You know darn well unionism is way down in the private sector. The longshoremen's union is an artifact
Unfortunately the above chart includes government unions which are in fact growing
Posted on 08/18/2007 8:47:50 AM PDT by dennisw
Michael Haverty believes the future of international trade hangs on a dusty Mexican port town. You take a bumpy ride on a potholed gravel road through a fishing village to a grassy riverbank to get to the most important new shipping terminal in North America. There's nothing here yet, except birds and the blue Pacific. One mile to the south you can see the old terminal, where three cranes idly wait for a few cargo ships to pull in. It's so quiet you can hear the tilapia jumping out of the water.
But when Michael Haverty stands here, at the port of Lázaro Cárdenas in the Mexican state of Michoacán, he hears the whistle of a dozen freight trains and the throaty chorus of oceangoing container ships. He sees wharves and gantry cranes dotting 11 miles of undeveloped waterfront, and thousands of acres given over to railcars and trucks stacked high with goods from Asia.
Haverty, head of the Kansas City Southern railway, has dreamed for four years of turning the dusty town of Lázaro Cárdenas (pop. 80,000) into one of the busiest shipping terminals on the U.S. West Coast. He has spent $1.5 billion of KCS money to buy up control of a 2,600-mile artery linking the tiny port to 400 million North American consumers.
Now the dream is taking shape. In one month Hutchison Whampoa (other-otc: HUWHY.PK - news - people ), the giant port operator controlled by Hong Kong billionaire Li Ka-shing, will break ground on a $200 million terminal that will eventually handle 2.5 million containers per year, more than the ports of Oakland or Seattle.
Haverty bore the brunt of industry scorn for his Mexican investment. It trashed KCS' balance sheet and subjected the company to four years in the byzantine Mexican legal system. The Mexican government still owns the land under KCS' rails south of the border and can revoke its concession at any time. "There were times when I had doubts, and I spent many sleepless nights," he says. "However, we are determined and we persevere."
It's likely that little Lázaro Cárdenas will reshape trade in the Pacific, and KCS has the monopoly on rail freight in and out of it. The trip to Houston is 400 miles shorter than the trip from the congested port of Long Beach, California; the trips from Lázaro Cárdenas to Chicago and Kansas City are only 200 miles longer than from Los Angeles but likely a day or so quicker. Lázaro, blessed by nature with a deepwater channel, will be able to unload the world's largest container ships at 30% of the cost of California dock operations.
Haverty's Mexico bet has made what was once a second-tier railway a valuable acquisition morsel for Burlington Northern and Union Pacific (nyse: UNP - news - people ). Its revenue ($1.5 billion) and profit ($100 million) are one-tenth those of the bigger railroads, but KCS sports a higher multiple on its earnings.
Imports from Asia are growing 18% a year, and Los Angeles and Long Beach, which handle 80% of the trade, are maxed out. Ships can spend as many as eight days in San Pedro Bay waiting to unload. Each day delayed costs retailers importing goods from Asia an extra half-percent of a product's costs, estimates Boston Consulting Group's George Stalk Jr.
"The light is finally coming to Lázaro Cárdenas," says Gonzalo Ortiz, general manager of Hutchison's Lázaro Cárdenas operation. "We can't screw this up."
The port project would have impressed Arthur Stilwell, who founded KCS in 1887 as a belt rail around Kansas City. He often spoke of taking the line all the way to the Pacific Ocean in Mexico. But his vision didn't begin to become a reality until Haverty took over as chief executive in 1995.
Haverty, 62, grew up in Atchison, Kansas, dreaming of running a railroad. Both his father and grandfather were conductors on the Missouri Pacific, and Haverty started there working summers as a brakeman after high school, climbing the ranks at the Missouri. In 1970 he went to work for the Atchison, Topeka & Santa Fe, rising as high as president. When he was later offered the chief executive job at the smaller KCS, he took it.
Haverty arrived eager to play the massive southward shift in manufacturing activity. Mexico privatized its rail lines in 1997. Haverty jumped at the chance to bid for one of the three major concessions. He spent $300 million for 36% of the equity in a rail line running south from Laredo, Texas to Lázaro Cárdenas. His partner, a Mexican logistics company called Grupo TMM, put up $300 million for 38% of the equity. The Mexican government owned the rest. The port was an afterthought.
As part of the deals Haverty got an additional 157-mile line from Laredo to Corpus Christi, Texas and the rail bridge at the Mexican border that carries 60% of trains crossing between Mexico and the U.S. His company could now collect $11 per loaded car. Haverty helped secure use of 400 miles of Union Pacific's track, giving the company a straight shot from Lázaro Cárdenas to Kansas City. Today KCS runs 2,300 carloads a day in Mexico of everything from steel to beer. In 2005 those goods accounted for more than $540 million in revenue.
But when it first bought the company, most of the track in Mexico was outdated and in bad shape, despite heavily staffed repair crews; trains were featherbedded with manned cabooses. KCS and TMM replaced the cabooses with wayside detectors to spot overheated trains and began increasing spending on Mexican tracks from $45 million a year to a projected $100 million this year, doing things like relaying ties and mending cracked rail. KCS struggled to trim the bloated payroll. The first time Haverty went down with his chief operating officer, Arthur Shoener, to meet with national union boss Victor Flores (usually referred to as Don Victor), Flores did not take kindly to their straight-talking ways. KCS fell victim to union grumbling and a work slowdown.
After many long meals Haverty and Shoener won the unions to their side. KCS was able to cut workers per train from eight to three. But it was labor unrest in the U.S.--a walk-off in 2002 by West Coast longshoremen--that reshaped KCS' plans. Shortly before that dock strike Hutchison Port Holdings had bought the Lázaro Cárdenas concession. Haverty had worked with Hutchison in Panama, where KCS co-owns a rail line that runs along the canal. Haverty figured he could work with Hutchison to pitch shippers on an American-run, unbroken rail line from Lázaro Cárdenas to the U.S.
But first Haverty had to gain full control of the railroad. And that meant dealing with a country emerging from decades of corrupt leftist politics. When KCS won the original rail concession in the 1997 privatization, it was expected the Mexican government would refund $200 million in value-added taxes paid. After several requests for the refund were denied, the government said, You know, we never meant to give that back. So KCS sued the finance ministry in Mexican fiscal court in 1997 and won five years later--but the government appealed the decision.
After two years of negotiations KCS reached an agreement in 2004 with TMM to buy out the joint venture for $200 million in cash and $305 million in KCS stock (22% of its float). A few months later TMM mysteriously tried to back out; it was suspected they were shopping for a better deal. Haverty took TMM to arbitration in New York and was able to force it back to the table.
But the Mexican government, which still owned part of the joint venture, continued to hold out on that tax credit, with accrued interest now valued at $1 billion. Last September the parties settled the suit, with the government handing over to KCS its 20% of shares of the railroad in lieu of the tax credit. Haverty finally had total control of the railroad.
But Haverty was edging his balance to the limit. Capital spending went from $117 million in 2004 to $276 million in 2005, and debt to total capital rose from 40% to 57% during that period. Then KCS missed the March 2006 filing deadline for its 10K, because of problems with 2002 deferred taxes in Mexico that were found by KCS' auditors.
A $40 million one-time charge for personal injury claims pushed the company over the edge and caused KCS to miss its May 15 dividend payment. S&P declared the move a default and downgraded its rating on KCS' preferred stock to a D. The rating agency may downgrade the rest of the company's credit. Amazingly, the company's stock has remained strong. KCS is trading at $26.25, 38% above its 52-week low of $19. Rick Paterson, an analyst at UBS, says the worst of the merger costs are over and further consolidation of the Mexican and American halves will wring out more efficiencies.
Haverty has gotten smarter about doing business in Mexico, especially the need to schmooze often. He was one of five U.S. businessmen to meet in March with Presidents Bush and Vicente Fox of Mexico and Stephen Harper, prime minister of Canada, at their Cancún summit. KCS recently named as its highest-ranking Mexican executive a former federal antitrust attorney who breakfasts often with Don Victor. And Haverty has been courting Michoacán Governor Lázaro Cárdenas Batel, the grandson of the former Mexican president (and port's namesake), to help him develop a 450-acre rail yard and secured customs zone near the new port.
“Unionism in the private sector is way down IOW you are hallucinating.”
Not in the port cargo handling on the West Coast - I believe your average dock worker makes around a hundred grand a year.
They LOVE all that stuff coming from China, the more the better for them, and will fight tooth and nail to keep anyone else from muscling in on their little honey pot.
“It will be a race to see if the port/railway gets finished before the US Dollar tanks so bad we won’t be able to afford so much ChiCom crap”
Sincve China is sitting on hundreds of billions of these dollars, what do you suspect that THEIR move will be to keep them from losing more value ?
You know darn well unionism is way down in the private sector. The longshoremen's union is an artifact
Unfortunately the above chart includes government unions which are in fact growing
news travels fast.
the u.s. congress approved this in the 1990’s.
it’s been discussed on this forum since at least 2003,
if not longer.
Sincve China is sitting on hundreds of billions of these dollars, what do you suspect that THEIR move will be to keep them from losing more value ?
They will definitely dump dollars given the right circumstances or if things spin out of control. Many wars start unexpectedly when matters spin out of control.
Same as your bank will work with you up to a point if you can't pay your mortgage. Same for your credit card issuer. But at a certain point they lower the boom even if it means they only get 40¢ on the dollar
The union members in question are Americans.
They aren't Mexicans, and they aren't Chinamen.
To figure this one out, that's all I need to know.
And the only "right circumstances" that matter to them is when, and how, to hurt us the most.
Insanity.
bump
“But at a certain point they lower the boom even if it means they only get 40¢ on the dollar”
Just what would China, Inc. write off the bad debt against ?
... and in any case, why should we care ? If they want to “redeam” those dollars for 40 cents worth of U.S. goods and services, fine with me.
“The longshoremen’s union is an artifact”
True, but it very much is THIS artifact that is deeply invested in the subject of this thread.
Most interesting- and it’s not from World Net Daily..
While your statement is true about unionism trends, your statement does not address the gist of my argument. The longshoremen’s union and other unions have a tight grip on west coast shipping. A few years ago they had a very damaging strike. The west coast ports and union monopoly need competition. If you have facts to dispute the impact of the union monopoly on west coast ports, please present them.
“Most interesting- and it’s not from World Net Daily.”
Absolutely. More interesting is the fact that the usual suspects have gotten the thread away from the actual article which backs up the integration of US, Mexico and Canada and the Security Partnership and
re-directed the thread into a *issing contest about union or nonunion labor.
I’d like to see the thread back on track to discuss this integration and possible union of the North American Hemisphere.
The union comments are very relevant to the discussion and article. The union monopoly on the west coast ports provided the incentive for this project according to the article. The inefficiency of the west coast ports, largely due to the union monopoly, provided the justification for this project. With efficient west coast ports, this project may never have been undertaken.
Yup, it’s the union, unhunh. Wink Wink...
That’s the main reason, right? Inefficient, outdated, union infested ports..
Opus has left the room.
Yes that is the reason mentioned in the article:
“But it was labor unrest in the U.S.—a walk-off in 2002 by West Coast longshoremen—that reshaped KCS’ plans. Shortly before that dock strike Hutchison Port Holdings had bought the Lázaro Cárdenas concession. Haverty had worked with Hutchison in Panama, where KCS co-owns a rail line that runs along the canal. Haverty figured he could work with Hutchison to pitch shippers on an American-run, unbroken rail line from Lázaro Cárdenas to the U.S.”
Perhaps you are not aware of inefficient labor practices and very high labor rates in the west coast ports. There is a union monopoly on west coast ports. A prolonged strike would have a huge impact on the US economy. The unions and port operators are fully aware of the devastation of a prolonged strike.
Do you have any facts to suggest that there is not a union monopoly on west coast ports? Union monopolies are a product of government support. Without favorable labor laws, union monopolies could not exist.
So you want to bust down American workers with Mexican competition. Right?
That's like you going to Home Depot and getting some illegal alien Mexican day laborers to do some work on your house instead of hiring Americans
I have even a better idea. Lets get some Mexican business professors and get them on a fast track to accreditation to teach in American universities, I think business professors are paid too much and the Mexicans do better at one third the pay
Any sane economist (not saying you are one) will say to himself--> When a nation is running an 850 billion dollar trade deficit that's a sign that tariffs and/or other measures are needed. Not new ports in Mexico for even more Chinese/Asian .imports.
Not the only incentive. West Coast port capacity isn't large enough for all the Chinese/Asian imports. To which I say- A nation with severe trade deficits should not be expanding its ports (Mexican ports actually) to bring in even more Chinese crap that it is borrowing money to pay for
I want competiton for union monopolies. The Japanese and other foreign competitors brought competition to the US auto labor unions with tremendous benefits for consumers. I want the same competition for the west coast ports. The only way to get competition for the west coast ports is through Mexico. There will be plenty of US jobs created because of this new transportation corridor. There will probably even be union jobs created.
As far as higher education, competition is badly needed. Most professors including myself are not members of a labor unions so there is no union monopoly on higher education. There are legislative restrictions (tenure) that provide some labor protections, however. I welcome any attempts to lower the cost of higher education, especially business education. I can compete against anyone from other countries. Higher education should serve consumers not the education establishment. The education establishment is there to provide a service. If the service can be provided more efficiently with new competition, the education establishment should not be protected.
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