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Case Study

Forecasting Mexico railcar supply and demand

railway tracks

Due to the rapidly expanding Mexican economy, and an increased demand for railway transportation, there is a fear that future rail car shortages may present a constraint on the industry.

The Situation

Mexico’s economy is rapidly expanding, resulting in increased demand for railway transportation particularly in the automotive, petrochemical, agricultural, and containerized goods sectors. This increased traffic volume requires the Mexican railroads to spend its limited capital on upgrading track and expanding terminals.  As a result, there is a fear that future rail car shortages may constrain the ability of the industry to capture this new traffic. The Mexican government is concerned because the highways are congested and the trucking industry cannot support the growth. It is critical that rail car manufacturers, leasing companies, shippers, and government agencies understand the size of this impending crisis and what each of the stakeholders can do to ensure a more robust market for railcars in Mexico.

Approach

Advisian economists worked with government officials to identify the best sources of data, interviewed over 100 stakeholders on both sides of the border from financial institutions, railroad carriers, port terminals, shippers, and government officials. We prepared a detailed 15-year forecast for each commodity in Mexico.  Using geo-spatial analysis, we translated the forecasts to transport demand volumes and a modal split between truck and rail. Advisian’s railway operations models calculated the demand for railcars taking into account future changes in velocity, tons per car, and length of haul. We analyzed the existing rail car fleet in Mexico and calculated the remaining life of each sub-fleet of cars. In addition to the quantitative forecast, Advisian identified a number of process issues that discourage railcar investment in Mexico and recommended changes to tax laws, financial regulations, government incentives, and railroad regulatory practices.     

Results      

Advisian demonstrated that the future Mexico railcar market is a much less risky investment than commonly perceived among industry suppliers. Our sensitivity calculations showed government that they must take action to encourage more railcar investment or there will, in fact, be a severe shortage of railway capacity resulting in higher transport prices, more highway congestion, and constrained economic growth.  We were able to facilitate introductions between railcar suppliers and railcar buyers that resulted in new business for both parties.

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