From Sail to Rail.

Mexico's largest shipping line throws its core business overboard and starts anew with railroads.

TRANSPORTACION MARITIMA MEXI-cana (TMM) has found a radical, new way to deal with trouble in core business: sell it. Mexico's almost 50-year-old shipping line sold its liner division and the related brand name in early 2000 to focus on new opportunities in logistics and transportation services.

"We were too small a carrier to remain in international shipping. We could not compete, so what we did was shift the company to where the country is going," says Brad Skinner, a senior vice president with TMM.

Trucks move most cargo within Mexico and to and from the United States, the country's largest trading partner. Privatized railroads, however, are gaining market share. And companies are now demanding options using a combination of different types of transport as well as logistics services for supply chain management.

Recognizing this shift and facing heavy debts, the Mexican company sold its 50% share in Americana Ships and the entire division of scheduled worldwide liner services to its partner Canadian Pacific in March 2000 for about US$270 million in cash, according to industry estimates. The new TMM turned its attention to railroads, trucking. ports and specialized marine transport through a series of strategic alliances.

"TMM really didn't have an alternative if they wanted to survive as a company, says Gabriel Rodriguez, an independent transport analyst and consultant in Mexico. TMM sold its shipping division to pay down debt from $600 million to less than $400 million.

The company is now flourishing. In 2000, net revenues were $990 million, up 17% compared to 1999. Net profits were $14 million, compared to a loss of $146 million in 1999. The company predicts operating profits will grow 23% to $270 million in 2001.

Only a few months after the sale of the shipping division, TMM won a contract to ferry a million tons of liquid petrochemicals between the Cangrejera petrochemical complex in Coatzacoalcos and the port of Houston for petrochemical company Celanese. The contract is estimated to be worth $16 million in revenues, according to Lloyd's List. Ford Motor Co. has also hired TMM to manage the logistics, transportation and distribution of after-market auto parts in Mexico. DaimlerChrysler named TMM's railroad operations the 'Best Transporter of the Year."

Backbone of steel. Railroad operations are the backbone of the company's multimodal approach. Transportacion Ferroviaria Mexicana, the company's joint venture with U.S.-based Kansas City Southern Industries, was formed when they paid $1.4 billion in 1997 to buy 80% of the government-owned company. It provides service on the 4,435 kilometer line from Mexico City to Laredo, Texas. the busiest cargo corridor between the Mexico and the United States. It also acquired the Mexico City-Manzanillo route. Its entire 7,600-kilometer rail network connects with that of Kansas City Southern in Laredo.

Combined with its rail network, TMM operates a trucking joint venture with U.S. company J.B. Hunt and four port concessions with Stevedoring Services of America. It also runs 13 logistics centers throughout Mexico. The company bundles these services into a complete logistics solutions. In fact, transport analyst Rodriguez says, "TMM has been a determining factor in the development of the intermodal market in Mexico."

Automakers apparently can't get enough of the company's ability to move cars from ports onto trains and trucks. Chrysler recently awarded TMM a $1.5 million outsourcing contract for its three plants in Mexico, including the Toluca factory that is scheduled to increase output by half in the next two years.

The latest strategic alliance has TMM teaming with London-based Ant Factory to provide improved online logistics services. The goal is to allow an executive anywhere in the world to control electronically the entire supply chain--from supply orders to warehouses to assembly at a plant to delivery via truck, rail or sail. The executive will also be able to track the products on every kilometer of the journey to their final destination.

"If you buy something off the computer screen, your order may end up directly in Japan," says TMM's Skinner.

The early success of the railroad and the new strategy has TMM looking to invest more funds. It plans to buy the 24.6% stake in the railroad still in government hands for approximately $249 million during the third quarter of 2001, company officials say.

Red lights remain about TMM's growth plans. The company must negotiate tariffs for railroad transport and track rights with the government, says transport analyst Rodriguez. Railroad revenues now account for about 70% of the company's revenues.

Nonetheless, TMM is now stronger than before. It is also focused on the high growth business of international trade with the United States. All in all, TMM's Skinner says. "Now we are putting our capital into businesses with higher margins and which are the future of Mexico."