Dive Brief:
- Major U.S. railroads have paused grain shipments into Mexico as surging demand creates a lack of capacity and a backlog of trains.
- Union Pacific on Thursday said it would halt permits for grain shipments due to delays at Mexico railroads operated by Ferromex. BNSF, which set a one-month permit suspension on Aug. 20, has extended its pause through Sept. 30, per the USDA.
- Ferromex has issued more than two dozen congestion-related embargoes this year, requiring agricultural shippers to use a permit system. Union Pacific said it will restart shipments once Ferromex lifts its embargoes or the backlog of trains clears.
Dive Insight:
Agricultural exporters have leaned on Mexico to replace a loss of business from top commodity buyer China. But as trade with Mexico expands, the country's transportation system has struggled to handle the increased demand.
"The rail capacity constraint is challenging trade and placing Ferromex in a position of having to choose products to ration rail service, resulting in U.S. agricultural products bearing the brunt of the rationing," a coalition of agricultural groups wrote in a letter to the Surface Transportation Board on July 31.
Approximately two-thirds of grain shipments move to Mexico via rail, according to the groups' letter, with over $30 billion in U.S. agricultural products exported to the country in the past year. With farmers in fall harvest, transportation disruptions could erode trade competitiveness and exacerbate a difficult financial environment for growers.
BNSF, the largest grain hauling railroad in the United States, said in an August letter that “service to and from Mexico has been undeniably challenged this year," with volumes in the first half of 2024 increasing 11% over the same period last year. The railroad, which ships products into Mexico through a partnership with Ferromex, said it has had to compete with Union Pacific for capacity and has taken steps to limit the impact of those disruptions on its broader network.
Union Pacific, which owns a 26% stake in Ferromex, said at least 18 trains are held either en route or at origin for crossings at Eagle Pass and El Paso in Texas. Cycle times in Mexico, or the time it takes for a freight car to move from one loading to the next, are 20% higher than they were in 2023, according to a customer notification.
Capacity issues have been ongoing since late 2023, agricultural groups said in their letter. While there have been cases of delays due to migrants stopping trains, the groups said the delays are largely due to issues with supply and demand.
"As our most natural trading partner, Mexico is a critical stakeholder for the U.S. agricultural supply chain," agricultural groups wrote. "However, the United States’ proximity advantage over agricultural competitors like Brazil and Russia is reduced by the rail capacity problem, leading to higher exports into Mexico from these competitors."
STB Chair Marcus Primus said in a letter to agricultural shippers on Sept. 20 that the board has been in contact with railroads about issues regarding cross-border traffic. Primus stressed the need for carriers to provide adequate notice of embargoes or other charges that would help shippers plan in advance.
Meanwhile, the Mexican Railway Association has pushed back against claims that there isn't enough capacity to handle increased trade. The group expressed its "surprise" at U.S. agricultural shippers' concerns, according to Trains.com, writing in an Aug. 7 letter that "Mexican railroads have sufficient capacity to handle the import of grains from the USA to Mexico, as we have done for the last 27 years, with efficiency and competitiveness."
