José Zozoya
President
Kansas City Southern de México (KCSM)
/
Insight

Mexico's Rail Network; Building Bridges

Wed, 10/18/2017 - 11:04

As the head of one of Mexico’s largest rail companies, and the only one that operates in both Mexico and the US directly, José Zozaya, President of Kansas City Southern de México (KCSM) has a deep knowledge of how international borders function. KCSM, a fully owned subsidiary of Kansas City Southern, transports everything from agricultural goods and automotive parts to metals and minerals between Mexico and the US using its extensive international rail network. “International crossings are designed to facilitate legal international trade, not to hinder it,” he says. Zozaya is convinced that, for the benefit of all involved, the two countries have to work together to redesign the border crossings and renegotiate bilateral trade agreements.

“The North Atlantic Free Trade Agreement (NAFTA) helps the large number of exports from the US into Mexico, as well as the other way around,” he says. “It needs to modernize – the world has changed exponentially since 1994.”

Zozaya forms part of a group of leading CEOs from both sides of the border that meets twice a year to discuss trade developments and what needs to be done to improve international commerce. The dialogue is facilitated by the US Chamber of Commerce and the general consensus, says Zozaya, is that NAFTA has been “tremendously beneficial” to both sides and is a vital facet of the bilateral relationship. KCSM recognizes the role that improved border infrastructure and regulation can play in further strengthening this relationship, and its doing its part to lobby the public sector and drive change.

“We are working with the authorities from both countries to achieve a unified customs process instead of separate facilities in the US and Mexico,” he says. “This will create a more agile crossing that will be much easier to navigate.”

With many of Mexico’s largest mines straddling the US frontier, executives at mining companies operating south of the border would welcome a more open customs process. Transporting ore extracted from the mine to the processing plant, and then onto the international marketplace, can be a lengthy and time-consuming process. Any improvement to the efficiency of this process should translate into wider profit margins.

One area that could contribute to this process is further development of Mexico’s rail network. Giant copper producer Grupo México under its Ferromex subsidiary and KCSM represent 72 percent of the rail market share. A large chunk of the US$160 million KCSM plans to invest in the country in 2017 will be spent on developing the route from KCSM’s Patio Sanchez base in Nuevo Laredo, a key international border crossing that has been creaking under the weight of increasing trade levels.

But according to Zozaya, the market is not ready for more players. “If we want further competition in Mexico, more railways need to be built,” he says. “Given the current infrastructure, it would be counterproductive to have more rail companies because there simply is not enough space.”

But Zozaya insists that the rail network is not the most urgent issue. To provide mining companies with the support necessary for the sector to continue growing, Mexico needs to focus on developing other areas of transport infrastructure, as well as tackling security issues that continue to place seeds of doubt in investor’s minds. “There needs to be an improvement on road, airport and seaport infrastructure but more importantly the legal infrastructure in the country needs to evolve,” he says. “For the mining industry to continue growing and attracting investment, Mexico needs to re-establish the rule of law. It is imperative.”

Despite the challenges, the willingness Zozaya sees from business communities on both sides of the border convinces him that the international rail network between the US and Mexico can play a vital role in promoting bilateral trade and cooperation for years to come. “We are very optimistic about the future,” he says. “The cooperative relationship for Mexico and the US is bright.”