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Where the rail meets the water

International Shipholding’s all-water service to Mexico takes advantage of NAFTA.

by chris gillis

International Shipholding has long been successful at building profitable niche businesses.

Now the New Orleans-based liner carrier hopes to have that same success with a new U.S. Gulf/Mexico service. In February, International Shipholding launched CG Railway, an all-water rail service between the Port of Mobile in Alabama and Mexico’s Port of Coatzacoalcos.

"We’ve always looked for areas where there are specialty transport needs," said Erik F. Johnsen, president of International Shipholding. "We thought it would be smart to offer a complementary rail service to and from Mexico."

With the North America Free Trade Agreement stimulating the movement of large cargo volumes between the United States and Mexico, traditional land-border crossings along the Texas/Mexico border are faced with increasing congestion and delays for truck and rail traffic.

CG Railway was created to shave significant transit times off railcar movements between the freight markets east of the Mississippi River and southern Mexico’s industrial belt. The service promises shippers faster, more reliable service to Mexico, while railroads experience better use of their equipment.

The Mobile/Coatzacoalcos transit time offers a four-day spread between the two vessels in this niche. Each vessel operates within an eight-day round-trip voyage between the ports. CG Railway has arranged it so that a vessel arrives in each port the same day.

Careful Planning. International Shipholding spent a year and half planning the launch of CG Railway.

The company studied all aspects of the trade, including weather patterns in the region. "We looked at the weather maps over the years and most of the bad weather goes north into Veracruz area," Johnsen said. "The Coatzacoalcos area has good weather conditions."

Weather conditions in the Gulf are important to understand and monitor if CG Railway wants to maintain its eight-day, round-trip transit schedule.

"This is going to run like a railroad. It will move back and forth like a railroad and be on time like a railroad," Johnsen said. "That means no deviations."

CG Railways obtained U.S. Surface Transportation Board authorization to operate, and is associated with the Association of American Railroads. The company joined Railcar Management’s system to monitor and track its railcars in the United States.

CG Railway has signed interline agreements with Canadian National/Illinois Central, CSX, Norfolk Southern and Burlington Northern Santa Fe, which provide service to Mobile.

The company worked with the Alabama State Docks to upgrade an old finger pier into a modern rail-to-vessel terminal, a $3-million investment.

The vessels for the CG Railway — the Bali Sea and the Banda Sea — were formerly float-on/float-off special purpose ships used to transport materials under International Shipholding’s long-time contract with Freeport McMoRan’s copper and gold mining operation on the Indonesian island of West Irian Jaya.

International Shipholding replaced the two vessels under the Freeport McMoRan contract and had them converted to transport railcars. Each vessel has eight rows of tracks with a total capacity of 60 railcars and 30-foot-high sidewalls to protect against the sea, Johnsen said.

In Mexico, the company formed a joint venture agreement with railroad Ferrosur, S.A. de C.V., a subsidiary of Grupo Carso. "The senior management of Ferrosur have been helpful in detailing and determining for both parties the service requirements and advantages of the rail service for receivers and exporters," International Shipholding said.

"We view CG Railway as a partner," said Luis I. Olivera, commercial director for Ferrosur. The railroad manages the railcars to and from the ocean vessels at Coatzacoalcos and throughout southern and eastern Mexico.

Both Ferrosur and CG Railway have worked together to get the necessary operations agreements in place with the Coatzacoalcos port authority and with the Mexican government’s Secretaria de Comunicaciones y Transportes and Administracion Portuarta Integral.

CG Railway officials said they have also received good cooperation from the U.S. and Mexican Customs officials and the Coast Guards of both countries to operate the service. Railcars are sealed at origin and the freight remains intact until it arrives at destination, Johnsen said.

False Starts. Mobile’s proximity to the Caribbean and Mexico has made it a focus of different rail-ferry schemes in recent years.

Since 1988, Pharmachem, the largest supplier of chemicals to Puerto Rico’s pharmaceutical industry, has operated a rail-ferry barge service from Mobile to Ponce. The Chemex Service operates twice monthly, transporting about 24 tank cars per voyage to Ponce. The carrier brings back empty tank cars and some loads back to Mobile.

While Mobile offers a 900-mile route to southern Mexico’s industry, as opposed to traditional 1,400-mile all-land route from Mobile to southern Mexico via Laredo, Texas, U.S. railroads have struggled to get a Mobile/southern Mexico service off the ground.

"Because of the logistics benefits involved here, a rail-ferry service from Mobile to Mexico would happen sooner or later. But the start up wouldn’t be easy," said E.G. "Buddy" Browning, a 43-year veteran of the Mobile waterfront and manager of project development and marketing for Page & Jones.

Before joining Page & Jones last year, Browning spent 18 years with Illinois Central Railroad and 25 years with Alabama State Docks Terminal Railroad in various senior management positions. He was closely involved in the early attempts by railroads to start rail-ferry service to Mexico.

During the early 1990s, Burlington Northern Railway operated a barge rail-ferry service for railcars moving between Galveston, Texas and Coatzacoalcos. The 400-foot-long by 100-foot-wide barge moved carloads of grain to Mexico. At the time, the railroad had no land-border access to Mexico.

Burlington Northern wanted to expand to Mobile to cover the East Gulf market. But the service never got started, because the railroad merged with the Santa Fe Railroad. The merger gave former Burlington Northern access to Mexico through Laredo and its rail-ferry service was abandoned.

In the mid-1990s, CSX, through its so-called "Gato Marino" project, hoped to combine its operations with its marine unit, Sea-Land Services, to ferry railcars to southern Mexico. The Mexican government’s privatization of the railroads and the devaluation of the peso, however, terminated the CSX project.

Shortly after, Illinois Central Railroad proposed another rail-ferry service between Mobile and southern Mexico in cooperation with Copenhagen-based ocean carrier Scan Lines. The service, called Gulf Link, was put on the back burner after Canadian National acquired Illinois Central in 1998.

International Shipholding’s ability to start CG Railway was a major coup for the ocean transportation company and the Port of Mobile.

New Ground. International Shipholding operates differently from most scheduled liner services. The company has no interest in containerized freight, preferring to develop ocean transportation business opportunities in niche markets.

That’s the way the Johnsen brothers, Erik F. and Niels W. Johnsen, have run their shipping business for the past 50 years, and the management style is expected to continue in the future of the company.

International Shipholding owns and operates the world’s largest barge-carrying LASH (lighter aboard ship) vessel fleet, under subsidiaries Central Gulf Lines, Waterman Steamship Corp. and Forest Lines.

Central Gulf first introduced its first two LASH ships in 1969 and 1970. By 1998, the company’s international LASH fleet had grown to 12 vessels.

The LASH system consists of small barges, each with capacity for up to 375 tons of cargo, that are towed between points on inland or coastal waterways and ports where the barges are lifted on and off a large "mother ship." These ships have a capacity to handle 82 to 89 LASH barges each. The LASH vessel fleet has become a major carrier for forest products, rubber, military equipment and project cargo.

But after 30 years of service, International Shipholding’s LASH vessels are showing their age. The company will have to decide during the next several years whether to phase out or replace its LASH vessels.

Meanwhile, International Shipholding hasn’t relied solely on its LASH vessel business. During the past 20 years, the company made significant inroads into the auto-transport business from Japan and Korea to the United States and Europe. International Shipholding has a fleet four roll-on/roll-off vessels for this service.

The company also operates a molten sulfur bulk carrier between Louisiana and U.S. Gulf ports for Freeport McMoRan. International Shipholding’s self-unloading, conveyor-belt equipped coal carrier moves coal along the coast for New England Power Co. Two U.S.-flag ice-strengthened multipurpose vessels continue to operate in the polar regions for the Military Sealift Command, and a bulk carrier operates as part of a cape-size bulk carrier pool.

According to the International Shipholding’s annual report, gross voyage profit was $49.5 million for 2000, down from $66.7 million in 1999. The company earned $32.5 million in operating income, down from $54.1 million in 1999.

International Shipholding attributed its loss to the divestiture of its Seminole coal transportation contract. "We expect to grow our operations with this behind us now," said Niels W. Johnsen, chairman of International Shipholding in New York.

Confidence Building. International Shipholding’s venture into the railroad business is new territory. The success of CG Railway will hinge on the company’s ability to generate steadily increasing freight volumes from railroads and shippers in the U.S. Gulf/Mexico trade.

Historically, U.S. railroads were hesitant to let certain types of equipment cross into Mexico because of fears of protracted delays and inability to maintain control over the equipment.

"Capital cost and equipment utilization are the big issues for railroads," Browning said. "If the railroads can get additional turns in their equipment, that’s where the profits are. Two turns per railcar every 30 days is desired."

The traditional land-border clearance for rail traffic into Mexico from the East/Gulf coasts takes about 45 to 60 days to turn a railcar, while with CG Railway railcars take 18 to 20 days to turn.

"We abide by the terms and conditions of the Association of American Railroads," Olivera said. "We don’t expect to have any problems managing railcars (in Mexico)."

Georgia Pacific, a long-time user of International Shipholding’s Waterman Steamship and Forest Lines services, was one of the first Gulf shippers to use CG Railway.

"International Shipholding has the muscle and staying power which gave me the confidence to try this service," said David Laurine, Georgia Pacific’s assistant manager of marine transportation, based in Atlanta. "But the Mobile service will have to prove it can save money to the shipper, and that won’t be easy."

Georgia Pacific moves about 30 to 40 railcars of wood pulp and particleboard a month to southern Mexico on CG Railway. "The potential is there to triple our volumes," Laurine said.

While CG Railway may appear to be a more efficient link between the East Coast/Gulf to Southern Mexico, it must contend with well-established land crossings along the Texas/Mexico border.

"So far they’ve done what they said they would do," Laurine said. "If they can continue to show that it’s an alternative that makes economic sense, shippers will work with them."

Alabama River Pulp, based in Purdue Hill, Ala., has also used CG Railway at the request of its Mexican customers. "We weren’t terribly optimistic about the service when it was first announced, but our Mexican customers showed interest in it from day one," said Glenn Wiegel, manager of traffic and distribution for Alabama River Pulp.

The company plans to move 3,000 to 5,000 tons of wood pulp a month on the CG Railway. "The transit time is the benefit to our customers in Mexico," Wiegel said. "We haven’t heard any complaints at all about the service."

Page & Jones operates as CG Railway’s vessel agent and sales and marketing arm in Mobile. CG Railway has a similar arrangement with Representaciones Maritimas (Repmar) in Coatzacoalcos.

"Both companies coordinate with other freight forwarders and customs brokers to expedite the flow of cargo," Browning said. "We try to pre-clear the cargo before the vessels arrive at the ports."

While cargo volumes are increasing on the CG Railway, it’s still predominantly a southbound trade, with mostly forest products and chemicals destined to manufacturing plants in Mexico. Olivera said Ferrosur will continue to promote the service to breweries and chemical, paper and industrial goods manufacturers in the industrial cities of Coatzacoalcos, Orizaba, Puebla, and Mexico City to increase northbound cargo flows.

"I’ve watched International Shipholding over the years and it’s a successful operation," said James K. Lyons, director and chief executive officer for the Alabama State Docks. "If anyone can pull this off, International Shipholding can."

"They’re good marine operators and they’re becoming good railroad operators," Browning said. "They did their homework."

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Niels W. Johnson (left), chairman, and Erik F. Johnsen, president, of International Shipholding Corp.

"This is going to run like a railroad. It will move back and forth like a railroad and be on time like a railroad. That means no deviations."

Erik F. Johnsen