KCS sees potential for more growth in cross-border traffic

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KCSLaredo
A northbound empty grain train crosses the Rio Grande on Kansas City Southern’s International Railway Bridge in Laredo, Texas, in November 2017.
Bill Stephens
KANSAS CITY, Mo. – Kansas City Southern sees the potential for the further expansion of manufacturing in Mexico thanks to the new North American trade deal as well as pandemic-related shifts in the way companies are approaching their supply chains.

The USMCA treaty went into effect in July and ended nearly four years of uncertainty over the fate of the North American Free Trade Agreement, which President Donald Trump had called the worst trade deal ever.

The so-called NAFTA 2.0 deal likely will accelerate foreign investment in Mexico and boost KCS’s cross-border traffic over the long term, Chief Financial Officer Mike Upchurch told an investor conference on Wednesday.

Mexico’s proximity to the U.S. and Canada, as well as its low labor costs, also will make it a magnet for companies looking to diversify their production away from China. The COVID-19 pandemic and ongoing trade disputes with China have companies considering near-shoring at least some of their production.

Products made in Mexico are a four to six day journey away from destinations in the U.S. and Canada, Upchurch notes, compared to 30 to 35 days from sources in China or elsewhere in Asia. The speed advantage and lower transportation costs from Mexico also may spur foreign investment along KCS de Mexico lines, Upchurch says.

KCS is planning a second single-track span over the Rio Grande to complement its existing International Railway Bridge at the Laredo gateway, the busiest freight rail crossing in North America.

Although the Trump administration approved a permit for the new bridge, Mexican approval is still required and engineering and design studies have yet to begin. So construction of a new bridge is still at least a couple years away, Upchurch says, noting KCS has not put a timetable on construction yet.

The span currently handles up to 30 trains a day. Ongoing operational improvements, including faster customs inspections and the use of international crews between yards in Mexico and the U.S., should mean the Laredo bridge can handle slightly more than 40 trains per day, Upchurch says.

KCS traffic is now above pre-pandemic levels after a 50% rebound in traffic since volumes bottomed out in May, Upchurch says. Key to the unprecedented traffic recovery are KCS’s three main growth areas: cross-border traffic, petroleum product exports to Mexico, and automotive/intermodal business, he says.

KCS officials would not comment on reports that a pair of infrastructure funds are seeking to acquire the company. The Wall Street Journal reported earlier this month that KCS, the smallest Class I railroad, rejected a second offer from Global Infrastructure Partners and Blackstone Group to take the company private.

Upchurch spoke at the J.P. Morgan 11th Annual U.S. All Stars Conference.
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