Making Tracks for the Border : U.S. Railroads’ Business With Mexico Booms

Day and night, the freight trains rumble nonstop through the Rio Grande town of Laredo, funneling auto parts, grain and plywood into Mexico’s industrial heartland and sending Mexican iron ore, glass containers and produce to American factories and consumers.

Booming trade between the United States and Mexico has doubled rail traffic in Laredo since 1989, helping to make it the busiest commercial crossing along the 2,000-mile-long border. Some 150 miles south of San Antonio, Laredo has become a focal point for railroad industry investment plans along the border, including new bridges, freight terminals and rail-barges at a combined cost of more than $200 million.

“The market in Mexico is the fastest-growing one we have,” said Bob Thruston, vice president of Mexico group activities at Southern Pacific Railroad, the U.S. line doing the second-biggest volume of business in and out of Mexico, after Union Pacific.

While rail traffic of all kinds has grown since 1988, when Mexico began easing trade barriers, the pace has picked up dramatically since the North American Free Trade Agreement went into effect Jan. 1. The pact has particularly benefited U.S. producers of grain, autos, forest products and other goods well suited to transport by rail.

The railroads also stand to benefit from what many expect will be a shifting of manufacturing from the maquiladoras concentrated along the border to Mexico’s north-central industrial belt, which is closer to population centers and has a less transient work force. The longer hauls would be more suited to rail transit.

In part, the railroads see their investments as a race to replace or augment overburdened facilities. Laredo and El Paso, the two busiest rail ports along the border, are both heavily congested and becoming more so since NAFTA went into effect.

Among the projects now under consideration:

* Union Pacific plans to spend as much as $30 million on a new rail bridge in Laredo. The Omaha-based line, the largest cargo hauler in and out of Mexico, recently completed a modern rail-truck, or “intermodal,” freight terminal just north of Laredo.

* The Atchison, Topeka & Santa Fe may become the lead investor in a $110-million rail-truck terminal planned in New Mexico just east of El Paso. The project is being heavily promoted by New Mexico as a way to stimulate economic growth.

* CSX is studying the feasibility of spending tens of millions of dollars on a new rail-barge service called Sea Cat from the Gulf Coast to Veracruz, a route that would resemble a highly successful rail-barge service operated by Burlington Northern from Galveston, Tex., to Mexico.

U.S. railroads also stand ready to invest heavily if Mexico privatizes and auctions off its aging and poorly maintained rail lines, as many in the industry expect.

Southern Pacific, among others, says it would be a bidder in such an auction. Southern Pacific and Santa Fe owned major lines in Mexico before being booted out several decades ago as symbols of economic colonialism.

Privatization of Mexican rail--and at least partial acquisitions by U.S. interests--seemed likely until Mexico’s political upheaval this year. Now industry officials say all bets are off until after Mexico’s August presidential elections. A victorious opposition candidate could slow or reverse the foreign investment that has poured into Mexico in recent years.

Railroads saw their U.S.-Mexico traffic grow at a 15% average annual rate from 1988 through 1992, the last year for which figures are available, according to the U.S. Department of Transportation.

But NAFTA has provided a sharp boost. Shipments of finished automobiles to Mexico--two-thirds of which travel by rail--are up sixfold this year.

“We’re moving a lot of grain since NAFTA, and there’s quite a heavy southbound movement of finished autos by Chrysler, Ford and Jeep because NAFTA cut the tariff by 50%,” said John Bromley, a spokesman for Union Pacific.

Three of the border states see the rail lines as big generators of jobs and taxes. Arizona, for example, is working with the Mexican state of Sonora to improve rail links between Nogales and the port of Guaymas.

New Mexico is trying to launch a major new terminal called Santa Teresa about 12 miles west of congested El Paso with the cooperation of Mexico and at least one U.S. railroad, possibly Santa Fe. Texas is working just as hard to keep any new terminal serving El Paso-Ciudad Juarez on Texas soil. (California has virtually no rail traffic with Mexico.)

“Railroads create a potential for tax revenue, a potential for job creation and for attracting manufacturers who want to be closer to distribution centers,” said John Garcia, deputy chief of staff for New Mexico Gov. Bruce King.

Impediments still stand in the way of freer rail traffic, especially the inadequate Mexican rail system and congestion in border areas, U.S. rail officials say.

Partly for those reasons, truckers haul 85% of the cross-border surface freight. And truckers will fight hard to retain their grip on the Mexican market, despite the increasing “intermodal” transportation networks that combine trains, ships and trucks to deliver cargo packed in containers.

But railroads’ freight business is expected to grow as the overall Mexican trade pie gets larger under NAFTA and as U.S. companies learn to do business in Mexico. U.S. exports to Mexico were up 16% for the first quarter this year and imports increased by 22%. Many of the trade categories showing the best growth were bulk cargoes served by rail.

U.S. railroads expect their Mexican business to grow from 2.5% of industry revenues now to 7.5% by the end of the decade, according to the Assn. of American Railroads, a Washington-based trade group.

The U.S. rail industry could use that kind of growth. Although its revenues have bounced back over the last decade after some rough times, the railroads’ share of the surface freight market has not grown since 1978.

Some industry experts say true integration of rail service between the United States and Mexico won’t occur until Mexico privatizes its national rail system, known as Ferrocarriles Nacionales de Mexico. The system is so poorly maintained that some U.S. lines won’t use it for their heaviest cargoes.

If U.S. railroads do eventually acquire Mexican lines, it would close the circle that began during the Depression, when Mexico began to nationalize the mostly U.S.-controlled railroads, according to John A. Kirchner, professor of geography and transportation at California State University, Los Angeles. U.S. railroads built the Mexican lines in the late 1800s.

“If you look at a Mexican route map today, you are struck by the fact that the major railroads run north and south,” said Walter P. Gray, director of the California State Railroad Museum in Sacramento. “One reason for the arrangement was to promote transport of raw materials from Mexico north into the U.S.”

Laredo Rail Traffic

Improved trade between the U.S. and Mexico is reflected in increased rail traffic in congested Laredo, the busiest commercial crossing along the 2,000-mile U.S. Mexico border. Total loaded cars moving across the border in both directions, in thousands:

1989: 84.7 1990: 98.1 1991: 110.2 1992: 138.7 1993: 145.9

Source: U.S. Customs Service, Laredo District Office