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Mexican Intermodal Hits Its Stride (Live from IANA EXPO) · The Intermodal Logistics Podcast

• 0:09
  SPEAKER_01: Hello and welcome to this edition of the Intermodal Logistics Podcast.
• 0:14
  SPEAKER_01: I'm Kevin Baxter, and uh not joined by anybody around me right now, but I'm here just to introduce the episode, which is the third of six that we recorded live from the expo floor at IANA's Intermodal Expo in Long Beach, California in mid-September.
• 0:34
  SPEAKER_01: We had a little technology glitch for the introduction, but don't worry, the entire episode is there.
• 0:40
  SPEAKER_01: Just wanted to give you that introduction.
• 0:42
  SPEAKER_01: My co-host for the episode is going to be in tech logistics president Shelly Austin, going to be or was, I guess depends on your perspective.
• 0:52
  SPEAKER_01: And our guest is Luis Hernandez.
• 0:55
  SPEAKER_01: He is Grupo México and FEC Railway Vice President, and also the president of AMTI, the Mexican Intermodal Association.
• 1:04
  SPEAKER_01: So with that all situated, let's get to the interview.
• 1:09
  SPEAKER_01: So uh as president of AMTI, one of the things that we uh have seen, I mean, I this is only my second expo, but uh having seen uh more of an AMTI presence here at uh IANA's intermodal expo.
• 1:21
  SPEAKER_01: So you have the Mexican Intermodal Association with the North American Intermodal Association.
• 1:26
  SPEAKER_01: How was that uh a focus of yours?
• 1:28
  SPEAKER_00: So Mexico has been taking a lot of the spotlight or the or a big presence in the in the intermodal scenario for North America.
• 1:37
  SPEAKER_00: Uh and talking to Anne, so I I I approached Anne and I told her, Anne, there's an intermodal association in Mexico.
• 1:44
  SPEAKER_00: We we pretty much share a lot of our members.
• 1:48
  SPEAKER_00: So we have the same stakeholders, same players, more different in Mexico, so the trucking and the dredge uh community, it's more focused on that, but pretty much IMCs are are we share them, right?
• 2:00
  SPEAKER_00: So I told her, why what do we need to to collaborate here?
• 2:04
  SPEAKER_00: I would love to have AMTI in in Ayana, I think it's it's the place to be.
• 2:08
  SPEAKER_00: And she said, Luis, welcome.
• 2:10
  SPEAKER_00: We we we we need you, and I'm like, well, here I am.
• 2:14
  SPEAKER_00: So we started these conversations.
• 2:15
  SPEAKER_00: We had the the webinar the other day talking about North America between AMTI, Ayana, and and the Canadian community, intermodal community.
• 2:25
  SPEAKER_00: Uh and now here, we're we're we're sitting here in Ayana showing off what Mexico has to put in front of everybody.
• 2:33
  SPEAKER_01: I think one of the other pieces of the discussion has been the the volume piece and volume coming across border between the US and Mexico have been uh going up.
• 2:42
  SPEAKER_01: Uh Grupo Mexico, I think, has like the highest difference versus last year, volume-wise, of uh any of the railroads right now.
• 2:49
  SPEAKER_00: Yeah, so the whole intermodal industry cross-border is doing somewhere around 20-25% up versus last year.
• 2:56
  SPEAKER_00: So it's the record for intermodal crossings uh in the borders.
• 3:00
  SPEAKER_00: Which is awesome.
• 3:01
  SPEAKER_00: Uh we have we have a big share, it's no secret.
• 3:04
  SPEAKER_00: Uh JB Hunt is a big player in Mexico, and and they switched three years ago, and and this year they have been performing really well.
• 3:12
  SPEAKER_00: But not only them, there's there's there's a universe of of uh service providers that have been doing great.
• 3:19
  SPEAKER_00: And I think it's it's a matter of uh uh gaining share over the road.
• 3:24
  SPEAKER_00: So the country unfortunately is is not growing, but the share is growing, right?
• 3:28
  SPEAKER_00: So uh a lot of trucking capacity has been has been tightening the the B B1 uh drivers on this side of the border, uh, generate constraints also in Mexico, and and Intermodel is the solution.
• 3:42
  SPEAKER_00: And and and the good thing is that once they test them, test it, they they have been engaging really well.
• 3:47
  SPEAKER_02: Yeah, I mean we've talked about that, you and I, Louis, for for a good number of years because we couldn't figure out why that number wasn't growing as quickly.
• 3:54
  SPEAKER_02: So would you say that it's the trucking thing that's the turning point, or what what would you say has been the turning point to just whoa, now it's really growing?
• 4:01
  SPEAKER_00: Two things.
• 4:02
  SPEAKER_00: Definitely the the the trucking capacity in in both sides, because Mexico has a trucking capacity constraint too.
• 4:09
  SPEAKER_00: Uh and the other is the fuel prices.
• 4:11
  SPEAKER_00: So that I think the fuel was like the extra push we needed, uh because the capacity constraint was there, but fuel came to help everybody on this community.
• 4:23
  SPEAKER_00: Oh that's here.
• 4:24
  SPEAKER_00: That's right.
• 4:24
  SPEAKER_02: That the wallet does matter.
• 4:26
  SPEAKER_00: Uh and then a big focus, sorry, a big focus on the on the private and the public fleets in Mexico.
• 4:32
  SPEAKER_00: Uh the availability of containers down there, it's it's it's where it has to be, right?
• 4:37
  SPEAKER_00: So uh part of the conversation is well, where where are we heading, right?
• 4:42
  SPEAKER_00: Because it's book it it's growing Mexico, but also it's growing in the US.
• 4:46
  SPEAKER_00: So what would what what will be the preferred business?
• 4:50
  SPEAKER_00: And and everybody's saying we want everything, right?
• 4:52
  SPEAKER_00: So so we need to invest, we'll invest.
• 4:56
  SPEAKER_01: Well, uh, we talked to uh Diego Enchistegui a couple years ago on the podcast, and and he talked about, and it's something you've talked about too, is sort of a prevailing attitude in Mexico that was keeping people away from intermodal.
• 5:10
  SPEAKER_01: Well, truck is like the, yeah.
• 5:11
  SPEAKER_00: So historically, Laredo has been like the like the US or the south of the south border distribution center.
• 5:22
  SPEAKER_00: So everything moved between all of the production areas to Laredo and then redistribute out of there.
• 5:27
  SPEAKER_00: Uh and Laredo is a drive from the big consumptions of Monterrey and and Mexico City.
• 5:33
  SPEAKER_00: So it's a 12-13-hour drive from Mexico City to Monterrey, to Laredo.
• 5:38
  SPEAKER_00: There's no uh time constraints in drivers in Mexico.
• 5:43
  SPEAKER_00: So you could put your load there, deliver in Laredo, and then it will be reworked there and going out.
• 5:48
  SPEAKER_00: And then customs brokers play another big game in the Mexico way of doing business.
• 5:53
  SPEAKER_00: So they own the trucking, the warehousing, and then the customs operation, right?
• 5:57
  SPEAKER_00: So they had everything streamlined.
• 5:59
  SPEAKER_00: Uh Intermodal has several pieces that we have to put together, and and Laredo is not the big option, right?
• 6:07
  SPEAKER_00: Because we want to bypass the border.
• 6:09
  SPEAKER_00: So it's how to we we how do we get from Mexico City to Chicago, to New York, to the southeast, to the Pacific Northwest, avoiding the border.
• 6:19
  SPEAKER_00: Yeah.
• 6:20
  SPEAKER_00: And that's what has been changing.
• 6:22
  SPEAKER_00: Historically, and Laredo will be the busiest border in the world, and it it will continue, but there's enough to to share with Intermodal.
• 6:30
  SPEAKER_00: I think we are uh now between 12 and 15% share of every board of what's crossing the border, but 15% out of how much, right?
• 6:39
  SPEAKER_00: So there's there's room to grow and and and the cake is big enough for everybody.
• 6:44
  SPEAKER_02: So that was gonna be my next question because we hear about it a lot on the the domestic side of hey, if if if all this demand comes, you know, is are is everybody ready?
• 6:52
  SPEAKER_02: Are the railroads ready?
• 6:53
  SPEAKER_02: Is it uh are we ready for that demand?
• 6:55
  SPEAKER_02: So with with the if all of this already coming on in the Mexico cross-border side, what do you see are the biggest challenges that need to help continue with this growth and and and support it?
• 7:05
  SPEAKER_00: A big part is uh the customs process in Mexico.
• 7:09
  SPEAKER_00: I think that's so capacity is there, sorry, uh rail capacity is there, containers are available, chassis are coming to Mexico.
• 7:17
  SPEAKER_00: Uh on that side, we're covered.
• 7:20
  SPEAKER_00: Rail service is really good on both on both players in Mexico.
• 7:24
  SPEAKER_00: Uh customs, we need to work with them to get them uh where they need to be.
• 7:30
  SPEAKER_00: We're we're helping them uh help us because it's a reality and it and it applies not only cross-border for the port operations too.
• 7:39
  SPEAKER_00: Yeah, uh, it's it's the same.
• 7:41
  SPEAKER_00: The constraints, there's not enough land to develop anything.
• 7:44
  SPEAKER_00: It's all about processes.
• 7:45
  SPEAKER_00: You can you can be you can grow capacity on uh on a dynamic side, and and customs is uh it's a big hurdle that we have been working on, trying to put them on top.
• 7:59
  SPEAKER_01: So uh there's obviously some progress there.
• 8:02
  SPEAKER_01: Do you feel like you're continuing to make progress on that?
• 8:05
  SPEAKER_00: And there's also new processes that are positive.
• 8:08
  SPEAKER_00: Now, Cenacica, which is the Mexican, let's say USDA, FDA, so old, old sanitary site, uh, they're allowing inspections in destination.
• 8:17
  SPEAKER_00: Okay.
• 8:18
  SPEAKER_00: So now we don't have to stop, and that will promote intermodal too, because previously, obviously, grains and uh frozen protein had to stop at the border for inspection and then move internal.
• 8:29
  SPEAKER_00: Now they can go all the way to the destination ramps, and that will promote intermodal, release border operations, and allow capacity to grow.
• 8:39
  SPEAKER_00: That definitely is a win.
• 8:41
  SPEAKER_00: So they started with frozen protein, they're good with that.
• 8:44
  SPEAKER_00: There's some products, uh mulch, um, why is dog food sticking in my face?
• 8:50
  SPEAKER_02: Yeah, yeah, yeah.
• 8:51
  SPEAKER_00: F yes.
• 8:52
  SPEAKER_00: Uh couple more, and now they started with specialty grains.
• 8:55
  SPEAKER_00: Okay.
• 8:56
  SPEAKER_00: So lentials, chickpeas, popcorn.
• 8:59
  SPEAKER_00: Uh that's that those volumes are not as big as corn or wheat or soymeal.
• 9:05
  SPEAKER_00: Uh, they don't move in shuttle trains.
• 9:08
  SPEAKER_00: We can reload containers going southbound.
• 9:10
  SPEAKER_00: That's what we need.
• 9:11
  SPEAKER_00: Mexico needs the way to import something, and I think filling containers with specialty grains will be a good step into that.
• 9:18
  SPEAKER_02: So that I literally just came up with this question by the way.
• 9:21
  SPEAKER_02: So if it sounds uh odd, um but I I am interested um because I always think 53 foot capacity on the cross border in Mexico, because I just don't hear as much about the the smaller boxes, the import boxes, the ISOs, the 40s, 45s.
• 9:36
  SPEAKER_02: Tell me, is there is there much of that?
• 9:38
  SPEAKER_02: And then what because we do like domestic repo on those here in in in the US.
• 9:44
  SPEAKER_02: So is there that opportunity on the small boxes too on the cross border?
• 9:48
  SPEAKER_02: Is it not as prevalent?
• 9:49
  SPEAKER_00: No, because Mexico has a legislation on cabotage.
• 9:54
  SPEAKER_00: So you cannot use an international container to move domestic freight.
• 9:58
  SPEAKER_02: Okay, and that's why okay.
• 10:00
  SPEAKER_02: So I'm just not that's not a bad question because I just have not heard of much of that.
• 10:04
  SPEAKER_00: So imagine a Manzanillo to Monterrey.
• 10:06
  SPEAKER_00: So an import from Asia through Manzanillo to Monterey, either you reload it to export or you send it back empty.
• 10:13
  SPEAKER_00: You cannot move a Monterey to Mexico City to get it closer to the port.
• 10:18
  SPEAKER_00: No, it's either a full export or an empty repo.
• 10:22
  SPEAKER_00: Okay.
• 10:23
  SPEAKER_00: And we move a lot of internal international ISO containers, both.
• 10:26
  SPEAKER_00: Las Arocárdenas and Manzanillo, the both big ports on the Pacific, move close to between both 10 million TUs.
• 10:34
  SPEAKER_00: So it's big, and probably we have jointly a share of between 20 and 25 percent of the port operations.
• 10:39
  SPEAKER_00: Still, there's a lot to move.
• 10:41
  SPEAKER_00: There, the difference is geography, right?
• 10:43
  SPEAKER_00: So the distance between Manzanillo and Mexico City, which is the biggest consumption area, is want to say 700 miles rather than the long beach to Chicago, right?
• 10:53
  SPEAKER_00: That's 3,000.
• 10:54
  SPEAKER_00: So the economics play different.
• 10:58
  SPEAKER_00: Uh, we have been able to get there, but still there's enough capacity over the road to move that 80% remaining, right?
• 11:05
  SPEAKER_02: Right.
• 11:06
  SPEAKER_02: Very interesting.
• 11:08
  SPEAKER_01: So we've talked about the truckload conversion environment here, and you mentioned that uh in Mexico too.
• 11:14
  SPEAKER_01: Um, are you seeing an uptick of actual volume overall for freight, or is it really more of a the movement from some truckload to to intermodal that's driving the growth there?
• 11:26
  SPEAKER_00: Primarily is a share from from over the road to intermodal.
• 11:29
  SPEAKER_00: That that's like 90% of these.
• 11:31
  SPEAKER_00: That the rest is 10%.
• 11:33
  SPEAKER_00: And I've been talking a lot uh about this idea of near shore, right?
• 11:40
  SPEAKER_00: That hasn't happened.
• 11:41
  SPEAKER_00: That was the buzzword a few years ago, yeah.
• 11:42
  SPEAKER_00: And and it hasn't happened and will happen.
• 11:45
  SPEAKER_00: But there's something different called near sourcing, right?
• 11:47
  SPEAKER_00: So no one is coming to Mexico to invest in new plants.
• 11:50
  SPEAKER_00: No, they're just reinvesting what they're generating.
• 11:53
  SPEAKER_00: But what we're doing, or what the US community is doing, is now buying more from.
• 11:58
  SPEAKER_00: So that's the idea of near sourcing.
• 12:01
  SPEAKER_00: So uh 10% of that is incremental volumes, new customers, the rest is pretty much much share uh to over the road.
• 12:11
  SPEAKER_00: Which is not bad.
• 12:13
  SPEAKER_01: No.
• 12:14
  SPEAKER_01: Well, I mean, you you said what 12 to 15% market share now for in the cross-border industry, yeah.
• 12:21
  SPEAKER_01: I I mean I don't have the number in front of me, but I feel like when we talked to Diego a few years ago, it was something like three percent.
• 12:27
  SPEAKER_00: I think it is the past couple of years, we've we've gone uh we've gained a lot of share.
• 12:33
  SPEAKER_00: Well yeah, a lot of getting there.
• 12:36
  unknown: Yeah.
• 12:36
  SPEAKER_01: I mean, that's that's a big gain over a short period of time, yeah.
• 12:40
  SPEAKER_01: But uh as you said, still plenty of opportunity.
• 12:42
  SPEAKER_01: Yeah, yeah.
• 12:42
  SPEAKER_01: Absolutely.
• 12:43
  SPEAKER_01: Um, so the tariffs, obviously, that's that affects everybody.
• 12:49
  SPEAKER_01: Yes.
• 12:49
  SPEAKER_01: Uh and uh how has it affected the the cross-border uh side of things for for you that that you've been able to see?
• 12:57
  SPEAKER_00: It has been very targeted.
• 12:59
  SPEAKER_00: So the the impact was mainly when the steel and aluminum hit or was announced.
• 13:09
  SPEAKER_00: Uh a big part of what Mexico exports to the US its appliances.
• 13:13
  SPEAKER_00: So all these refrigerators, washing machines, uh, ovens, dryers.
• 13:19
  SPEAKER_00: Uh and the problem was actually not the real impact, but the uncertainty.
• 13:25
  SPEAKER_00: Yeah.
• 13:25
  SPEAKER_00: Uh so there was no real rules on how much steel would represent a tariff, so or how much aluminum in the product will represent a tariff.
• 13:36
  SPEAKER_00: So there were days that we were not shipping anything because they were trying to figure that out, but the next day we had 450 containers.
• 13:43
  SPEAKER_00: Yeah.
• 13:44
  SPEAKER_00: And it it's not good either, right?
• 13:46
  SPEAKER_00: Because you know you cannot move 450 containers in one single train, then you have a couple.
• 13:52
  SPEAKER_00: But what would happen tomorrow?
• 13:53
  SPEAKER_00: So it was that that crazy thing of uh of the better called liberation.
• 14:02
  SPEAKER_01: Um so where do you see uh I mean, you mentioned some different types of freight.
• 14:07
  SPEAKER_01: What where do you see like the most uh opportunity then in terms of uh and a type of uh cargo in particular that maybe I think the big opportunity for intermodal in Mexico is Mexico City.
• 14:18
  SPEAKER_00: Monterrey, so the the three industrial areas, four let's say, would be would be Monterrey, which is the north, then Bajío, which would be San Luis, Potosían, Silao, Querétaro, that area in central Mexico.
• 14:33
  SPEAKER_00: But Mexico City is the largest city.
• 14:35
  SPEAKER_00: The other one is Guadalajara, but we'll talk about Guadalajara separately.
• 14:38
  SPEAKER_00: Uh Mexico City is the largest city in the country.
• 14:43
  SPEAKER_00: So it's it's really focused that the city is is is only that one, right?
• 14:48
  SPEAKER_00: So different than the US.
• 14:50
  SPEAKER_00: And I'm when I came to the US, I was surprised there's there's cities where you have Fortune 500 companies, like, and they're they're way too far from LA, way too far from New York.
• 15:00
  SPEAKER_00: So it's you don't have to you can be in Benton Bill Arkansas and be the top company in the world, right?
• 15:06
  SPEAKER_00: So the biggest corporation.
• 15:08
  SPEAKER_00: Yeah.
• 15:08
  SPEAKER_00: Uh in Mexico, no, you have to be in Mexico City because everything is there.
• 15:12
  SPEAKER_00: Yeah.
• 15:13
  SPEAKER_00: Um, and still the share of intermodal into Mexico City for any of both railroads, it's very low.
• 15:20
  SPEAKER_00: Let's say less than 1%.
• 15:22
  SPEAKER_00: What's moved and produced in Mexico, it's really low.
• 15:25
  SPEAKER_00: So the big opportunity is Mexico City.
• 15:28
  SPEAKER_00: Um and develop other markets, right?
• 15:30
  SPEAKER_00: Guadalajara is the other one that that's on the west side of the country.
• 15:34
  SPEAKER_00: Uh it's a it's a uh growing uh industry that will be attended.
• 15:40
  SPEAKER_00: We need to to put a ramp there and and set up all the operation, but still, short term, Mexico City is there.
• 15:46
  SPEAKER_00: We need to find out how to convince those guys to jump in into the moda.
• 15:50
  SPEAKER_02: Yeah.
• 15:51
  SPEAKER_00: Is the infrastructure there at this point?
• 15:53
  SPEAKER_00: Yeah, Mexico City ramp is the largest in the country.
• 15:56
  SPEAKER_00: Uh and they've done a huge amount of work on updating that.
• 16:00
  SPEAKER_00: Uh, it's the only ramp that's AGS in Mexico, for example.
• 16:03
  SPEAKER_00: They're working with their smart yards, so they they they've put a lot of money uh in that.
• 16:09
  SPEAKER_00: And a lot of drake carriers are now coming into that ramp.
• 16:12
  SPEAKER_00: So it's it's infrastructure-wise, it's where it has to be.
• 16:17
  SPEAKER_00: We need to put more business.
• 16:20
  SPEAKER_01: And last question.
• 16:22
  SPEAKER_01: Uh, so in terms of the uh the cross-border piece, you you talked about, you know, the idea is origin in Mexico ended up in uh Chicago or or something like that.
• 16:36
  SPEAKER_01: Uh are are there solutions now, or more solutions now where you can do that, where you can you can get something to the Midwest, to the southeast, to the West Coast, Pacific Northwest, all that.
• 16:47
  SPEAKER_00: Everything is covered, right?
• 16:48
  SPEAKER_00: So Mexico City, Bajío, and Monterrey to pretty much everywhere.
• 16:52
  SPEAKER_00: Even Dallas, so Texas, LA, Pacific Northwest, Midwest, uh, the northeast, and the southeast.
• 17:01
  SPEAKER_00: Uh I'm not sure if there's something missing, right?
• 17:05
  SPEAKER_00: The markets in the US are those, the markets in Mexico are those, and there's a solution uh for all of them.
• 17:12
  SPEAKER_00: Uh maybe, I don't know, the East Coast, but in between, you have to do more connections.
• 17:17
  SPEAKER_00: I'm not sure if that's the big market where we want to target, probably develop what we have and fill it up and try to get better service.
• 17:24
  SPEAKER_00: And it will be now it will be a very uh detailed or targeted service performance, right?
• 17:32
  SPEAKER_00: So we will be competing uh FerroMex and the CPKC to the southeast for one day or two days, right?
• 17:40
  SPEAKER_00: Rather than it was like no one week or the other or every other day service.
• 17:44
  SPEAKER_00: No, now it now it's a matter of hours that turn into one day.
• 17:49
  SPEAKER_00: Uh yeah, I'm it's a good question.
• 17:52
  SPEAKER_00: I I'm not sure if if there's something different.
• 17:54
  SPEAKER_00: Even Canada is already in the map.
• 17:56
  SPEAKER_00: So uh both we are both serving, well, CPKC directly uh on their lines from Vancouver to Toronto all the way down to Las Arocárdenas.
• 18:04
  SPEAKER_00: We interchange with both the BN and the and the UP and then the CN.
• 18:08
  SPEAKER_00: So you can get almost everywhere in North America.
• 18:12
  SPEAKER_00: So we we need to take advantage of the region and and probably and we were talking about this the other day, is if we want to substitute imports from Asia, let's see what we can substitute it in a Mexican company or in a Canadian one or in a US one and try to make it a North American trading region, right?
• 18:31
  SPEAKER_00: Right.
• 18:31
  SPEAKER_00: Yeah.
• 18:32
  SPEAKER_00: So that that that's the goal.
• 18:34
  SPEAKER_00: I think that's part of what we in Intermodal can look at that because we have the full scope and we see what's happening in one and the other.
• 18:41
  SPEAKER_00: And if we can join the efforts and promote that, that it it's the path to follow.
• 18:46
  SPEAKER_01: Great.
• 18:47
  SPEAKER_01: Luis, thanks for taking the time to join us.
• 18:50
  SPEAKER_01: Yeah, really appreciate it.
• 18:51
  SPEAKER_01: Thank you, Shirley.
• 18:51
  SPEAKER_01: Kevin, thank you.
• 18:53
  SPEAKER_01: And thank you for joining us on this edition of the Intermodal Logistics Podcast.
• 18:57
  SPEAKER_01: Please do subscribe, follow wherever you get your podcasts.
• 19:00
  SPEAKER_01: Feel free to drop us a comment, rate, and review as well.
• 19:04
  SPEAKER_01: You can also email us at podcast at intechlogistics.com or find more about intechlogistics, the company, at www.intechlogistics.com.
• 19:15
  SPEAKER_01: For Shelly Austin and Louise.
• 19:17
  SPEAKER_01: We appreciate it again.
• 19:19
  SPEAKER_01: I'm Kevin Baxter, and we will be back soon with another episode.