(The following story by Randolph Heaster appeared on The Kansas City Star website on August 19.)
KANSAS CITY, Mo. — When Kansas City Southern chairman and chief executive Mike Haverty recently received an entrepreneurship award, he invoked the name of the railroad’s founder, Arthur Stilwell.
While the big railroads of the late 19th century were obsessed with building networks to connect the East Coast to the burgeoning West, Stilwell had a counterintuitive vision. He built Kansas City Southern as a north-south carrier running from the middle of the country to the Gulf of Mexico, a move that many thought strange.
“When we expanded into Mexico, we proved that the north-south strategy is just as relevant today as it was in Stilwell’s time and that the company is nimble enough to take advantage of the tremendous business opportunities,” Haverty said upon accepting the award.
More than a century after the railroad was founded, Haverty raised some eyebrows by extending Stilwell’s vision and Kansas City Southern’s reach deep into Mexico.
While Kansas City Southern initially embarked on its south-of-the-border adventure 11 years ago, it was only in 2005 that the company got full control of Kansas City Southern de Mexico from its Mexican partner and the Mexican government.
By that time, some viewed Haverty’s moves to make Kansas City Southern the “NAFTA railroad” a strategic mistake. The promise of low-cost labor in Mexico and other developing countries had been usurped by the unbelievably cheap wages in China, making China a global magnet for manufacturers large and small.
But now, Mexico is again becoming an attractive site for business as record fuel and transportation costs are erasing the wage advantage of making things in Asia. Kansas City Southern de Mexico has the most direct route between Mexico City and Laredo, Texas, to take advantage of that shift.
“You’re already seeing some real shifts in trade patterns, with fuel prices so high and ground transportation in China being a mess,” said Chris Kuehl, managing director of the consulting firm Armada Corporate Intelligence. “Some of the emphasis has shifted back to Mexico and Latin America, and Kansas City Southern has this line that runs from western Mexico to (the border town) Nuevo Laredo. It was just a great move on their part.”
It remains early in Kansas City Southern’s development of its NAFTA railway, but rail analysts so far like what they see of its operations, from tip to terminus. The company has posted double-digit revenue and earnings growth for the past few quarters, helped by record fuel prices that are driving business to railroads. Its stock price is trading at the top end of its 52-week range and up 50 percent year to date.
Between its new intermodal facility being developed at the former Richards-Gebaur Airport and a new deepwater port at Lazaro Cardenas on Mexico’s Pacific coast, the railroad is within distance of dozens of new developments in the U.S. and Mexico.
“The plan is there, the business is there and the growth is there,” said Haverty in a recent interview. “We’re exactly where we want to be right now, and all we have to do is execute.”
China factor
Kansas City Southern had to overcome obstacles to get to this point. It became embroiled in a dispute with its transportation partner in Mexico over the sale of its stake in the Mexican railroad. In addition, Kansas City Southern had a tax dispute with the Mexican government that was valued at more than $1 billion.
Both were eventually settled, but by that time China began to overtake the rest of the world in attracting investment and economic growth.