RAIL TRAFFIC VOLUME UP FROM MEXICO

 

MEXICAN RAIL TRAFFIC GROWING BIG

By Lynn Adler

NEW YORK, May 20 (Reuters) – U.S. railroads, seeing the choppy domestic economic recovery, are escalating cross-border traffic with global trade a major growth engine.

Demand for everything from U.S. coal in China and India to consumer products in Mexico is driving up volume this year, despite disruptive Mississippi River flooding and tornadoes in Southeastern states, railroad executives said on Friday.

Global trade accounts for almost 30 percent of CSX Corp (CSX.N) volume, and it predicts it will transport a record 40 million tons of coal for export this year and sees that demand growing.

“There’s a giant sucking sound as they become a net importer,” Oscar Munoz, chief financial officer at CSX, said of China’s demand for U.S. coal. Brazil also has no metallurgical coal and the U.S. is a natural supplier, he added.

“Our port structure is very critical” as more goods are shipped internationally, said Munoz.

CSX, Norfolk Southern (NSC.N), Union Pacific Corp (UNP.N) and Kansas City Southern (KSU.N) executives spoke at a Bank of America Merrill Lynch Global Transportation Conference in Boston. Comments were Webcast.

“We see everything but the housing-related market looking up,” said Donald Seale, chief marketing officer at Norfolk Southern.

Carload volume is up 6 percent so far this year, and the company’s employment is up 7 percent “to take care of today’s volume growth and what we see as growth opportunities ahead,” he said.

The growing trade between the United States and Mexico is critical for Kansas City Southern, said Michael Upchurch, KCS chief financial officer, who noted $10 billion of direct investment from foreign companies in Mexico last year.

Kansas City Southern gets nearly half of its revenue from Mexico.

U.S. imports from Mexico rose more than 31 percent in 2010 from the prior year. More companies have been stepping up business in Mexico, where labor costs have been rising more slowly than in China.

Also, “it’s an easier supply chain to manage” based on its close proximity, Upchurch added.

Intermodal is another key growth driver, both domestically and internationally, the railroad executives said.

Intermodal refers to the movement of goods in containers that can be shifted from one form of transport to another, such as from rail to ship or from truck to rail.

With fuel prices high and truck capacity tight, railroads are increasingly focused on partnering with trucking companies that can deliver goods to the rails for the next shipment phase.

“We are very close to finalizing a deal with a large trucking company that is looking to convert a lot of their traffic to the Meridian Speedway,” a rail corridor between the Southeast and Southwest U.S., said Upchurch. He declined to name the company.

As for shippers, a big box retailer he also declined to identify plans to convert its truck shipments from distribution facilities in Southern Texas to the railroad for delivery to Mexico City.

(Editing by Phil Berlowitz)