Rogelio Vélez
Director General
Ferromex
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View from the Top

Moving the Industry Forward with Rail Transportation

Mon, 10/21/2013 - 11:06

Q: What is the strategy behind the acquisition of Ferromex by Grupo Mexico?

A: Grupo Mexico entered the transportation sector when railroads in Mexico where privatized in 1998. The acquisition of Ferromex represented a key movement for Grupo Mexico because it gave it the opportunity to stabilize its business. Mining is a very cyclical industry, whereas the railroad sector is very consistent. We do have cycles in Ferromex and in transportation in general, but they are very controllable. There is always a constant flow of business during the whole year allowing us to now contribute with 15% of Grupo Mexico revenues. Ferromex plays a fundamental role in the economic development of Mexico. For instance, agriculture is among the most important sectors of the country, without the railroads there would be no way of moving the amount of grain that is produced. Another important segment is the automotive industry. All the leading companies have established their manufacturing plants in Mexico. There are three new assembly facilities that should be active by the end of this year; Nissan built its new plant in Aguascalientes, Mazda in Salamanca, and Honda in Celaya. The automotive industry needs a solid railroad network like the one we provide.

Q: What are the main opportunities in Mexico that could boost the industry’s growth and Ferromex’s positioning?

A: Ferromex has been working hard during the past two years to spend its capital on the right investments. We need to make sure that we develop enough capacity to serve the companies that are coming to Mexico so that we can help them develop their segments. We have basically run out of capacity due to the growth of several industries, so in order to solve this challenge we need to make sure that we are using our capital funds in locations where new infrastructure is needed to expand our capacity, and 2013 has been the year in which we have made the biggest investment in infrastructure. In the railroad business speed is everything, if you are not moving fast you are losing opportunities. Our investment is being used to increase our capacity through new yards, new siding, and double tracks. Through our investments we are making sure that our tracks are in good condition, not only to minimize the number of accidents but also to improve our coverage and efficiency so that we can maintain an acceptable speed and guarantee the capacity required to support Mexico’s industrial growth. US$455 million of Ferromex and US$45 million of Ferrosur are being invested in capacity and infrastructure that will impact the mining industry greatly. The Port of Guaymas represents a big opportunity for all companies looking to export their products. During the second half of 2012 we invested US$22 million in the corridor Nogales-Port of Guaymas to expand our infrastructure and to optimize its condition, so that it can handle heavier loads. This year we are investing part of the US$455 million in new sidings for this corridor, which is probably the route with the largest growth potential in the near future.

Q: How has Ferromex responded to the rapid growth of the mining industry in recent years?

A: We have been challenged by this unprecedented growth. We started performing new routes for mining companies like Southern Minerals, Freeport-McMoRan, and of course for Grupo Mexico. This was a key shift in our plans. Our most important route for mineral ore comes from Ternium, for who we move around 330,000 tonnes of mineral ore per month from the Port of Manzanillo to Monterrey and Puebla. This is a jewel for us in terms of business and a big challenge because we have to ensure the availability of the right type of locomotives, cars, equipment, and crews.

Q: How can the short connection between Guadalajara and Aguascalientes that Ferromex intends to construct increase the company’s market share in the mining industry?

A: This line is a shortcut that enables us to avoid going south from Guadalajara to Irapuato and then north. It is going to impact the mining industry because it will provide the opportunity reach Monterrey faster. Mining represents 26% of the market share of the railroad industry; it has grown from 19% to 26% in the first 15 years, and we think if we continue playing our cards right we will be able to reach 35%.

Q: What is the organizational strategy to achieve safe operations and solid community relations?

A: We have an area within the operation division that focuses specifically on safety control. They are in charge of making sure that trains run in the best and most efficient ways possible. Safety is one of the main problems in Mexico and we need a lot of support from all types of authorities to secure our railroads. Community relations are an essential aspect of our success. Most of the times, the communities or towns where the railroads go through are not happy. In order to improve this, we work very closely with authorities in a program we call “Urban Railroad Coexistence”, through which we do all the necessary things to improve our relationship with the local communities. We normally build overpasses or underground tunnels so that we do not interfere with people’s everyday activities. We work with local, state and federal governments to find solutions that reduce or eliminate people’s concerns. This is an ongoing plan that we have had since the beginning of privatization. So far it has worked well but we believe that there is always room for improvement.