Posted on 02/12/2006 2:01:49 PM PST by BenLurkin
KANSAS CITY, Missouri (Reuters) - Top retailer Wal-Mart Stores Inc. (NYSE:WMT - News) and Hong Kong magnate Li ka-Shing are key players in a $300 million expansion of Mexico's Pacific port of Lazaro Cardenas aimed at ensuring goods reach U.S. shelves, according to the U.S. railroad that serves the port.
"Wal-Mart and other retailers are looking for backup routes so that even if some ports face stoppages they have reliable backups," Michael Haverty, chief executive of Kansas City Southern (NYSE:KSU - News), told Reuters at KCS headquarters here in a recent interview.
As part of current plans, he added, Wal-Mart may build a major distribution center in Kansas City.
When asked about the plans for Lazaro Cardenas and Kansas City, Wal-Mart declined to comment. "It is premature for us to discuss details of this project," said Marty Heires, a spokesman for the world's biggest retailer.
But stoppages in 2004 at the largest U.S. container port complex in Los Angeles-Long Beach and concerns over capacity crunches at U.S. ports have led Wal-Mart and other retailers such as Target Corp. (NYSE:TGT - News) and Home Depot Inc. (NYSE:HD - News), to seek backup routes for a vast tide of imported merchandise.
With U.S. imports seeing double-digit volume growth over the past three years and set for further gains, the search for backup routes has become more urgent, Haverty said.
Analysts have questioned how much business Lazaro Cardenas can bring to KCS. But Haverty said expansion plans by Hutchison Whampoa Ltd. (HKSE:0013.HK - News) -- the flagship of Hong Kong magnate Li ka-Shing and operator of the world's top container port in Hong Kong -- include Lazaro Cardenas.
Haverty said an initial $300 million development phase for Lazaro Cardenas planned with Wal-Mart and Hutchison participation, with more investment seen possible, has "the potential to transform our company."
In Hong Kong, Hutchison spokesman Anthony Tam said the company did not wish to disclose plans for Lazaro Cardenas.
But Haverty said most of the $200 million Kansas City Southern has earmarked for investment in Mexico in 2006-2007 will be for track from Lazaro Cardenas.
AVOIDING BOTTLENECKS
Lazaro Cardenas already annually handles 100,000 20-foot equivalent units (TEU), or containers. But Hutchison will add capacity equivalent to 700,000 TEUs a year by 2008, with the option to increase that to 2 million, Haverty told Reuters.
Long Beach handled 14.2 million TEUs in 2005, up 8 percent from 2004 -- much of that driven by shipments from China, which has seen a steadily expanding trade surplus with the United States.
Ports on both coasts of the United States are expanding to catch some of this extra business as big retailers "continue to diversify their port policies," John Lanigan, chief marketing officer at the No. 2 U.S. railroad Burlington Northern Santa Fe Corp (NYSE:BNI - News), told Reuters in a separate interview.
Prince Rupert in British Columbia, long the second Pacific gateway for Canada after Vancouver, now touts itself on its Web site as "North America's closest port to Asia."
But via its rail links, Kansas City also hopes to benefit from and promote what Chris Gutierrez of local nonprofit company Smartport describes as an "inland port."
Kansas City Southern Chief Financial Officer Arthur Shoener said a trip from Mexico to Houston or Atlanta on KCS rail lines was 300 miles shorter than for containers from Long Beach.
Lazaro Cardenas would also be cheaper and less likely to suffer labor disruptions than at unionized U.S. facilities.
Shoener said another port-building company besides Hutchison was in talks with the Mexico authorities to build a separate facility at Lazaro Cardenas. He did not name that company.
Haverty said KCS has also discussed Lazaro Cardenas with both Target and Home Depot, but only through intermediaries.
Using Lazaro Cardenas was not what KCS planned in 1995 when it bought a minority stake in Mexico's largest railroad, gaining access to Lazaro Cardenas. At that point, KCS planned to ship goods between manufacturers in Mexico, the United States and Canada in what it touted as the "NAFTA Railway."
After 2004 Long Beach delays, the strategy was reviewed.
Hutchison, encouraged by Danish shipping and oil group A.P. Moeller-Maersk (Copenhagen:MAERSKB.CO - News) -- Wal-Mart's largest shipper -- studied the U.S. coast and Mexico to find additional entry points to the U.S. market, Haverty said. Hutchison has already expanded a facility at the eastern end of the Panama Canal.
"It wasn't until the major delays on the West Coast in 2004 that the potential of Lazaro Cardenas became apparent," Haverty said. "We're not looking to compete with Long Beach because we never could. But there is plenty of additional business to go round."
It makes sense for Wal-Mart to consider moving goods through Lazaro Cardenas because its Mexican unit Wal-Mart de Mexico (Mexico:WALMEXV.MX - News) is the largest retailer in the country, Standard & Poor's analyst Andrew West said.
Coming up the TTC
This could be great! Another way wally world can get around union employment (not having to use US ports) and keep prices competitive. Working for a freight forwarder that was contracted by Sears I was amazed at how much they imported for Christmas, starting inJanuary with notice of shipment.
The same gaggle of ChiComs that currently has control of the Panama Canal, by the way.
I'm not surprised. The Western longshoremen have such a stranglehold on the US western ports that combined with their absolute refusal to adapt or change makes even a corrupt Mexican port seem easier to deal with.
Remember Global Crossing?
Welome to NAFTA...
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