LEAP-Another-routh-La-Entrada-to-much-larger-markets-Foster-Rich-7-07.html

Another Route for La Entrada al Pacifico, to Much Larger Markets,
Would be Economically Far More Advantageous to Both the
United States and Mexico
W. Foster Rich
July 2007

When competing interests exist, as is the case between proponents and opponents of a high-traffic La Entrada truck corridor from Presidio through the Big Bend region to Midland/Odessa, it is sometimes helpful to take a fresh look at the entire situation, and try to discover a modified course of action that will provide benefits to all interests. This was the motivation for the brief investigation reported here.

The vision for La Entrada, to use a Mexican seaport on the Gulf of California to feed goods from Asia through a major inland US Port of Entry (PoE), located a thousand miles east of the US Pacific coast, presents intriguing prospects. This general idea can lead to a successful business enterprise if suitable cross-border agreements can be reached, if a large market is served, and if an economically viable transport and distribution system is employed.

OPPORTUNITY. The target market for La Entrada should be the aggregate of metropolitan areas across the entire US heartland, in order to capitalize fully on potential benefits from the Mexican seaport. Any approach of substantially smaller scope (such as that envisioned by MOTRAN) will sub-optimize the opportunity, leading to higher (perhaps non-competitive) prices for goods at ultimate sale points and lower returns for investors.

NORTH OF THE BORDER. In order to minimize time-to-market and costs, as soon as La Entrada freight has passed through a PoE into the US, it must move quickly onto US long-haul ground-transportation grids, consisting of mainline railroads and interstate highways, for transport to distant heartland metropolitan markets. This requirement, as well as the transportation situation in Mexico (more about that later) argue strongly for a PoE and Primary Reception/Distribution Facility (PRDF) in the El Paso area. At El Paso there are Union Pacific (UP) and Burlington Northern & Santa Fe (BNSF) mainline railroads north to Denver/Cheyenne, northeast to Kansas City/Omaha and east to Ft. Worth/Dallas and San Antonio/Houston, all connecting eventually to other mainlines. There are also northbound and eastbound interstate highways: I 25 north, intersecting east-west interstates I 40 at Albuquerque and I 70 & I 76/80 at Denver, as well as I 10/20 east to Ft. Worth/Dallas, San Antonio/Houston and beyond, connecting to various north-south interstates.

By contrast, MOTRAN’s La Entrada approach is hampered by its PRDF location at Midland/Odessa, which is 250 miles from the Presidio PoE, and is without a mainline railroad or interstate highway connection either to the border or northbound toward the heartland. Tenuous secondary railroad and highway connections do exist between Presidio and Midland/Odessa, although the railroad needs extensive rehabilitation (at an estimated cost of $100M), and the highway would need new bypasses, widening in places, and other improvements. Accesses to the nearest mainline railroads and interstate highways northbound & northeastbound toward the heartland are 300 miles from Midland/Odessa (at Ft. Worth/Dallas and El Paso). As for large target markets, Ft. Worth/Dallas and El Paso/Juarez are the primary metropolitan areas linked to Midland/Odessa by mainline railroad and interstate highway, although trucks can reach I 10 to San Antonio/Houston after traveling a short distance from Midland/Odessa on good secondary roads.

SOUTH OF THE BORDER. Substantial work remains to be done to enable the full potential for La Entrada. The Port of Topolobampo needs significant improvement (dredging to greater depth and width, installation of heavy cranes, etc.) to be able to handle the quantity of daily cargo envisioned. A railroad connection exists between Topolobampo and Chihuahua City, but a continuous highway connection does not. The Mexicans do not want heavy truck traffic through their Copper Canyon region for exactly the same environmental and tourism-related reasons that Big Bend residents & friends oppose a high-traffic truck corridor through their region. Consequently, all freight transportation from Topolobampo to Chihuahua City will be by rail. From Chihuahua City to the US border, significant differences exist between freight transportation links to Juarez/El Paso and to Ojinaga/Presidio. Along the route to Juarez, a very good railroad and four-lane highway exist today, requiring few if any upgrades initially. Along the route to Ojinaga, a railroad and highway both exist, but the highway requires upgrades to handle heavy truck traffic.

SUPPLY-CHAIN ROUTE OVERVIEW. La Entrada freight will be transported by railroad from Topolobampo seaport to Chihuahua City, then onward by rail and/or truck to the border, PoE and PRDF in the US. Very substantial initial investment in transportation infrastructure is required (mostly in Texas) for the route from Chihuahua City through Presidio to Midland/Odessa, whereas little if any initial investment would be required for the shorter route from Chihuahua City to El Paso.

Railroads clearly provide the most economical long-distance mode of transport for freight. A typical train can haul 200 to 300 truckloads of freight, but uses about 1/3 as much fuel as the trucks would use (and generates about 1/3 the amount of emissions). This cost difference for fuel is significant at today’s oil prices. Therefore, La Entrada freight could be moved most economically by rail throughout Mexico and over long distances in the US. For an initiative as large as this one could become, emphasis on rail transportation takes on added importance because it would be a significant step for our Nation toward reduced dependence on fossil fuels. Truck transport should be used only over short-to-medium distances, to cover the “final miles” to markets.

BEST COURSE OF ACTION. To capitalize fully on very large opportunities provided by the combination of Mexican seaport and US heartland markets, a comprehensive, large-scale “La Entrada al Pacifico/El Paso” initiative is the ‘highest and best’ approach. An essential ingredient for success is a verified effective, efficient, economically viable freight distribution system architecture and operating plan, which will require analysis, modeling and testing to optimize. Economies of scale, minimal required initial infrastructure investment in the Chihuahua City-to-El Paso route, and almost exclusive use of mainline rail for long-distance transport of freight in both Mexico and the US, all should combine to enable goods to be sold to ultimate customers at prices that undercut competition while producing reasonable returns for enterprise investors. This initiative would be of great interest to many states, to Mexico, and to enterprise investors. In competition, it would completely overwhelm MOTRAN’s approach.

Regardless of political or civic pressures, economic realities will always determine eventual outcomes for large market-driven programs, because long-term fiscal shortcomings are intolerable. If the government of Texas is not interested in a large-scale El Paso initiative, New Mexico would likely be happy to consider establishing a PoE and PRDF near that state’s border with Mexico, just a short distance northwest of El Paso.

Win-win solutions are always preferable. In this spirit, it is important to explore concepts that offer the possibility of cooperation to address MOTRAN’s aspirations while seeking to eliminate the need for heavy truck traffic through the Big Bend. A concept that warrants serious consideration would have the PoE and PRDF near El Paso (probably at Fabens), and Secondary Reception/Distribution Facilities at, for example, Omaha (connected to El Paso by UP & BNSF mainline rail), Midland/Odessa (connected by UP mainline rail and I 10/20), and Denver (connected by BNSF mainline rail and I 25). Assigned market areas could be, e.g., the Midwest for Omaha, Texas & the Southeast for Midland/Odessa, and the Mountain West for Denver. This approach would empower MOTRAN to serve a much larger market than currently envisioned, and the economic factors for the El Paso enterprise mentioned above would surely enable lower prices to MOTRAN’s customers and better returns to its investors than are possible with current plans to transport freight through Presidio. Thus, MOTRAN’s current expectations could be significantly exceeded, with no need for a high-traffic truck corridor through the Big Bend.

A Pilot Program to investigate issues and operating model features pertinent to the El Paso-Omaha-Midland/Odessa-Denver concept can be carried out in straightforward manner. At minimum, two trains carrying Asian goods would be sent from Topolobampo through Chihuahua City to El Paso, the freight would proceed through existing PoE facilities there, then, via mainlines, one train would go on to Omaha, the other would go on to Midland/Odessa, where the goods would be forwarded to predetermined onward metropolitan markets via rail and/or truck. The infrastructure exists today at a quality level adequate to carry out such a Pilot Program with reasonably high fidelity, thus this important effort could begin almost immediately.

SYNOPSIS. The foregoing material outlines findings from a brief investigation, which focused on business enterprise issues, of potential La Entrada markets, transportation infrastructures, costs, and freight distribution system architectures. It was concluded that a supply chain involving freight transport from Chihuahua City to Presidio and through the Big Bend region to Midland/Odessa is clearly NOT the strongest business approach for La Entrada, falling far short of capitalizing on the full scope of benefits that could potentially accrue to the US and to Mexico. Mexican officials will expect better. They will want to “get the most” out of this big opportunity for their seaport, their freight transportation infrastructure, and their labor workforce. We in the US should be thinking similarly.

A comprehensive, large-scale, ‘best approach’ La Entrada concept was outlined, featuring a supply chain that crosses the border at El Paso, very large market potential across the US heartland, a strong business enterprise structure, and Reception/Distribution Facilities at El Paso and several onward cities closer to the heartland. One of these Facilities, MOTRAN at Midland/Odessa, would produce economic benefits significantly exceeding current expectations. Initial operations could begin very soon because the supply chain infrastructure exists today to support a startup with significant quantities of freight. There would be no need for a high-traffic truck corridor through the Big Bend region.

The author, native Texan and Alpine High School Class of 1959, holds a Ph.D.
degree from Rice University, and was for many years a Partner at Booz Allen
Hamilton, the world’s largest management and technology consulting firm.
His e-mail address is richf@bah.com