As one of the leading railroad companies in the United States,Union Pacific connects with Mexico real estate at six important entry points, transporting a variety of goods between the two countries. In fact, this relationship has consistently earned the railroad nearly $2 billion in revenues, historically amounting to at least 10 percent of its total annual income from freight. In 2011, this figure rose to an impressive 16 percent and top analysts fully expect this trend to continue in the coming months and years, predicting that Mexico will remain an important driver of business growth for Union Pacific.
Part of this is due to the fact that trade between the U.S. and Mexico is also expected to increase, as Mexico continues to export more goods to the U.S., surpassing even China by the year 2018. The rise in Mexico’s manufacturing sector comes on the heels of a series of Chinese wage hikes, coupled with its geographical location and rising fuel prices, which are all making Mexico the more economical choice.
Most major economists agree that the trend toward rising wages in China will continue throughout the next decade, while the potential for the U.S. dollar to depreciate against the Chinese Yuan is expected to make imports from China even more expensive for manufacturers exporting to the U.S. Mexico provides an excellent alternative, ensuring that goods remain price competitive by keeping shipping costs low, and thanks to the North America Free Trade Agreement (NAFTA), which gives the U.S. preferential tariff treatment with Mexico as compared to China.
The result is that, as Mexico’s manufacturing base increases,Union Pacific is the railroad company that is most likely to benefit, since it is the only major railroad in the U.S. that services all six of the most important trade junctions with Mexico. In addition, Union Pacific already has a major presence in Texas, which is the state that connects Mexico with the eastern portion of the U.S., including major cities such as New York and Chicago.