Mexico’s government issued a federal mandate this week forcing private railway corporations operating within the country to supply passenger service over their normal day by day freight runs.
Published within the Mexican government’s official gazette, Monday’s decree gives the country’s two foremost private concessionary rail operators — Canadian Pacific Kansas City (CPKC) and Ferromex — until Jan. 15 to present proposals for offering the passenger service themselves. If the 2 rail operators decline, the federal government will put Mexico’s army or navy accountable for lines designated for passenger services.
Mexico’s freight railway system is owned by the federal government and operated by CPKC and Ferromex under concessions from authorities.
“We made this decision because train travel shall be more economical, comfortable and fewer polluting, for the reason that tracks may be electrified,” Mexican President Andres Manuel Lopez Obrador said during a news conference Monday. “It’s safer public transportation and the mobility of the population from the foremost cities of Mexico to the northern border will increase.”
The decree orders the usage of greater than 10,000 private rail lines in Mexico that primarily carry freight to determine 4 short intercity passenger routes, together with three long passenger routes from central Mexico to Mexican cities along the U.S.-Mexico border.
The longer routes include passenger service from Mexico City to the border cities of Nuevo Laredo and Nogales, together with passenger service from Aguascalientes to the border city of Ciudad Juarez.
Officials for Calgary, Canada-based CPKC (NYSE: CP) in a news release said it’s “reviewing the draft decree … regarding potential passenger rail service on certain existing freight rail corridors.”
In May, CPKC reached an agreement with the Mexican government to perform a study around passenger trains from Mexico City to destinations across the country.
“As required by our concession, CPKC de Mexico will work closely with the Mexican federal government to guage passenger service on that corridor,” CPKC said in an announcement. “The draft decree emphasizes that the general public freight rail service shall be respected and as such, we don’t expect an opposed impact on our concession. CPKC has extensive experience hosting passenger rail services in multiple locations across its network in the united statesand Canada while efficiently managing freight service.”
Mexico City-based Ferromex has not issued a public statement regarding the federal decree.
Business analysts said it stays unclear what impact the federal decree could have on freight operations across Mexico.
“The underside line is we trust that [CPKC] management is healthier positioned to handle these dynamics than anyone, however it’s difficult to evaluate the impact to valuation from these headlines and potential outcomes given how necessary Mexico is to the general growth story,” Deutsche Bank (NYSE: DB) equity research analyst Amit Mehrotra told clients on Tuesday.
In 2021, roughly 1.1 million carloads of freight were hauled by railways in Mexico, a 7% increase over 2020, in keeping with a recent report from Statista.
In line with the International Trade Administration (ITA), Mexico has made improvements to its rail infrastructure lately. The ITA is an agency within the Department of Commerce that promotes U.S. exports of nonagricultural goods and services.
The present top three product sectors using rail service in Mexico by volume are industrial (47%), agricultural (26%) and mineral (10%).
“The rail cargo improvements coincide with the expansion of Mexico’s foreign trade,” ITA said. “One big driver of trade growth is the automotive industry (currently trains move seven out of 10 cars produced within the country, while a decade ago it was only three out of 10). Expansion of the oil and gas sector is a significant emerging driver. Rail is already the foremost technique of transporting fuels, cereals, minerals and metals.”
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