TBY talks to two executives in the rail transport sector on increased fuel efficiency, private sector participation, and the importance of gateways to the US.
How has private sector participation changed the rail industry?
ROGELIO VÉLEZ Radically. The industry was privatized in 1997, and Ferromex was the second line to receive a concession. We obtained the Pacífico Norte, and it was our opportunity to transform the company. We paid just $540 million for the concession, which represents 8,000 kilometers of rail network. The line has five gateways into the US, operates four different ports on the Pacific coast, and two very important ports on the Gulf of Mexico. We have capitalized on these strengths, and currently we cover more than 80% of the country’s industrial activity.
JOSÉ ZOZAYA The Mexican, US, and Canadian economies have made NAFTA successful thanks to the participation of the private sector. Private investors are the ones who are really implementing and perfecting the rules that the governments negotiated. When businesses negotiate for legislation it’s because the market is already asking for it, because we—the businessmen—know what the worldwide market wants. In the case of KCSM, since entering into this concession, we have accomplished everything we have here due to our own investment in technology, maintenance, new equipment, and training employees, which has enabled us to build a very efficient network; the only one operating in both the US and Mexico.
Which sectors represent the highest growth for Ferromex’s operations?
RV The one sector that represents the greatest potential is agriculture; it represents 30% of our sales. We move the most important crops in Mexico. It is an industry that has grown significantly over the past 10 years. Another segment is automotive, which represented just 5% of our sales seven years ago, and currently represents over 10%. A third segment is intermodal or container traffic. Over the last two years alone, this sector has registered the most important annual growth, representing 25% to 30% of all trade volume. The automotive industry demands on-time service. It forces us to give priority to automotive shipments, and we have been able to compete versus the other transport modes, in terms of cost and service.
To what do you attribute Kansas City Southern’s 24% revenue increase in 3Q2011 internationally, and how did your Mexican operation contribute to these results?
JZ The global economy has been improving, and the Mexican industrial sector has been improving in terms of efficiency. The worldwide economy has become more competitive, and Mexico has become much more competitive. Since the crisis of 2009, Mexico has been able to capture more foreign investment, because we are recognized as a country that has the capability to produce more and produce better products at a good price and with good quality. The Mexican automobile industry has been doing much better; we serve the automotive industry, and that has increased our volumes. Also, grain, steel, minerals, petrochemicals, and, of course, intermodal transport are all on the up.
How does your company address environmental concerns?
RV The year 2011 was the most important in terms of capital investment, worth $330 million, which included the 44 locomotives we purchased in 4Q2011. We needed more power and we needed it to be efficient in terms of mileage and in order to meet environmental concerns. These models are the most environmentally friendly locomotives. The mileage we get from them is also the best in the industry. We have improved our efficiency with the addition of 82 new locomotives. Our customers rely on this power, and it has greatly improved our services.
JZ I think it is important for a railroad company to show that it cares for the environment. Using green locomotives benefits us in different ways; they are cleaner and require less fuel and lubrication, the engines deteriorate less quickly, and there is less waste. Everything about them is better for the company and the community. We will continue working on that initiative. We also have an internal initiative to conserve fuel; we try to use fuel as efficiently as possible every day.
What is the role of Ferromex in Mexico’s export economy?
RV The external economy is part of our potential. We hold five gateways to the US and work broadly with the country, where we see opportunities to develop international business. Our international operations represent around 38% of Ferromex’s volumes, whereas at the beginning they represented only 22%.
What measures could improve rail transport in and out of Mexico?
JZ The US and Mexico are working very diligently to create new regulations and streamline customs. A plan is in place to expedite the crossing of goods through the border, and to ensure that this checkpoint only exists to prevent illegal goods from crossing. That agreement will allow for the pre-clearance of some goods, which will significantly reduce time spent at the border.
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