, and there is still a large capacity for additional truck freight to be converted to intermodal. The ideal eventual evolution of the supply chain would bring more cargo from over-the-road (OTR) to intermodal — we estimate at least one million loads a year. With the current rail network system in North America, there is no single big market in the U.S., Canada or Mexico that could not be served by an intermodal ramp. Importers and exporters can now receive the benefits of intermodal regardless of their size and industry. Additionally, there were Mexican government programs recently put in place to clear commodities that were previously banned to run on trains and be cleared in a Mexican interior bonded terminal. This will open up new opportunities for intermodal transport benefits.
What Does the Future Bring?
Because of the intermodal boom, there has been a significant investment not only in the Mexican railways, but also in cross-border operations. Intermodal has been a great savings and capacity solution for many cross-border shippers – particularly in light of recent capacity and driver shortages – and no one is expecting traffic across the Mexico-U.S. border to slow down anytime soon. And due to this recent growth and the value-added benefits of intermodal, there will be continuous investments in terms of new corridors, more service options and new terminals.
Investments in better processes, connectivity and operations will continue to increase capacity, expand intermodal ramp operations, improve service and increase train speed within the growing Mexican railroad network. This, combined with the improvements made over the past 20 years, are making rail and intermodal a sustainable, viable and long-term transportation solution for both cross border and intra-Mexico supply chains.
Learn more about shipping and transportation opportunities across the U.S.-Mexico border here.
Carlos Godinez is responsible for P&L management, in-country leadership, profitability growth, business and execution strategy of the recently created intermodal division, branded under Celtic International, one of the largest Intermodal Marketing Companies (IMCs) in the industry. Prior to Transplace, Mr. Godinez held several leadership positions at Schneider National Carriers, Procter and Gamble, Grupo TMM and Lear Corporation. He holds a bachelor’s degree in International Business from ITESM-Monterrey campus; international bachelor studies from the University of Wisconsin-Stout; a diploma in project management from ITESM-Mexico City campus; and more recently he received his MBA in global businesses from the Thunderbird School of Global Management, Glendale, Arizona campus; in partnership with the ITESM.
Iker de Luisa is a consultant specialized on freight and passenger railroad projects. Global Logistics Diploma (California State University – Long Beach), PhD in Development Administration (University of Birmingham, UK), and Business Management (ITAM, Mexico City). He has participated on railroad bypasses projects of several cities in Mexico (Celaya, Córdoba, Irapuato and Morelia). Worked as external consultant for a number of clients, including Guanajuato State Government for the “Intercity passenger train”, for Kansas City Southern de México, Centro SCT Michoacán and a steel service center. He is currently Director General at the Association of Mexican Railroads.