Mexico to Spend Billions on Railroad Infrastructure

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Mexican president Enrique Peña Nieto announced in the beginning of October that his government would be spending $300 billion on infrastructure to increase the country’s GDP’s growth. A week later, the government issued a statement announcing its plans to tender $7.4 billion on three passenger train projects in 2014.

Tendering opportunities abundant
The projects, which are expected to start in the beginning of 2104, aim at connecting the country’s capital with the cities of Toluca and Queretaro. Another train is also expected to connect tourist destinations across the southern Yucatan peninsula. The Mexico City to Toluca route will cost $2.9 billion, the Mexico City to Queretaro route $3.3 billion, and the Yucatan route $1.2 billion. Notably, Mexico’s transport ministry commented that it would use both public and private funds to build the projects. Those providers of railroad technology from around the world – and any other related infrastructure or financial services – are well placed to participate in these projects.

Since 2011, Mexican rail has been rising in popularity. The country’s largest railroad, Ferrocarril Mexicano or Ferromex has increased its carload volume by 6.6% and its revenues grew by 13.9%. Similarly, the second largest rail carrier Kansas City Southern de Mexico (KCSM) reported moving 15.9% more carloads in the same year than it did in 2010. With these numbers in mind, the Mexican government wants to accommodate the growing demand of rail transportation within Mexico.

Connecting US-Mexico economies
The Mexican government also plans to extend its rail services to connect with it neighbor in the north. This is because the US market is shifting its attention to Mexico. With oil prices on the rise and wages in Asia increasing by the day, the strong economy, proximity and low costs of Mexico are driving US corporations to build factories in the country and then ship their goods back home. With the help of the rail industry, raw goods will be shipped south from the US and finished products will be transported north from Mexico.

With the upcoming improvements to the railroad infrastructure, the service will be more reliable and shippers will shift their operations to trains, especially intermodal, as it’s less expensive. Though intermodal has been used in the past only to be discontinued, experts are positive that thing will change thanks to the government’s new measures.

Safety a priority
One measure in particular has received ample praise: improving security. The Mexican railroads have partnered with their US partners to ensure that shipments moving within the country or across the border arrive at their destinations undamaged and free of smuggled goods. KCSM and Ferromex have started using x-ray machines to examine contents, dogs to search for hazardous items, and high tech cameras to monitor cars. Of the two, KCSM has a stronger security record; Patrick Ottensmeyer, the executive vice president, sales and marketing at KCS commented, “In 2010, the customer claims rate for theft, vandalism, or accidents for all shipments moving on KCS in Mexico was 0.02 percent. That means 99.8 percent of all loads we transported were moved without a customer claim.”

According to government data, Mexican trains are responsible for 12% of freight cargo while cars and trucks carry half of freight. 42% of shipments are carried by rail to the US while 60% reach Canada.

The evidence that railway projects are happening fast
Rail has not got too much press in comparison to the energy or telecom reforms. Nevertheless, this lack of apparent PR has helped the Government to work in small projects to support the industry growth.

For example, the recent proposal for amending the Customs Law includes a provision that enables railroad as a vehicle for importing or exporting merchandise. Even though it is still no clear the complete regulation for implementing rail clearance, shows the administration interest in increasing traffic for the freight rail industry.
Another one is the freight project in construction for the Honda Plant in Guanajuato, which would be in operations for transporting out of factory, delivering to trailers for crossing the NAFTA road to export. Construction of this railway will be finished by end of year to serve the plant starting operations by 2014.

The upcoming expansions for the Ports of Veracruz, Lazaro Cardenas, Guaymas and Manzanillo are announced as intermodal friendly. At least Lázaro Cárdenas was announced to have an airport and an industrial park adjacent, which increases possibilitis for railway connection at some point.

There is still no confirmation whether these projects will be operated by private parties or under a PPP. Mexico has been encouraging the formation of PPP, as the US$316bn infrastructure plan is not easy to achieve in a 6-year term.

Furthermore, under the PPP Law, any party can pitch a project to the Governments (federal, state and local), even if they are not into their plans. This gives flexibility for projects to happen and opens the door for innovation and turn-key projects.

If you had the chance, what would be your elevator speech for Mexican Government? Let me know.

Topics:  Infrastructure, Mexico, Railways

Published In: International Trade Updates, Transportation Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Alberto Esenaro, Alberto Esenaro | Attorney Advertising

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