Mexico - United States rail and trucking companies are making big investments on both sides of the border with Mexico to capitalize on booming trade between the two countries. Every day, about 10 Kansas City Southern trains hauling everything from cars to chemicals crisscross the border between Mexico and the US at Laredo, Texas, up from about six just three years ago.

The fourth-largest US public railroad is leading the charge to take advantage of the swelling freight between the countries as manufacturing booms south of the border because of the rising costs of goods from China and other overseas exporters. Over the past five years, Kansas City Southern has spent about $300 million to lay roughly 90 miles of new track in Texas, buy and update terminals in Mexico, and make other network upgrades. The rail company now generates one-quarter of its revenue moving parts and finished goods across the border.

Union Pacific Corp., the No. 1 railroad company in the US, owns a 26 percent stake in Mexican railway company Ferromex. Like its rivals CSX Corp. and Norfolk Southern Corp., Union Pacific partners with Kansas City Southern to haul carloads in the United States to locations not served by the railroad.

As the US economy creaks along, the growing business with Mexico is a cause for cheer. Both Kansas City Southern and Union Pacific are reporting much bigger increases in cross-border shipments than in overall volume.

Two areas that are "just exploding" are transporting automobiles into the United States and intermodal shipping - moving goods in containers that are shifted from truck to train or train to ship, said William Galligan, vice president of investor relations at Kansas City Southern. The Kansas City, Missouri-based company, which took full ownership in 2005 of a Mexican railroad now known as Kansas City Southern de Mexico, has built the first intermodal network between the countries.

The company, which started investing in the Mexican rail company a decade earlier, said it was betting the North American Free Trade Agreement would significantly alter shipping. US government data shows total cross-border freight by train and truck between the countries has surged nearly 35 percent in the past five years. At $291 billion through September, the volume of goods crossing the border this year is set to top the $352 billion of 2011 and $308 billion in 2010.

The Mexican automobile industry's double-digit production and export growth heightens transportation needs. . Kansas City Southern expects Mexico's vehicle output to leap 30 to 40 percent by 2015, citing Wallenius Wilhelmsen Logistics data.

The company, which already serves nine automobile plants in Mexico, said Honda Motor Co., Mazda Motor Corp., Nissan Motor Co. Ltd., and Audi AG will open plants there in the next two years. Five steel plants are also opening.

Galligan said Kansas City Southern was in talks with Asian and European manufacturers looking for space near the locations it serves in Mexico. Of course, companies with business in Mexico must deal with the drug war. Kansas City Southern posts guards on trains in high-risk areas and scans cargo as trains cross the border.

Partnering, Buying, Expanding

Trains and trucks compete, but they are also partnering to keep up with demand. "We don't have containers, we don't have intermodal customers. So we approached J.B. Hunt, Schneider, and Swift Transportation, to name three big ones, and convinced them that this was a real huge opportunity," said Galligan. Swift runs 700 trucks south of the US border and plans to add up to 100 next year, Chief Operating Officer Richard Stocking said in November.

"Mexico has increasingly been advantaged over Asia," said Foster Finley, co-head of the transportation practice at AlixPartners. "China's real wage rates and cost of raw materials, overhead, the exchange rate, the freight costs - in ocean, inclusive of peak season surcharges, and time on the water - have risen faster than the equivalent costs in Mexico."

Doubling Up

A number of ventures that broaden the footprint of US transport in Mexico have surfaced recently. Celadon Group Inc.'s Celadon Trucking Services took over equipment and drivers from USA Dry Van, and FedEx Corp. added two service centers in Mexico.

US Xpress Enterprises said it would buy 90 percent of Xpress Internacional and has formed a joint venture with Logisti-K in Mexico. Logistics company Pacer International Inc. has a multi-year agreement to manage and provide transport for Union Pacific, as well as container and chassis management in Mexico.

Celadon is sticking with trucking, calling a revenue-sharing rail tie-up "not viable" because its trucks are more economical for moving freight near the border. "If you're going to take things from Southern Mexico then it may make more sense," said Paul Will, Celadon's president and chief operating officer.

Whether companies go it alone or form partnerships, experts say Mexico is a top market for US companies. "Anybody with an opportunity to position themselves in this marketplace and chooses not to will probably regret it sometime in the next five to 10 years because cross-border market growth is going to outstrip probably any growth in any other (intermodal) transportation," said Dahlman Rose analyst Jason Seidl.