Boston, MA -- (SBWIRE) -- 08/20/2012 -- BMI remains cautiously optimistic on the Mexican freight transport sector, although we highlight that there are clouds on the horizon in the form of sluggish US demand and slow domestic consumer demand. We are forecasting real GDP growth of 3.4% for Mexico in 2012 in response to slowing global growth which we believe will reverse nascent private consumption and investment growth. Previously, we had revised up our forecast for the country's 2012 real GDP growth from below consensus, at 3.1%, to above consensus, at 3.4%, on the back of our expectation for strong domestic demand and rising investment inflows. This view has been playing out well, with commercial and manufacturing sector data consistently surprising to the upside throughout the first three months of 2012. As such, despite being slightly over-optimistic in 2011, having estimated real GDP growth of 4.2% as opposed to the actual 3.9%, we are happy to stick with our above-consensus forecast for 2012.

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While we have been pleasantly surprised by the strong export growth over the past 18 months, we note that it has not translated into strong private consumption, which remains significantly off its pre-crisis highs. We believe that for private consumption to fully recover, the economy needs at least a few more quarters of strong US demand to bolster jobs growth and disposable income.

Nevertheless, although we forecast Mexico's primary trading partner, the US, to see sluggish GDP growth over the next few years, we believe that Mexican exports will expand by an average annual pace of almost 10% over the next 5-10 years on the back of vehicles and machinery exports and extractive exports, such as silver and copper, boosting port throughput volumes.

Headline Industry Data

- Rail freight tonnes forecast to grow 2.8% in 2012, with average annual growth of 4% during our forecast period.
- Road freight tonnes forecast to grow 2.1% in 2012, with average annual growth of 3.2% during our forecast period.
- Air freight tonnes forecast to grow 7.6% in 2012, with average annual growth of 7% during our forecast period.
- Port of Veracruz total tonnage growth in 2012 is estimated to hit 3.8%, to reach 21.8mn tonnes.
- Port of Manzanillo total tonnage growth in 2012 is estimated to hit 6.4% to reach 27.6mn tonnes.

Key Trends And Developments

KCS To Move More Intermodal Between US And Mexico

BMI believes US railroads may face a dip in volumes in 2012 as coal shipments fall amid concerns about domestic and external demand for the fuel. This is bad news for the sector, as coal makes up 40-50% of its volumes. On the upside, we maintain our view that there is growing potential for railroads to carry oil, chemicals and autos shipments, which should boost volumes. Our view on Kansas City Southern (KCS) remains particularly positive as the company seeks to boost intermodal volumes on the Mexico-US route.

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