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Mexico Tries To Open Its Rail Industry To Competition

Mexico Tries To Open Its Rail Industry To Competition

Mexico Tries To Open Its Rail Industry To Competition
Februar 20
10:52 2014

Once again, the Mexican government is ruffling feathers as it tries to modernize and open industries to competition and investment.
This time,  however, the government has not only drawn the ire of its large rail operator, Grupo Mexico which manages Ferromex (25% owned by US-based Union Pacific)  and Ferrosur railroads but also US-based Kansas City Southern Railway.

Mexico’s lower house of Congress has approved a measure to reform its rail freight law and it now moves to the Senate for a vote. Under the proposed law, concession-holders would be required to share their lines with other concession-holders or risk losing them. Also, prices charged to customers for interconnections with routes owned by other companies would be required to be published. The purpose, say lawmakers who proposed the bill, is to bring new investment into the sector, lower prices and expand rail’s share of the cargo business. Also, according to one legislator, Mexico currently has no interconnection between the two operators, meaning detours of as much as 400km in some cases.

Grupo Mexico and Kansas City Southern control almost all of Mexico’s rail freight and has stated that the proposed legislation ignores a concession granting exclusivity of another 14 years  plus it fails to recognize the sizeable investments both companies have made over the years.  In fact, Ferromex and Ferrosur are expected to invest $2.2bn over the next five years, with $506.4m set aside for 2014, but the figure could change if the reform gets approved.

If this legislation passes, it will likely have a negative impact to Kansas City Southern. Its Mexican subsidiary is a growing part of the company – responsible for the movement of over 40% of the company’s total number or carloads and containers.

Both rail companies also cite the trucking industry as their main competitor and indeed, based on NAFTA data, trucking is the predominate mode of transport between Mexico and the US, carrying over 60% of freight by value. Rail, on the other hand, carries about 14%.

However, over the years, little growth in weight seems to have occurred in regards to US NAFTA imports from Mexico. Growth by weight, in terms of kilograms, has been slight for rail, growing at a CAGR from 2004 to 2012 of only 1.65%. Meanwhile, for trucks for the same period it increased 3.1%

Opening the rail freight industry for competition and investment is indeed needed and could possibly increase rail’s share of freight and also help improve Mexico’s competitive advantage of its proximity to the US. However, with concessions in place for another 14 years for Grupo Mexico and Kansas City Southern, the legalities may win out over what is really needed.

Quelle: eyefortransport
Portal: www.logistik-express.com

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