Opening the Midwest to Asian Trade Via Mexico
By Gene Linn
American Journal of Transportation
May 23, 2005

In the last few years, Kansas City and Mexican officials have "talked the talk" concerning a new trade route from Asia through Mexico to Kansas City. Now they are beginning to "walk the walk."

Talk about setting up a new route to bypass congested US West Coast ports emerged in dozens of official and unofficial meetings in Kansas City and Mexico. It culminated in March with the signing of a cooperative agreement between Kansas City and the Western Mexican port city of Lazaro Cardenas.

"In terms of opening the Midwest to Asian trade through Mexican ports, this agreement signifies substantial completion of the extensive efforts devoted to establishing the political, economic and cultural foundation enabling this trade route to work," Alfred Figuly, president of the Greater Kansas City Foreign Trade Zone, said shortly before the formal signing of the pact. "It also marks the beginning of the implementation phase."

Kansas City had already signed a similar agreement with the much larger Mexican Pacific port of Manzanillo, but the Lazaro Cardenas pact is the key to the proposed trade route.

The Lazaro Cardenas signing was, "exciting and historic," according to Chris Gutierrez, president of non-profit trade-promotion group Kansas City SmartPort. He recently told the AJOT that a lot of containers already pass from Asia's prolific exporters through Manzanillo, but generally do not go to Kansas City. "All traffic though Lazaro Cardenas can go to Kansas City on Kansas City Southern trains," he said.

According to Mexican law, he said, all in-bond trade must move through the country by rail. Kansas City Southern's acquisition on April 1 of its Mexican partner, TFM, S.A. de C.V. (TFM), puts it in an excellent position to provide this service, Gutierrez said. The Kansas City carrier already controlled the Texas-based line, The Texas Mexican Railway Company, known as TexMex. Southern's chairman and chief executive officer Michael Haverty said in a news release, "TFM, Southern Railway and (TexMex) will now operate under common overall leadership, creating a seamless transportation system that spans the heart of North America." Southern states that common ownership will enhance investment in cross-border infrastructure, training and cargo tracing and tracking systems.

As for Lazaro Cardenas, Gutierrez said that giant Hong Kong-based port developer Hutchison Port Holdings plans to expand the Mexican port's throughput from a negligible 45,000 teus in 2004 to two million in the near future.

That kind of potential for exponential expansion makes the proposed trade route attractive, compared with US West Coast lanes, which suffered significant delays last year. "Asia-US trade will grow substantially every year," Gutierrez said. " Long Beach and Los Angeles can't handle the extra traffic. They have no room to double or triple their capacity."

The dynamism of US-Asia container trade is reflected in a projection by APL Limited stating that 2004's explosive 14.5% rise will be followed by healthy annual expansion of about nine percent for the next three years.

Kansas City officials assert that once increasing numbers of containers arrive from Lazaro Cardenas, they will go through Customs and take advantage of the city's position as a distribution hub. "We have three interstate highways going through Kansas City, railway lines, air cargo facilities, ample warehouse space and logistics staff," Gutierrez said.

Already, US Customs clears more than $9 billion a year in imports in Kansas City. The city has plans to build former Air Force base Richards-Gebaur into an intermodal transit and cargo center. Negotiations are underway to open a groundbreaking Mexican Customs inspection office for cargo going from Kansas City to Mexico.

To get the drive to set up the new trade route on its feet, the Kansas City-Lazaro Cardenas agreement called for the two cities to launch a marketing campaign and to promote in-bond transfers between their respective foreign trade zones. They also promised development of new security tracing and tracking systems along the entire corridor.

This month (May) the cities started a "dragon boat" marketing drive, shipping containers from Kansas City's Chinese sister city, Xian, through the new trade corridor. Included in the cargo are two of the famed 2,200-year-old terra cotta soldiers from Xian.

"We'll have media events all along the way to show off the corridor's plans," said Gutierrez. He acknowledged that the campaign is somewhat of a "dog and pony show," but added that major steamship lines such as APL and Maersk are now "testing container shipments to get ready for the peak season in September and October."

In early March Maersk launched its CAM-MEX service between Asia and Mexico, Guatemala and Panama. Originally fortnightly, the seven-vessel service will become weekly and include Lazaro Cardenas by the end of May, according to a Maersk Sealand news release.

Kansas City Southern's Warren Erdman, Vice President for Corporate Affairs, noted that there is not a "huge amount" of container traffic passing by rail from Lazaro Cardenas to Kansas City. "Rail can handle some incremental growth," he said. "We'll need to add infrastructure at the port to handle larger growth, and we are prepared to do that once the traffic materializes."

One of the companies working on tracking and tracing technology for the proposed route is IT service provider BV Solutions Group, a subsidiary of Black and Veatch. The company is working with SmartPort and with Mexican Customs officials to handle in-bond traffic from Kansas City to Mexico.

"Mexican Customs is concerned that once they release cargo from Mexican Customs (at the proposed Kansas City office) that the contents don't change, which would change the value of the cargo, and that there is no contraband," said Mark Winter, chief marketing officer at BV Solutions.

For security reasons, the company cannot disclose what steps it is looking at to monitor containers along the corridor. However, Winter said, "I've been to Lazaro Cardenas a couple of times to work with officials there. I think we absolutely will be able to help Mexican officials manage their risk."

Shippers see promise in the proposed trade corridor, but at least one states that implementation has a long way to go. "We feel it will be several years before it's a viable option," said Linda Odell, spokesperson for Hallmark Cards, Inc., which has its world headquarters in Kansas City, MO.