With Canadian Pacific poised to consummate its merger with Kansas City Southern this month (thereafter known as CPKC), it seems timely to take a closer look at the intermodal situation in Mexico. There appears to be substantial room for growth.

According to the Intermodal Association of North America’s ETSO database, 392,000 revenue intermodal movements took place within Mexico in 2022. This represented just 2.2 percent of all North American intermodal activity. Of those, over 83 percent were ISO container moves to and from the nation’s ports.

The trend is upward, although intermodal underwent a rough patch in 2021. ISO container revenue moves dropped over 7% from 2020, but then fully rebounded and then some, notching a 21% gain in 2022. Last year’s volume was up 12% versus 2020.

Just 17% of the intra-Mexico revenue movements were domestic container moves; there are no trailer-on-flat-car services offered. That works out to just 180 moves per day for the country. Clearly, domestic intermodal is in its infancy in Mexico. Unlike the US, Mexican domestic container activity is dominated by rail-owned fleets. These accounted for 88% of domestic container revenue moves within Mexico in 2022. Domestic intermodal activity is also growing. After edging down 2% in 2020, the market grew almost 17% in 2022.

The Mexico-US cross-border market looks very different. It’s smaller than the intra-Mexico market, generating 278,000 revenue moves in 2022. This was 1.4% of total North American activity. But that probably understates the size of the market because it only captures the steel-wheel revenue moves across the border.

There was also a substantial, but indeterminate, volume of intermodal activity that terminated in the US and crossed the border on rubber tires. Those loads might have been moving to or from maquiladora plants near the border, or they might have been getting back on the rail in Mexico, in which case they would show up as two moves, one in the US and the other in Mexico. But with the available data, we can’t get much of a picture on those rubber-tire intermodal flows.

Turning back to the steel wheels, the cross-border market is effectively 100% domestic container at this point. Although CPKC has operated some demonstration runs between Mexico and the US carrying ISO containers, less than 4,000 ISO boxes crossed the border on rail in 2022. This is a potential market that has yet to be implemented.

Private domestic container fleets driving growth

Rail-owned domestic boxes dominate the cross-border market, accounting for 58% of the moves. But it is the private domestic container fleets that have been providing the growth. From 2020 to 2022, revenue domestic container moves across the border grew 9.4%. However, moves in rail boxes declined by slightly less than 2%, while moves in private boxes shot up by more than 27% during the same period.

Substantially more loaded boxes flow northbound, out of Mexico, than the reverse. In 2022, there were 1.78 northbound domestic container revenue moves for every southbound move, meaning that approximately one out of every four southbound moves is empty, at a minimum. The problem is much more severe for the private fleets, where the northbound/southbound ratio is 2.4:1. No wonder northbound capacity is so hard to come by. The rail fleets look better with just 1.4 loaded northbound moves per southbound move.

Approximately two-thirds of the cross-border moves originate or terminate in the Midwest. Beyond that, there are some big differences in north versus south. For instance, about 10% of the loads coming out of Mexico are bound for the southwest region, but virtually none of the southbound moves across the border originate there. Clearly, there is some triangulation occurring within the US.

It will be interesting to see if CPKC spurs more growth in these markets. In its merger application, CP anticipated converting some 64,000 annual loads off the highway. This encompasses not just the cross-border market, but intra-US as well. Setting that aside, a gain of 64,000 would represent a 22% gain in the cross-border market. This goal is perhaps aggressive, but given the apparent small share currently enjoyed by intermodal, it is eminently achievable. No doubt, CPKC will also spur more aggressive efforts on the part of its rail competitors. The future for these markets appears to be bright.