Proposed Mexican Rail Line

August 27, 2014

As more global corporations begin to eye Mexico as a potential location for their manufacturing needs, the transportation industry is taking a closer look at the infrastructure needed to support Mexico manufacturing. In particular, a Chinese company is considering building a new rail line that will run from a proposed port city on the coast to manufacturing centers in areas such as Guanajuato, Mexico.

Mexico manufacturing is a booming business, with companies situating both secondary and primary manufacturing facilities in the country. The local rail transport in the country, managed by two private entities, Ferromex and Kansas City Southern de México, has not been able to keep up with the demand for expanded rail service to new areas where factories are being built. This creates an opportunity for outside transportation experts to plan, design, and build a new transportation infrastructure to serve the expanding economy.

With interconnected ports and inland rail yards, manufacturing in Mexico could be poised to grow even stronger than it is today. This would certainly boost Mexico in the eyes of manufacturers and investors alike.

Mexico’s manufacturing success can be attributed to a number of different reasons. The chief reasons are that of cost-competitive labor and easy access to affordable transport and energy resources.

As the second-largest economy in Latin America, Mexico has been taking manufacturing jobs away from countries long since considered the kings of manufacturing – namely China and Japan. While the signing of the North American Free Trade Agreement in 1994 made Mexico attractive to U.S. companies, it has not been until the last few years that Mexico could beat labor costs in China…and now they can.

A recent report released by Boston Consulting Group found that the average labor costs in Mexico are now roughly 13% lower than in China. In addition, the affordable price of both electricity and natural gas in Mexico brings total manufacturing costs to 5% below those of China, 9% below those the United States, and a full 25% below costs in Brazil, the largest economy in Latin America.

Clearly, an infrastructure improvement in the form of a brand new rail line linking Mexico’s port cities with manufacturing hubs like Tijuana, Mexicali, Juarez, and Guanajuato would only serve to strengthen the already robust case for moving manufacturing to the country. Not only would the port city thrive from the ability to be the transfer point from cargo coming and going from inland cities, but the inland cities themselves would be poised to grow as companies look for new places to build manufacturing plants.

While plans for a railroad in this region have been on the drawing board for years, the recent action between the Chinese firm and the Mexican government to put an agreement in place signals that there will likely be positive movement on this project in the near future – a boon for manufacturing in Mexico.