The outsourcing movement is taking hold among Mexico's railroads, and that's providing opportunities for North American rail industry suppliers.
Last month, MPI de Mexico S.A. de C.V., a subsidiary of MotivePower Industries Inc., signed a 17-year, $419 million contract to overhaul and maintain 168 locomotives at Transportation Ferroviaria Mexican (TFM) S.A. de C.V.'s San Luis Potosi facility in northeast Mexico.
The pact replaces a contract that had six years and about $177 million in revenue remaining.
In addition to the 168 locomotives, MPI de Mexico provides fleet maintenance on 151 other units under separate multi-year contracts with TFM and other Mexican customers; and repairs freight cars and locomotive components.
The new contract boosts MPI de Mexico's multi-year backlog to about $500 million; it pushes MotivePower Industries' multi-year backlog to about $750 million.
Also, a subsidiary of Progress Rail Services Corp. recently entered into an agreement to provide freight-car mechanical operations and related administrative functions for TFM.
"This is the first time that a major North American railroad has outsourced such a large part of its mechanical department," said Ernesto Fernandez Sea, president of Progress Rail's Services Ferroviarios Progress S. de R.L. de C.V. (SFP), in a prepared statement.
Terms of the agreement, which includes equity sharing and performance guarantees, weren't announced. Under the pact, SFP also will handle TFM's repair billing and manage TFM's repair shops.
In 1993, the Mexican government began privatizing the 13,000-mile state-owned railroad. In 1996, the government offered 50-year concessions to entities interested in operating the rail system.
A joint venture of Kansas City Southern Railway and Transportacion Maritima Mexicana, TFM began operating Ferrocarril del Norse — the Northeast Railway — in mid-1997. TFM plans to invest millions of dollars to improve its infrastructure and systems technologies over the next several years.
Source: The April 1998 issue of Progressive Railroading
