Dahlman Rose & Co. Thursday hosted a roundtable conference call on the Mexico-U.S. supply chain in which executives from Kansas City Southern “shared valuable insight about cross-border and Mexico operations,”according to Director-Equity Research and Railway Age Contributing Editor Jason Seidl. KCS “described solid 2010 freight shipment growth and favorable long-term prospects south of the border.”
Is Mexico the new “promised land” for manufacturers? “Several macro factors have boosted Mexico’s competitive advantage as a global manufacturing hub,” Seidl notes. “The devaluation of the Mexican peso and the fact that China’s labor cost has generally been rising at a faster rate than that of Mexico have compelled several large international companies to move some, if not all, of their manufacturing to Mexico. The advantages are even more numerous for [U.S.] companies. Benefits include convenience, similar time zones, a young skilled workforce, a lower language barrier, and geographic proximity, which could lead to significant reductions in transportation cost.”
Near-sourcing is already occurring. “It appears that manyglobal companies have recognized the Mexican advantage in recent years,” Seidl says. “Major appliance and electronics manufacturers such as Sumsung, Sharp, Sony, LG, Whirlpool, and John Deere have established manufacturing facilities in the country. Chrysler and Fiat are establishing their presence. The Port of Lazaro Cardenas (a KCS development project) has seen its container capacity catapult to around 2.2 million TEUs from around 0.5 million TEUs a few years ago. While it may be too early to reach grand conclusions regarding a potential shift in global outsourcing trends away from Asia into Mexico, we believe that an increasing number of companies may identify a cost advantage in sending some manufacturing south of the U.S. border.”
This trend is already beginning to benefit Kansas City Southern. Chief Operating Officer Pat Ottensmeyer and Vice President Intermodal & Automotive Brian Bowers noted that Mexican carloadings have recovered more strongly than U.S. traffic. Volumes at KCS de Mexico are up more than 25% year-to-date from the same period last year. Much of the growth has been fueled by robust automotive shipments (up 70.2%), intermodal (up 46%), chemicals (up 22%), and metals (up 13%).