When Mexico’s auto production began accelerating in the last decade, Warren Buffett’s BNSF Railway Co. lacked an essential element for winning customers: tracks in the right places.
Union Pacific Corp. and Kansas City Southern reaped most of the gains as the value of U.S.-Mexico rail trade soared almost 50 percent since 2008. Now BNSF, which has major rail operations in the Kansas City area, is trying to grab more business with a new route in partnership with Mexico’s Ferromex to connect the country’s car-assembly heartland with Chicago.
The alliance shows how North America’s largest railroad by sales is trying to catch rivals whose lines offer greater access to Mexico. Investment by foreign automakers and other companies is boosting freight volumes, helping increase U.S.-Mexico trade by 5.3 percent in 2014, outstripping the pace of economic expansion in both countries.
“The biggest beneficiaries directly from Mexico are Union Pacific and Kansas City Southern just because of where the networks go,” said Allison Landry, a Credit Suisse Group AG analyst in New York. BNSF “doesn’t want to be shut out of the Mexico opportunity.”
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BNSF’s service with Ferromex, which began in May, involves so-called intermodal cargo — containers that can be moved by ship, train or truck. They flow south full of U.S. parts bound for auto factories and go north with Mexican consumer goods.
“The intermodal agreement is a big deal for us,” said Nathan Asplund, assistant vice president for Mexico at BNSF, which is owned by Buffett’s Berkshire Hathaway Inc.
The accord with Ferromex, a unit of Mexican copper miner Grupo Mexico SAB, helps BNSF generate more Mexico traffic on a rail network with only two gateways to the country, in El Paso and Eagle Pass, Texas.
The lack of connections into Mexico crimped BNSF’s ability to participate in the lucrative cross-border rail trade whose value surged 48 percent in the past five years to $69.8 billion, according to the U.S. Bureau of Transportation Statistics. Trucks and railroads together handled $405 billion of freight.
Union Pacific has six southern border crossings, including Laredo, Texas, the busiest land port. Kansas City Southern, the fifth-biggest U.S. railroad, has the largest bet on Mexico. It bought the eastern Mexico railroad, now known as Kansas City Southern de Mexico, starting in 1997. The line runs north from Mexico City to Laredo, the most direct route from Mexico’s industrial corridor to the U.S.
The BNSF-Ferromex route exits the U.S. at El Paso and goes to Silao in Guanajuato state, home to the Mazda Motor Corp. and Honda Motor Co. plants that opened in February.
BNSF has shipped grain, steel, ore, propane and other industrial goods to and from Mexico for years, mainly through El Paso, Asplund said.
The Ferromex partnership lets BNSF compete for other cargo that might go by truck or another carrier, helping reach surging Mexican industries such as car production. Vehicle output has almost doubled since 1999, vaulting Mexico past Japan as the No. 2 exporter of autos to the U.S.
Kansas City Southern sees more growth ahead for U.S.-Mexico traffic even as competition increases, said Doniele Carlson, a spokeswoman. The Kansas City-based railroad got about 47 percent of 2013 revenue from Mexico.
“The intermodal market in Mexico is in its infancy in relationship to the U.S. market,” Carlson said.