Beer-unlike James Bond's martinis-should neither be shaken nor stirred. And, to be smooth to the taste, it needs a smooth ride from brewery to customer. Grupo Modelo, the makers of the Corona beers that now stand as the nation's leading import, turned to leased railway cars from GE Rail Services to provide the smooth ride they wanted.

Until a few years ago, Corona-largely brewed in Zacatecas, Mexico-made its way north by truck. In 2001, the Mexican railway, Ferromex, approached Modelo with a plan to move beer by rail. The idea had merit, but Ferromex had difficulty making it work. Ferromex had been formed in 1997, following the privatizing of the previously nationalized Mexican railway. As such, Ferromex was working largely with inherited rolling stock, which proved unsuited to the task.

Oscar Torres, commercial leader for Latin America, GE Equipment Services, Rail Services, describes the problem: "They started making shipments out of the existing fleet of railcars. They used what are known as rigid boxcars-cars with a rigid under-frame. During coupling and uncoupling, the beer inside was moved around"-in consequence, the beer and its packaging were subject to damage. Additionally, the boxcars arriving varied considerably in size and door location, which complicated loading. Cars varied, as well, on the inside: wooden interiors, for example, frequently carried a lifetime of nails and protrusions, which cut up the product's packaging. Seeking to reduce the problems, Modelo began screening each car that arrived, rejecting those it deemed unsuitable. Eventually, the rejection rate reached 50 percent.

The need for consistency brought Ferromex and Modelo to GE Rail, which owns and leases about 180,000 railcars-nearly ten percent of the U.S. total of two million railcars in use today.

Why lease rolling stock?

The cost of new rolling stock is one reason why the nation's railroads and those who ship upon them turn to leasing equipment. At the low end, a coal car or jumbo hopper car goes from about $75,000-slightly more than you would pay, say, for a Hummer; specialty railway cars can often top $100,000. Railway cars are leased, says Joe Lattanzio, executive vice president for GE Rails' Structured Finance, for approximately the same reasons why people lease automobiles. These include the desire to escape the general overhead of ownership-maintenance matters, regulatory issues, tax matters, and others.

There is, he added, one big difference with railcars: unlike the average passenger car, a railcar will give from thirty to fifty years of reliable service, during which time it may travel four million miles. Lattanzio noted, "A shipper will say, 'I've got to move these corn flakes or these shoes, but at this point I can only see that need lasting for two years, or five years, or ten years.' Therefore, they don't want to go out and buy thirty years' of capability; they'd rather lease."

GE Rail leases ten major types of cars-from tank cars and gondola cars to pressure differential cars-and over 50 types of specialty cars. Roughly over two-thirds of its cars have been acquired through a series of acquisitions; the rest were purchased new. Presently, reports Lattanzio, those cars are out on lease to 1,200 customers, railroads, and shippers like Cargill and DuPont. "We also lease them in ones and twos," he added. "If you want to ship your household effects to Seattle by rail, we can quote you a price."

Along with its 180,000 rail cars, GE Rail has 150,000 intermodal trailers, containers and chassis that it supplies to shippers and railroads. In rail generally, intermodal has been the strongest growth segment in recent years. Still, Lattanzio notes, intermodal faces something of a natural limit: "Some products will always go bulk. Coal goes bulk; we have a bunch of coal cars. Grain goes bulk; we have a bunch of grain cars. Tank cars, for large volumes of liquid. It all depends on the product."

The railcar leasing market is just one part of the overall rail transit picture and, as Lattanzio points out, "It's one big balloon. Squeeze it in some place and the air moves someplace else." Last fall, there was a squeeze going on throughout the system: car loadings were at record levels; some major rail lines responded by turning down business, logjams and delays popped up around the rail network. That particular pressure impacted leasing. "If," Lattanzio stated, "a railroad is for whatever reason moving product more slowly, the result can be that the demand for railway cars goes up. The shippers still want to ship, so they say they want more cars." Higher velocity movement, in turn, can cut the demand for leased cars.

The only way the overall railcar fleet increases, of course, is when new construction exceeds the number of aging cars broken up for scrap. Paralleling the high demand for freight movement, the railcar industry has substantially rebounded from the doldrums of 2001, when production bottomed out in the 40,000-unit range. For 2005, first quarter deliveries were estimated at 15,000. The better news is the sharp rise in new orders: these, in the first quarter, were 17,000, compared to 12,000 in the final quarter of 2004. Prices have been holding steady-approximately $90,000 for a standard boxcar-despite the recent drop in the cost of steel.

Custom freight cars

The Coronas experience illustrates the advantages leasing offers to shippers. The first requirement, Oscar Torres stated, was to eliminate the jostling of the beer in transit. "We made some tests using boxcars that had cushioned under-frames. That way, you can couple or uncouple the cars without affecting what's inside." To eliminate the damage caused by protuberances on the interior walls, Torres said, "We started making tests with cars that had smooth floors and smooth walls." At the time, Torres added, "We had people working with the brewery and with Ferromex to understand the loading patterns and the causes of the rejection rate." GE Rail addressed the loading problems by supplying boxcars with identical door height and width configurations. Ferromex and Modelo jointly agreed that boxcars leased from GE Rail could handle the task. Modelo still inspects boxcars, but the rejection rate, which once stood at 50 percent, is now less than two percent.

How many boxcars?

Americans drink $7.4 billion dollars of imported beer a year; an estimated 40 percent of which comes from Mexico, with Corona far and away the leading brand. It is, in any case, a lot of beer. And, Ferromex leased a lot of railcars. Ninety percent of imported Corona now moves by rail. To move that much beer from its Mexican brewery to its aficionados in the United States requires a fleet of 2,500 railway cars. Each fifty-foot long, each stacked eleven feet high with Corona beer, twenty-four to the case.

GE Rail officials describe the arrangement as win/win. For Modelo, the shift from truck to rail brought an approximate 30 percent drop in transportation costs. That's a key item for Grupo Modelo, as its eight to ten percent annual increases in exports to the United States figure strongly in the company's success.

For Ferromex, the lease agreement brought twin benefits. First, it secured Grupo Modelo as a major customer, one that added appreciably to the line's record 2004 revenues of $640 million, a year in which it enjoyed the second best operating ratio of any North American railroad. And second, Ferromex was able to claim that business without undertaking the huge capital expense of acquiring a railcar fleet that met Modelo's specifications. Those costs are not trivial-with new boxcars priced at about $90,000 each, a 2,500 car fleet carries a sticker price of $225 million.

The continuing pressure on the nation's railroads-itself in fair measure a result of the continuing pressure at major ports-points to a major opportunity for Mexico's railroads, says GE's Oscar Torres. Currently, those railroads carry just 14 percent of Mexico's ground freight, only a few ticks higher than the 12 percent that was carried by the state-run railroad prior to privatization. Torres suggests that the pressure on America's rail lines and the pressure at the Ports of Los Angeles/Long Beach can both be eased by shifting intermodal traffic to Mexico's Pacific Coast-where facilities already handle 900,000 containers a year.

Mexico, he notes, "is not as wide as the United States; that lets you move things quicker to the East Coast." That would be a further expansion in the economic activity the United States and Mexico share, an expansion tracing both to NAFTA and to entrepreneurship on both sides of the border. Something one might drink to. Perhaps with a Corona.