copy the linklink copied!2. Performance of the rail sector of Mexico
This section briefly describes the general performance of the rail sector in Mexico. It comprises an industry assessment, a spatial analysis and an international comparison. The industry review focuses on the economic performance, the product analysis and the market share assessment of the rail sector. The spatial analysis aims at identifying the main rail commercial corridors in the country, as well as their dynamics. Finally, the international analysis provides a general overview of the rail sector within the international arena.
copy the linklink copied!Industry analysis
This section aims to outline a general profile of the rail freight transportation in Mexico since the restructuring of the industry, based on its economic performance. In general, the restructuring of the rail freight industry was successful, as it turned the decreasing tendency on economic performance exhibited during the state control. The economic activity of the rail sector recovered its dynamism. It increased slightly but steadily both its share of freight transported and the tonnage of freight transported. Moreover, the restructuring brought investment again and improved the freight service in comparison with the previous years.
Compared to other modes of transportation, the competitive advantage of the rail transportation is more evident for long hauls. At the same time, rails are usually dependent on connectivity with other modes of transportation to deliver products. For this reason, economic performance is dependent on the degree of connectivity of the rail network, the productivity in logistics and the quality of the infrastructure; but also on the competition playing field that rail firms or corridors (origin – destination segments) face with another railway firms or transportation competitors from other modes. In what follows, the economic profile of the industry is presented.
Economic performance
In 2017, the total tonnage transported in Mexico accounted for 982 million. The freight transported by road was the most important mode with 546.6 tonnes, which represented 55.7% of the sector. The second most important was maritime with 307.6 millions of tonnes, about 31.3%. Rail transportation in contrast, moved 126.6 million of tonnes during 2017 (about 12.9% of the total) and the remaining 0.7 million were moved by air (0.1% of the total).
Railways in Mexico also transport passengers in a unique line for mid distances. In 2017, 56 million people used the Sub-urban Train, which represented 1.5% of the total in the country – approximately 1.475 million of passengers per kilometre (see Table 2.1).
The evolution of the tonnage moved by the type of transport is presented in Figure 2.1 and Table 2.2. As it can be observed, the four modes experienced an increasing tendency. In principle, the gross tonnage increased 62.0% from 606 million tonnes to 982 million for the period 1995-2017. The air transport presented the highest increase of the period with 193.7%, although this mode has the lowest share in terms on tonnage. The rail transport raised 141.2% from 52 million tonnes to 127 million, followed by maritime transportation with an increase of 65.2% from 186 million tonnes to 308 million.
Regarding the share in terms of tonnage, road transportation has had the biggest proportion. In 2017, the road share was 55.7%, a slightly decrease with respect to 1995 with 60.6% (see Table 2.2). Rail transportation in comparison had a 12.9% share in 2017, which gained a steadily increase since 1995 with 8.7%. The maritime share of tonnage rose from 30.7% in 1995 to 31.3% in 2017. Finally, the air transportation showed a share of 0.1% in 2017 from 0.05% in 1995. In general, the information of Table 2.2 shows that the train freight transportation gained share, measured by the tonnage reported between 1995 and 2017. Besides, the data seems to suggest that rail gained share at the expense of road transportation.
Source: SCT (2018[1]), Estadística Básica 2017 [Basic Statistics 2017], DOF, CDMX, http://www.sct.gob.mx/transporte-y-medicina-preventiva/autotransporte-federal/estadistica/2017/ (accessed 5 March 2019).
In financial terms, roads in Mexico contributed to 88.3% of the transport value added, measured in Mexican pesos, between 1994 and 2017, followed by air transport with 5.1%, rail with 3.7% and maritime with 2.9% – see Table 2.3. The dominance of the road transport services for cargo is well known. The industry dynamics however, has modified slightly in recent years, as the participation of the rail services has increased. A key point for this result has been the growth in turnover since the restructuring of the state owned monopoly railway.
The rail sector in Mexico experienced significant changes since the restructuring of the industry in 1994. Private capitals boosted the railways by improving the quality of the freight services and increased the investments over infrastructure and the participation in the economic activity within the sector – see Figure 2.2 for the evolution of investments in rail lines.
Source: Gobierno de México (2019[3]), Instituto Mexicano del Transporte (Mexican Transport Institute), Queretaro, https://www.gob.mx/imt (accessed 5 March 2019).
Figure 2.3 presents the average growth in gross domestic product (GDP) of the rail transport in percentage for the period 1994-2017. The growth of the railways was the highest of the transport sector with 4.1%; it was 0.1% larger than roads, which is the most important transportation mode in Mexico.
Source: Elaborated with data from INEGI (2019[4]), Banco de Información Económica (BIE) (Economic Information Bank), https://www.inegi.org.mx/sistemas/bie/ (accessed 5 March 2019).
Figure 2.4 shows GDP growth of the transport sector on a yearly basis for the period 1994-2017. In general, the data shows there is no clear path in the performance of the rail system. Between 1994 and 2003, the rail sector exhibited periods of sharp growth in economic activity, combined with falls. In this period, in the years of positive growth, the rail transportation mode outperformed transport services as a whole. In contrast, from 2004 to 2017, the year-to-year growth of the railways performed below the national freight industry, with the exception of 2009 and 2010. Overall, it seems that the high rates of growth in the GDP of the rail industry in the immediate years following the 1994 restructuring account for the difference in performance between the freight transport as a whole, and the rail sector between the period 1994-2017.
Source: Elaborated with data from INEGI (2019[4]), Banco de Información Económica (BIE) (Economic Information Bank), https://www.inegi.org.mx/sistemas/bie/ (accessed 5 March 2019).
The volume of freight transported by railways increased steadily from 2007 to 2017, see Figure 2.5 and Table 2.4. Figure 2.5 shows the behaviour of the freight moved by rail between 2007 and 2017. In general terms it shows there has been an overall increasing tendency, although with periods of falls in 2007-09 and 2011-13.
Table 2.4 shows that in absolute terms, cargo grew from 99.8 million of tonnes in 2007 to 126.9 million in 2017 – an increase of 27.2%, which implied a 2.4% in average per year. Also, the tonne-kilometres carried passed from 77 169 million to 86 332 – an increase of 9 163 million, equivalent to a growth of 11.9% – for the whole period, which represented about 1.1% in yearly basis.
Regarding the cost of freight services, Figure 2.6 presents the evolution of averaged tariffs from 1960 to 2010 for Mexican, Canadian and US lines. The period comprises the breakpoints of the US deregulation, the Canadian privatisation and the granting of private concessions in Mexico. For the Mexican case, there is a gap in statistical information from 1987 to 1998; thus, there are no records of tariffs for such period.
Before the concessions in Mexico, the tariffs paid by customers labelled as Nacionales de Mexico (NdeM) (freight only) were lower than the average in the US and Canada. While the Mexican state-national railway firm was in charge of the operation of the freight services, the federal government had to grant a subsidy to cover the negative balance of the firm. For instance, the real tariffs composed by the payment of customers and the subsidies were in average higher than services in Canada during the period before 1987 and, than in the US in some years.
Source: Elaborated by the OECD with data from ARTF (2018[5]), Anuario Estadístico Ferroviario 2017 [Railway Statistical Yearbook 2017], https://www.gob.mx/artf/acciones-y-programas/anuario-estadistico-ferroviario-2017-152797 (accessed 2 March 2019).
Notes: National Railways of Mexico was composed of three railways: Nacionales de Mexico (NdeM), Ferrocarril Chihuahua-Pacifico (Chepe) and Ferrocarril del Pacifico (FdelP). The data reported here is for NdeM only but representative of FNM given the small scale of FdelP and Chepe operations.
Source: (ITF, 2014[6]), Freight Railway Development in Mexico, https://dx.doi.org/10.1787/5jlwvzjd60kb-en, updated to add 2013-16 data based on AAR “Railroad Facts” and US BEA GDP series.
It stands out that Canadian and American rail tariffs had a decreasing path, contrary to the Mexican case that showed an incremental tendency. In 1987, the real Mexican average tariff was 48.5% higher than the American and 67.7% higher than the Canadian.
In the years after the Mexican concession, the national tariffs dropped in comparison with the previous years. Notwithstanding, they were still higher than the US and Canadian levels. For some years however, the Mexican tariffs followed an opposite trend, which contrasts to the American and the Canadian tariffs that were still decreasing. By 2002, the Mexican rail tariffs reversed the increasing tendency at the same time that the US and Canadian tariffs reversed their downward trend, so that Mexican tariffs got closer to the US and Canadian fares.
A tariff analysis of the Mexican railway should be carried out on a regular basis, but it requires detailed information. Currently, the ARFT only has information on the maximum fares, as the concession holders must register such information by product on yearly basis. This information however, does not reflect the real prices charged to costumers, which are different from the maximum fares. Therefore, a comprehensive tariff analysis of the Mexico case cannot be undertaken.
Product analysis
The share of the freight transported by rail by type of product, measured in tonnes, practically did not change for the last 10 years. Table 2.5 presents the tonnes carried by rail and its relative weight with respect to the total freight from 2007 to 2017 as well as the total volume of freight by product. The industrial products went from 48.8 million tonnes in 2007 to 59.8 million in 2017 – a 22.5% increase. The agricultural products grew 22.8% – from 26.3 million to 32.3 million. The mineral products on the other hand, went up about 30.6% and the oil by-products experienced an increase of 120.8%, the most relevant of the period. In contrast, the inorganic goods decreased 1.7% in the ten years.
As can be seen in Table 2.6, the most important products for the rail mode of transport are the industrial-related, as they represent more than 46.0% of the total tonnage for each year – 47.8% in average for the whole period. The second most relevant type of product is agricultural-related, as they accounted between 22.5% (2013) and 27.9% (2009). In addition, the third type are mineral-related, representing between 10.9% (2016) and 14.0% (2013).
It is worth to mention that the three most relevant categories of products carried by rail represented between 84.5% (2014) and 87.6% (2008) of the total tonnage for the period – 85.8% in average. The oil-related products, the fourth in relevance, are those that have changed the most in its proportion, moving from 5.2% in 2008 to 9.2% in 2014 and 2017.
Shares of the rail sector
Table 2.7 presents the distribution of the freight between railway firms in Mexico for the fiscal year 2017. From the 126.9 million of tonnes transported in the country, Ferrocarril Mexicano (Ferromex) moved approximately 46.0% (58.3 million) of freight, Kansas Southern of Mexico (KCSM) 33.9% (43.1%) and Ferrosur 14.9% (18.9 million). These three lines concentrated 94.8% of the total freight in 2017. In fact, the consortium Ferromex-Ferrosur accounted for 60.9% of the total tonnage. The remaining four short lines Coahuila-Durango (LFCD), Ferrocarril y Terminal del Valle de México (Ferrovalle), Ferrocarril del Istmo de Tehuantepec (FIT) and Administradora de la Vía Corta Tijuana-Tecate (Admicarga) accounted for 6.6 million tonnes, which represented 5.2% of the total amount.
Regarding the total tonne-kilometres, Ferromex summed up 45.6 billion tonnes-km, approximately 52.9%; KCSM billed 30.4 billion tonnes-km, which represented 35.2%; and Ferrosur, 8.8 billion tonnes-km, 10.2%. Thus, the three lines had 98.3% of the total of tonne-km during 2017. The four short lines gathered 2% of the share of tonnes-km with 1.5 billion.
copy the linklink copied!Spatial analysis
Table 2.8. In Mexico, railway transportation of goods – measured as millions of tonnes – has been increasing steadily since 2010. Before 2014, this growth was driven by local transportation of products; however, in 2014 the tendency reversed and the flow of imports through the Mexico-USA border was the main source of progress (ARTF, 2018[5]).
In 2017, the Northeast line (under KCSM management) was the corridor with the greatest traffic density by kilometre – 7.16 million ton-km/km. The former derives from the importance of the Mexico-USA crossing, especially through Piedras Negras, Coahuila and Nuevo Laredo, Tamaulipas. In 2017, terrestrial trade represented 71% of the total international cargo. On the other hand, the most important ports for the rail industry are Veracruz and Manzanillo, which serve the Atlantic and Pacific coast of Mexico, respectively. The two ports accounted for 63% of the 23.2 millions of tonnes that were moved by ship in 2017 (ARTF, 2018[5]).
Source: (ARTF, 2018[5]) Anuario Estadístico Ferroviario 2017 (Railway Statistical Yearbook 2017), https://www.gob.mx/artf/acciones-y-programas/anuario-estadistico-ferroviario-2017-152797 (accessed 31 January 2018).
The impact of the transport industry can be seen in those cities that are relevant from a logistics standpoint. These cities are located in the Mexico-USA border or have important ports, but do not manufacture the transported goods. For example, in the case of Colima and Tamaulipas, activities related to transport, mail and storage accounted for 11% and 10% of their 2017 GDP, respectively (INEGI, 2019[4]). These shares are the highest among all Mexican states and five out of the eight cities considered in Figure 2.8 rank on the top 10% in this indicator.
Garcia Ortega and Martner Pyrelongue (2018[7]) analysed the geographical flow of the rail freight in Mexico using data from 2016. The objective of the research was the identification of freight distribution across the rail network and usage of commercial corridors. The cargo was differentiated between local traffic, interlineal-sent and interlineal in transit. Local traffic refers to the freight moved by one operator or railway firm. In 2016, the local traffic was about 89.2% (109.3 million tonnes) of the total freight in the country (122.4 million). Interlineal sent refers to the freight that is handled by two operators; thus, it passes through a connection node between the network of the origin concession holder and the network of the destination licence – it accounted for 12.7 million and 10.3% of the 2016 total cargo. Finally, the interlineal in transit involves three firms; origin, destination and in-between. This type of cargo accounted for 0.4% with 441 thousands of tonnes.
Table 2.8 shows the total freight according to the type of traffic by firm. The traffic involving more than two rail networks – interlineal in sent traffic – with respect of the total volume is low, only 0.3% of the total traffic. Ferrosur is the line with the largest proportion of its cargo involving more than two rail firms with 215 091 tonnes transported, which represents 29.1% of the total interlineal in transit traffic. Taking interlineal sent traffic and interlineal in transit traffic together, Ferromex is the major player with 4.9 million tonnes transported.
Source: ARTF (2018[5]), Anuario Estadístico Ferroviario 2017 (Railway Statistical Yearbook 2017), https://www.gob.mx/artf/acciones-y-programas/anuario-estadistico-ferroviario-2017-152797 (accessed 31 January 2018).
Table 2.9 shows the main nodes or terminals for local rail traffic, which in 2016 distributed 109 million tonnes of cargo in Mexico. Garcia Ortega and Martner Pyrelongue (2018[7]) analysed 348 nodes of distribution from the side of the origin and 412 nodes receiving cargo (destination). From these, 25 origin nodes summed up 74% of the total outgoing freight and 27 concentrated 60% of the incoming cargo. As concluded, the integration of the 42 most important origin-destination nodes resumes 78.8% of the outgoing and 62.3% of the incoming cargo. In fact, they also conclude that these 42 nodes are located along the three main commercial rail corridors of México.
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1. The Centre - North corridor which connects Mexico City and two border crossings in the United States, Nuevo Laredo in Tamaulipas and Piedras Negras in Coahuila. As it can be seen in the Table 2.9, these are the most important nodes in terms of local traffic.
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2. The west transverse corridor connecting the Pacific through the port of Manzanillo and Mexico City.
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3. The east transverse corridor connecting the Gulf of Mexico through the port of Veracruz and Mexico City.
Garcia Ortega and Martner Pyrelongue (2018[7]) identified that with few exemptions (Monterrey, Pantaco and Ciudad Frontera) the bigger nodes are located in ports or border crossings. Besides, in these terminals, origin movements were bigger than destinies, as they are imports distributed across the national territory through the main corridors of each concession holders – with the exemption of Guaymas. At the contrary, the inland nodes presented more destination movements.
In summary, the authors concluded that for local traffic, 35% of the total cargo was moved through nine crossing nodes and were related to international trade. Ten more nodes were associated to the production and consumption of the major urban areas and 23 more nodes (19% of the freight) were linked to specialised cargo.
Table 2.10 presents the main nodes with interlineal sent traffic. As mentioned before, in 2016, the cargo handled by two operators summed up 12.6 million tonnes. This freight was distributed through 167 origin nodes and 197 destination terminals. The nodes disclosed in the Table 2.10 however, represented 86.2% and 78.5% of origin and destination nodes.
The authors concluded that this type of cargo is concentrated in the central region of the country. More specifically, the following corridors:
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1. Manzanillo - Guadalajara – Cortazar – Queretaro – Bojay
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2. Coatzacoalcos – Jaltipan – Tuxtepec – Molino – Panzacola – Puebla
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3. Veracruz – Cd. Sahagún – Pantaco – Metepec – Toluca
One third of the cargo was linked to other corridors and cities as Nuevo Laredo, Monterrey, Quimica del Rey and Piedras Negras, which added 12.1% of the interlineal sent traffic.
The most representative nodes with interlineal traffic in transit are listed in the Table 2.11. From the total cargo involving more than three operators (441 178 tonnes), nine terminals concentrated 92.1% of the total freight in origin movements and ten added 88.3% of the cargo in destination nodes. In general, this type of flow is mostly unidirectional, which implies that terminals with this type of logistics are mainly recipients or issuers. Nonetheless, it stands out that freight traveling across three or more operators is infrequent in Mexico.
In general terms, the local traffic is the most representative on the rail industry as interlineal requires agreements between firms to share infrastructure.
copy the linklink copied!International Comparison
In Mexico, freight transportation by railways represents 25% of the total terrestrial cargo – while the OECD’s average is of 38% (ITF, 2018[8]). Although the country’s use of railways is close to the average use in OECD member countries, it lags behind in density of rail lines. Mexico has 1.37 km of rail lines per 100 sq.km (Figure 2.9) (ITF, 2018[8]).The scarce coverage of rail lines makes road transportation particularly attractive, as in some areas of the country it is the only option available (ITF, 2018[8]).
The use of railways is mainly determined by the type of products that are transported and the distance covered. For example, in the United States an important share of the freight transportation by rail is determined by the large volumes of bulk commodities that are carried over long distances. In line with the previous statement, and according to the ITF, approximately 80% of the world cargo transportation by rail is done in three countries: People’s Republic of China, Russian Federation and the United States (OECD and IFT, 2017[9]).
There is a strong correlation between a country’s GDP growth and its use of railways – particularly as rails are mainly used to carry out commodities (OECD and IFT, 2017[9]). Nonetheless, as the value of goods produced increases, products are more likely to be transported by road instead of freight, largely reflecting changes in product mix as a country’s economy grows.
Source: (ITF, 2018[8]), ITF Transport Statistics-Goods Transport, https://doi.org/10.1787/trsprt-data-en.
It is worth mentioning that growth and investment in rail transportation have been sustained in Mexico and growth trends after restructuring have been favourable in comparison to earlier periods and, to a degree, in comparison to the USA (see Figure 2.10). Moreover, after the private concessions were introduced, the rail tonne-km in Mexico has grown at a faster rate than the GDP. The former implies that the share and importance of the rail sector for the Mexican economy has increased in the last years.
In 2011-2013, the average elasticity of global trade to GDP was 1.4, meaning that foreign trade increases 1.4% for every 1% increase in GDP (OECD and IFT, 2017[9]). Given that Mexico’s share of freight that is destined to the USA and foreign markets has been increasing, the country is most likely to benefit from a global economy.
Source: (STB, 2018[10]), Statistics of Class 1 Freight Railroads, Surface Transportation Board, Washington DC, https://www.stb.gov/Econdata.nsf/M%20Statistics%20of%20Class%201%20Feight%20RR?OpenPage (accessed 5 March 2019); ARTF (2018[5]), Anuario Estadístico Ferroviario 2017 (Railway Statistical Yearbook 2017), https://www.gob.mx/artf/acciones-y-programas/anuario-estadistico-ferroviario-2017-152797 (accessed 31 January 2018).
Nonetheless, Mexico’s investment in rail infrastructure has been low in comparison to other OECD countries (Figure 2.11). The increase in the freight transported by train is a consequence of the growth in the amount of goods transported, instead of a rise in the kilometers of the rail lines available. Current concession titles do not require companies to make investments in the rail infrastructure; however, some companies have invested in by-passes or other infrastructure projects in exchange of an increase in their exclusivity rights (see Chapter 2 for further details). For example, Ferromex was awarded five more years of exclusivity as exchange for building the Celaya bypass.
Most of the existing railway lines were built during the 20th century and many of the areas where a potential line could build are already invaded. In this sense, critical infrastructure investments are required to improve the scope of the railway in Mexico.
It is important to point out that critical infrastructure investments are needed in areas related to security. In meetings with private stakeholders, concessionaires and members of the chambers representing the users, mentioned the need of investing in boom barriers, as in many cases the train lines pass through cities or congested streets. Moreover, the little investment has been devoted to the rehabilitation of the rail lines, as recently accidents have occurred in segments of the line where trains drive at 10-15 km/h.
Source: ITF (2018[8]), ITF Transport Statistics-Goods Transport, https://doi.org/10.1787/trsprt-data-en.
References
[5] ARTF (2018), Anuario Estadístico Ferroviario 2017 [Railway Statistical Yearbook 2017], SCT, https://www.gob.mx/artf/acciones-y-programas/anuario-estadistico-ferroviario-2017-152797.
[7] García Ortega, G. and C. Martner Pyrelongue (2018), “Análisis Geográfico de los Flujos de Carga Ferroviaria en México con Datos de 2016 [Geographic Analysis of Rail Freight Flows in Mexico with 2016 Data]”, No. 521, Instituto Mexicano del Transporte, Sanfandilla, Querétaro, https://imt.mx/archivos/Publicaciones/PublicacionTecnica/pt521.pdf (accessed on 1 March 2019).
[3] Gobierno de México (2019), Instituto Mexicano del Transporte [Mexican Transport Institute], Querétaro, https://www.gob.mx/imt (accessed on 5 March 2019).
[4] INEGI (2019), Banco de Información Económica (BIE) [Economic Information Bank], https://www.inegi.org.mx/sistemas/bie/ (accessed on 5 March 2019).
[2] INEGI (n.d.), PIB y cuentas nacionales, https://www.inegi.org.mx/temas/pib/ (accessed on 1 June 2019).
[8] ITF (2018), ITF Transport Statistics-Goods Transport, https://doi.org/10.1787/trsprt-data-en.
[6] ITF (2014), Freight Railway Development in Mexico, OECD Publishing, Paris, https://dx.doi.org/10.1787/5jlwvzjd60kb-en.
[9] OECD and IFT (2017), ITF Transport Outlook 2017, https://doi.org/10.1787/25202367.
[1] SCT (2018), Estadística Básica 2017 [Basic Statistics 2017], http://www.sct.gob.mx/transporte-y-medicina-preventiva/autotransporte-federal/estadistica/2017/ (accessed on 5 March 2019).
[10] STB (2018), Statistics of Class 1 Freight Railroads, Surface Transportation Board, Washington DC, https://www.stb.gov/Econdata.nsf/M%20Statistics%20of%20Class%201%20Feight%20RR?OpenPage (accessed on 5 March 2019).
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