In August, Kansas City Southern CEO Patrick Ottensmeyer joined U.S. and Mexican customs officials in the dedication of a new Unified Cargo Processing facility at the Laredo, Texas, railroad border crossing. In addition to sharing security technology and processes between United States and Mexico officials, the new facility streamlines the documentation review of northbound trains and conducts Mexico export processing at the U.S. railhead.
The development was emblematic of the progress—especially on the U.S.-Mexico side of the continent—that has been made in making rail an alternative to trucks for North American shipments. Billions have been invested in new facilities and expedited border clearance procedures have been put in place.
The Laredo/Nuevo Laredo rail crossing is the busiest on the U.S.-Mexico border, processing an average of 23 trains in both directions per 24-hour period, and carrying a wide variety of products. Kansas City Southern is the key rail carrier for cross-border trade between the U.S. and Mexico.
“On the best corridors, North American cross-border intermodal is truck-like when it comes to transit times,” says Phil Shook, director of Intermodal at C.H. Robinson, a third-party logistics provider. The route between Chicago and Mexico is one such example, and “a tremendous amount of just-in-time freight moves on dedicated auto trains in that corridor.”
Another major cross-border intermodal corridor stretches between Canadian west-coast ports and U.S. markets in the Midwest and East. In that case, transit times may not be comparable to trucks but the availability of capacity makes intermodal a competitive alternative.
Intermodal’s traditional selling point has been the trade-off between slower transit times and lower costs, but that analysis doesn’t always hold water when it comes to North American cross-border trade. “In some cases, the costs of intermodal are the same as over-the-road if you are going to or from a location with constrained capacity,” says Jim Filter, senior vice president and general manager for Intermodal at Schneider National, one of the first U.S. asset-based carriers to expand to both Mexico and Canada.
The trade imbalance between Mexico and the U.S. means there is cost to relocating capacity to Mexico for northbound shipments. That’s why Filter has found that intermodal shipping rates northbound from Mexico to the U.S. are comparable to trucks. The same analysis does not apply to the U.S.-Canada trade, according to Filter, because of the greater relative balance in trade between those two countries.
The capacity and rate equation has become complicated in recent years due to the truck driver shortage in the U.S., a factor which will see trucking rates inch higher. It’s a fluid situation and such experts as Shook and Filter advise shippers to look not only at rates and transit times but the availability and predictability of intermodal service on any specific route.
KCS is the primary rail carrier handling rail shipments to and from the U.S. and Mexico, and its investments in recent years, along with the efforts of the two respective governments, have gone a long way to make U.S.-Mexico cross-border rail quite seamless. Shippers on the KCS enjoy customs pre-clearance—which means that shipments are delivered directly to their destinations without a stop at the border—for faster service than trucks can offer.
The rail border crossing from the U.S. into Canada is “more of a traditional border crossing,” notes Shook, meaning that customs are cleared at the border, “but it is fairly straightforward and we don’t have many issues there.”
The Mexican government has been adding more to its list of cargoes that need not be stopped and re-handled at the U.S.-Mexico border and which can now benefit from the seamless border process offered by intermodal service. Among the products that have benefited from that designation in recent years have been pet food and powdered milk.
“These products can be dispatched directly from the exporter to the destination ramps in Mexico,” says Bernardo Rodarte, Schneider’s vice president and general manager for Mexico operations.
Much of the new intermodal infrastructure, especially on the U.S.-Mexico side of the continent, came about as a result of the implementation of the North American Free Trade Agreement in the 1990s, leading to concerns over the future of this trade given the current talks to renegotiate the deal.
“As a result of NAFTA, the cross-border rail industry has been greatly modernized, allowing intermodal services to take off,” says Rodarte. “Services have improved over the last 10 years. There have been significant improvements to rail infrastructure and state governments in Mexico have designated industrial zones and have encouraged the development of industrial parks around intermodal ramps.
“In Laredo, lines can be three to four hours long for trucks,” he adds. “For intermodal, you’re looking at three to four minutes.”
NAFTA was on the mind of KCS CEO Patrick Ottensmeyer when he participated in the dedication of the new Laredo facility, during a week which coincided with the opening of the NAFTA renegotiation talks.
“As our governments begin the important work of updating the North American Free Trade Agreement this week,” he said, “we must all remember the importance of the NAFTA trade relationship to both countries and both economies. This project, and others to follow, are essential to facilitate the goal of expanding trade and particularly increasing exports of goods such as refined petroleum products and petrochemicals from the U.S. to Mexico.
“Demand for rail shipments across this busiest international rail gateway in both directions will continue to increase in the future,” Ottensmeyer added, “particularly with growth in U.S. agricultural and future energy exports to Mexico. New and innovative ways to keep this trade moving securely and efficiently over the border will be needed in the future to expand trade between the U.S. and Mexico and make North America even more competitive.”
But just as cross-border intermodal was encouraged by NAFTA, its future hangs in the balance of the success of the NAFTA talks. U.S.-Mexico trade blossomed under NAFTA and it could well shrivel if the trading relationship goes south.
“The infrastructure will continue to improve and business will continue to grow,” says Shook, “as long as policies remain in place that support free trade.”
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