US shippers successfully testing Mexican rail links to Pacific

Various U.S. shippers have successfully tested Mexican rail links to the Pacific this year, a senior Kansas City Southern (KCS) official revealed during a recent panel discussion hosted by Petrochemical Update.

KCS, the only one of the seven U.S. Class I railroads that operates rail links in Mexico, is tripling yard capacity just south of the border crossing between Nuevo Laredo, in the Mexican state of Tamaulipas, and Laredo, Texas. It is spending $60 million over three years on the expansion of the Sanchez Yard, of which roughly $20 million – or 3% of KCS’s total capital expenditure – is being spent in 2016.

The railroad operator is expanding its intermodal capabilities within Mexico, and is working closely with logistics firms to connect U.S. shippers with empty container supply to help them transport goods to Latin America and Asia, said Jennifer Fussell, AVP Sales and Marketing.

To achieve this, KCS is working with partners such as Bulkmatic de Mexico. Bulkmatic facilitates the “temporary importation” of plastics and other products through Mexico and on to their final destination, allowing shippers to avoid value added tax and other sources of friction, according to President Francisco Soto, who also spoke on the panel.

Bottleneck in formation

Most petrochemical investment in the United States is taking place in the Houston-Baytown-Freeport area in Texas or between Baton Rouge and Lake Charles in southern Louisiana, Fussell noted. While the proliferation of construction projects in these areas has made it easy for railroads to decide where to invest, these investments are also competing with each other for export capacity at regional ports in Houston, New Orleans and beyond, she said.

“Shippers are looking for alternatives, and when you add the uncertainty of major port operations like LA-Long Beach… the supply chains are forced to be more nimble and more resilient to service operations. As shippers search for these traits, they are finding some of the solutions inside of Mexico,” she said, adding that KCS expects shippers to continue to test the Mexican route.

The Laredo-Nuevo Laredo border crossing, seen at bottom left, is in close proximity to producers in Texas and Louisiana (Image: Google Maps)

KCS’s traffic report for the week ending October 22, 2016, shows that the number of carloads carrying chemicals and allied products along its Mexican network rose 19% year-on-year and the number of carloads carrying these same products along its U.S. network fell 8%. At the Pacific Coast port of Lázaro Cárdenas, the southernmost point in Mexico served by KCS, the flow of petroleum and petroleum derivatives was up 15% year-on-year to August.

There is container availability to be utilized in the Monterrey area just south of Nuevo Laredo and around Mexico City and San Luis Potosí in the centre of the country, according to Soto.

“With that container availability, what we are doing as a company is to increase our capacity in those three places, and in very close communication with Kansas City railroad we are developing new terminals in these places with much faster equipment to transload either from rail to truck or rail and bagging, and then put it into containers – the ones we mentioned before that are available – and then, working with the steam ships at the port of Lázaro Cárdenas to send to the end destinations,” he said.

“We’re working on the future that is coming, and we think it is very important to be prepared with technology, with information, but also with the operations that facilitate and mitigate the risk that customers may have in terms of security, in terms of visibility of their product.”

Changing landscape

The old routes of getting product to market are “dying”, a trend being expedited by the cost of diesel fuel, commented the other panel participant, David Kobe, Director Global Logistics at Albemarle.

“Those costs are hitting our bottom line and impacting our profitability, so the future – in the short term and in the long term – is transitioning away from those traditional paradigms of truck going down the road, to having a truly dynamic and multidiscipline intermodal supply chain,” he said.

Albemarle has had experience with port-congestion issues, and the 2014 LA-Long Beach Port strikes were the final straw that caused the speciality-chemicals producer to adopt a philosophy of diversification, Kobe said.

By utilizing Gulf Coast ports such as Houston and New Orleans, and East Coast ports such as Savannah and Jacksonville, he argued that Albemarle has solved two problems: it eliminates “containers arriving too late, and missing sailings and rolled bookings, so it improves our service to our customers”; and it also allows the firm to diversify how its product gets to market so that it is not overly dependent on one steam-ship line into one market from one port.

To address these sorts of problems, KCS maps out a strategy annually with strategic partners including the shortline railroads that extend its network over 6,000 additional miles, 20 Gulf Coast and inland ports, and more than 140 transload facilities, Fussell explained.

“This year, export petrochemicals and the changing energy market in Mexico were a focus,” she said. “We also focused on non-traditional export channels, specifically through Mexico. Collectively the strategic partners recognized that this will become the norm: utilizing a different export channel for shippers, taking advantage of what’s going on in the international steam-ship lines, and finding best cost as well as best visibility.”