Union Pacific Set To Benefit From New Rail Facility In Santa Teresa
Union Pacific Corporation (NYSE:UNP), one of the leading railroad networks in the U.S., announced the completion of its new rail facility in Santa Teresa, New Mexico. The facility involved an investment of more than $400 million and was scheduled to be operational in 2015. However, Union Pacific has managed to complete the facility a year ahead and shall be inaugurating it on May 28 2014. With the opening up of the facility, the traffic entering the area is expected to increase by 500 to 800 trucks per day. [1] This will increase Union Pacific’s cross-border traffic with Mexico leading to growth in revenue.
Union Pacific’s Santa Teresa rail facility will cater to truck to rail conversions, fueling and inspection of locomotives, and crew changing facility. The facility is expected to increase Union Pacific’s employee count by 600 by the year 2025. New Mexico is also expected to see a benefit of over $500 million once the facility is operational.
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Santa Teresa Facility Is Strategically Located to Benefit From Mexico Trade
Union Pacific’s new rail facility is positioned near the Port of Santa Teresa where the annual truck crossings have increased 13% from 72,166 in 2011 to 81,339 in 2012. [2] Once the facility is operational, the traffic in the area is expected to increase by 500 to 800 trucks per day. This presents a growth opportunity for Union Pacific’s truck to rail conversions. Union Pacific generates around 10% of its revenues from shipments moving in and out of Mexico. [3]
Union Pacific’s Mexico Shipments Are Expected To Grow Driven By Growth In Automobile Exports
Automotive shipments accounted for 45% of Union Pacific’s overall Mexico shipments in 2012. [4] Additionally, Union Pacific caters to 90% of the automotive shipments in and out of Mexico. Therefore, growth in automotive exports from Mexico to U.S. will help drive growth in volumes and revenues for Union Pacific.
IHS Automotive expects that Mexican auto exports will grow to 1.69 million this year, surpassing Japan as the number two auto exporter to the US in 2014. [5] This is because of the lower labor costs and weaker currency compared to dollar, which make Mexico an attractive destination for automobile manufacturers to open assembly plants. The Mexican automotive industry has also benefited from increased exports to the U.S. due to lower tariffs enabled by the establishment of the North American Free Trade Agreement (NAFTA) in 1994. The increasing presence of automobile manufacturers in Mexico shall also help boost auto exports. Automobile manufacturers, Nissan, Honda and Mazda have opened plants in Mexico within the last four months.
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Notes:
- Santa Teresa rail hub to open early, March 4 2014, www.nmbia.org [↩]
- Port of Entry Data, www.nmbia.org [↩]
- UPS 10K filed 02/07/2014, February 7 2014, www.up.com [↩]
- Union Pacific 2012 Factbook, www.up.com [↩]
- Mexico Surpassing Japan as No. 2 Auto Exporter to U.S., January 31 2014, www. bloomberg.com [↩]