Diversifying the sourcing portfolio from China (either nearshoring or offshoring) will help address challenges, whether in supply chain, logistics or availability of raw materials.


China’s supremacy as the global production hub for several industries such as medical devices, electronics, automotive and textile was unchallenged until sometime back. The key factors were easy availability of raw materials, business-friendly laws, technological innovations and access to skilled and cheap labor. However, the scenario changed in 2019 due to increasing cost of labor and the U.S.-China trade war, which tarnished China’s image as a favorable center of production. The Coronavirus disease (COVID-19) pandemic aggravated the situation.

Supply chain disruptions, such as shortage of raw materials due to plant shutdowns in China, increased the cost of manufacturing by pushing labor and shipping costs high and increasing lead times. Plus, amid the growing risk of intellectual property (IP) theft and declining tax incentives, companies either consolidated operations in their home country, expanded existing operations, explored nearshoring activities in Mexico or offshored operations to other Asian countries such as India and Vietnam. Many leading organizations in the mobile and electronics, automotive and medical devices industries have either started implementing their plans to partially shift supply chain to Mexico or are exploring this option followed by India and Vietnam.

Leading automotive, electronics companies shifting supply chain functions or expanding operations in Mexico, followed by India and Vietnam

Shift in supply chain. The shift of supply chain is already underway, as some leading electronics players are exploring Mexico as a production facility.

Following Mexico, India introduced the Production-Incentive Scheme for mobile phone manufacturing and electronics components, including assembly, testing, etc. This factor contributed to attracting some companies to set up manufacturing plants in India.

Vietnam is yet another preferred location for the manufacture of electronics parts.

Expansion of existing facilities. In addition to the shift in supply chain, leading automotive companies are planning to move production to Mexico. End-users, for instance, have already shifted or expanded their manufacturing operations to Mexico.

Electronics companies in Mexico too are keen on increasing their production lines for servers, lighting systems and cognitive services, respectively.

Geographic proximity, low-cost labor, lower logistics expenses and availability of raw materials are the key factors drawing large organizations to Mexico. The country also is taking initiatives to attract investors and increase foreign-direct investment (FDI) in different industries.

Factors supporting investments in Mexico vis-à-vis India and Vietnam

Mexico’s GDP stands at $1,076 billion, of which, $318 billion comes from the industrial sector, followed by the service and agriculture sectors. However, in India, the service sector is the major contributor, accounting for $1,413 billion, followed by the industrial sector at $618 billion. In Vietnam, the service sector is the major contributor to GDP.

The main manufacturing industries in Mexico are mechanical (stamping, smelting, forging, machining, plastic injection, die casting), automotive and electronics that have 77,071, 2,500 and 2,300 companies, respectively; together, they employ more than 2 million people.

The industrial sector in India, with its major sub-sectors such as mining, quarrying, manufacturing, electricity, gas and water supply, accounts for around 26% of the country’s GDP. It employs over 15-20% of the total workforce in India, and mainly caters to the iron and steel, cotton and textile, mechanical (smelting, forging, stamping, machining, die casting plastic injection), automotive and electronics industries.

On the other hand, in Vietnam, state-owned industries such as furniture, plastics, textiles and paper constitute the foundation of the economy. Even sectors like tourism and telecommunications contribute significantly to the economy. In 2020, these industries accounted for 34.5% of the GDP and employed 28% of the total workforce.

Overall, Mexico has a strong supply base that can ensure “just-in-time” delivery to consumers and distributors and provides end-users access to the South American market.

Trade (imports and exports). The United States is the most preferred export destination for Mexico, accounting for approximately 79% of total exports, followed by Canada, China, and others. Export of electronics and automotive components from Mexico to the United States increased over 2019-20, with electronic equipment exports rising 5-10% in this period. Also, in the last three years, by value (in metric tons), the import of automotive products to the United States from Mexico has increased by more than one-third.

Of the total exports from India to the United States, products such as medical appliances, leather goods and textiles account for more than 17%. The United States is also the major export destination for Vietnam.

Note: Trade data includes exports and imports of all products from Mexico, India, and Vietnam for the year 2019 and 2020.

Growth in FDI accompanied by strong government initiatives. In 2020, India was on the list of the Top 10 recipients of FDI, clocking $64 billion, up 27% from that the previous year. Major investment was in the manufacturing industry (18%), followed by service and computer software/hardware. Furthermore, the Indian government has now allowed 100% FDI in contract manufacturing in its bid to boost investments in manufacturing. In Vietnam, FDI decreased by 25% year-over-year to $28.5 billion in 2020; half of the investments were in processing and manufacturing.

FDI inflows to Mexico totaled nearly $30 billion in 2020. The top investing countries were the United States (39%), Canada (15%), and Spain (14%), followed by Japan, Germany, etc. Of the total investments in Mexico, 41% is directed toward the manufacturing sector, concentrated in industries such as aerospace, automotive and electronics. These established industries offer a strong supply chain, existing infrastructure and skilled labor.

Overall, Mexico is a preferred choice for companies looking to maintain competitive manufacturing costs while having regional distribution strategies to control inflation.

Availability of port infrastructure. On the Quality of Ports Infrastructure Index, Mexico ranks 65th, India 51st and Vietnam 85th among 139 countries.

The Indian government has permitted up to 100% FDI on port-related projects and even has a 10-year tax holiday for construction and maintenance of port projects. The government also spent $1.85 billion on infrastructure development at major ports in the country. Due to its geographical location, Vietnam offers easy connectivity with other Southeast Asian countries; this makes it an appropriate hub for manufacturing. Seven major ports dot its 1,900-km coastline, and currently about 400-500 million tons of cargo moves around this line annually.

Mexico has more than 100 major ports on a coastline of 9,330 km, with an annual capacity of nearly 300 million tons. In the last three years, road shipping volume from Mexico to the United States increased by 32%, mostly via Port Laredo in Texas. Inbound ocean freight volumes also increased from Mexico, mainly to Port Newark in New Jersey and Port Everglades in Florida.

Shipping rate from Mexico to the United States is the lowest as compared to from China, India, and Vietnam, which makes Mexico a favorable destination.

Aranca China Plus One Infographic1Aranca

Technology adoption and automation. On the Automation Readiness Index, Mexico ranks 23rd, Vietnam 24th and India 18th. Despite, gross expenditure on R&D (as a % of GDP) is at same levels for all three countries; Mexican industry is planning to accelerate digitalization and automating processes typical of Industry 4.0, which would raise the country’s GDP by 3% points.

The Indian government is finalizing plans to boost digital manufacturing in the country. Many organizations have already taken the initiative and invested in Industry 4.0 Center of Excellence. The Government of India is planning to develop land spanning 461,589 hectares (two times the size of Luxembourg) to invite businesses looking for alternative locations to China. Government-led initiatives such as Rapid Transformation Hub (SAMARTH) and Smart Advanced Manufacturing – Udyog Bharat 4.0 are also aimed at increasing the pace of digitalization.

Vietnam, too, has initiated the adoption of Industry 4.0; however, investments need to come from other countries such as Japan. A few companies, for instance, have undertaken automation-related initiatives in Vietnam, but other domestic companies are still lagging.

Aranca China Plus One Infographic2Aranca

Availability of raw materials. In Vietnam, raw materials are not always available easily and manufacturers in several industries rely on imports to produce goods. In fact, 75-80% of electronics components, 85-90% of pharmaceutical raw materials and 70-80% of textile and plastics raw materials come from China.

Comparatively, India has strong raw material production capacity. The country is the largest manufacturer of cotton and second-largest manufacturer of steel globally. Therefore, availability of raw materials is easy for various industries.

In Mexico, on the other hand, several raw materials produced locally are used in its domestic manufacturing sector; these include metals, minerals, resins, timber, gems, etc. Mexico is among the Top 10 producers of metals such as copper, silver, gold, lead and zinc worldwide. It has a large mining sector. Countries such as the United States, Canada, and several European nations import metals, minerals, ore and gemstones from Mexico. The country has abundant forests with different types of wood and naturally occurring fibers and resins. Companies signed up with the Maquiladora IMMEX program may enjoy the benefits of importing raw materials to Mexican manufacturers and consider sourcing Mexican material supply chains.

Companies believe that diversifying the sourcing portfolio from China (either nearshoring or offshoring) will help address challenges, whether in supply chain, logistics or availability of raw materials. Mexico, India, and Vietnam are undertaking initiatives and implementing policies that will facilitate their emergence as the new hub for manufacturing. From increasing adoption of technology to relaxation of FDI norms and implementation of reforms in land acquisition, the three are locked in a race to win the mantle. However, based on the factors mentioned above, and among the other up-and-coming sourcing hubs, Mexico is steadily catching up with the alternative sourcing giants in the world.





Earlier this month I was able to step out of the centralizing gravitational pull of Mexico City and travel to San Luis Potosí to attend an event organized by El Gran Bajío, a private sector-led investment promotion initiative that is just getting off the ground. I was pleasantly inspired, and let’s face it, inspiration is in short supply these days. The world faces multiple challenges and instead of returning to normalcy, we are collectively coming to the realization that we must adjust to permanently altered circumstances that include climate conditions, polarizing politics, and unrelenting technological advancement.

Mexico, like all countries, competes for investment and capital globally and the conditions that create competitiveness are not a mystery. Companies and investors need to reduce risk and optimize returns. Being next to the lucrative US market and having decades of experience as a major trading partner in North America gives Mexico a leg-up on the competition. The country stands to gain from nearshoring as companies reassess the China risk, but investment will not come without active promotion efforts, particularly given Mexico’s current challenges with respect to security and available low-carbon energy.

With the elimination of ProMexico – Mexico’s former publicly funded investment promotion body – coordinated efforts have lost force. But necessity being the mother of invention implies that this may not necessarily be a bad thing if Mexican businesspeople can devise the means and raise the funds to do the work of promotion themselves. From this springs the idea of the private sectors of states in the Bajío working together and finding strength in unity instead of conducting isolated efforts in competition.

El Gran Bajío brings together businesspeople in Aguascalientes, Guanajuato, Michoacán, Querétaro, San Luis, and Zacatecas (together these states represent 26% of Mexican GDP) under one branded concept and in harmony with local and state governments. Note that this is not political, but practical, much like the spirit of the entrepreneurs that live in the Bajío. Happily, both Forbes and HSBC have decided to become involved in supporting the effort, which will no doubt encourage even more interest domestically and internationally.

El Gran Bajío hopes to also serve as a modernizing regional force that can assist companies to up their game with respect to new trends in ESG (Environment, Social and Governance). ESG considerations are now a central component to the analysis of the risks and rewards of any investment, and this is particularly important given that many of the leading companies in the region are family-owned and need to ensure their viability for the next generation. Putting in place governance plans that address environmental sustainability, gender diversity and transparency will be critical to establishing partnerships with counterparts abroad and to increasing the competitiveness of the Bajío region generally.

The Bajío is not starting from scratch and has had historical success in attracting domestic and foreign investment in the aerospace, automotive, and agricultural sectors, to name a few. Building on this foundation and moving beyond it by promoting innovation and entrepreneurship will be buttressed by the creation of an ecosystem that includes regional academic institutions, such as the Arkansas State University campus and Querétaro’s aerospace university (UNAQ). Further, a new cluster of data centers is under development in the region, spearheaded by companies like Microsoft, Cloud and ODATA.

It is comforting to see new initiatives surfacing at such a difficult moment globally where many countries and companies are analyzing what comes next. Laying the foundation today for success in the medium and long term is critical to ensuring sustainable prosperity in Mexico, a goal that goes well beyond any political cycle and will require the active participation of the private sector.

* Amy Glover is president of Agil(e) and an external advisor for El Gran Bajío project. Twitter: @chilangagringa
El Bajío cuenta con 157 parques industriales y busca convertirse en un referente para América Latina impulsando el pensamiento creativo en todas las industrias.

En los últimos 20 años, el Bajío mexicano ha mostrado su competitividad en diversas industrias como la aeroespacial, automotriz, biotecnología, investigación y educación, ante esto el proyecto El Gran Bajío, conformado por empresarios e innovadores de Querétaro, Guanajuato, San Luis Potosí, Aguascalientes, Zacatecas y Michoacán buscan posicionar a la región como una de las más importantes en América Latina.

“Y es que así como Silicon Valley impulsó el pensamiento exponencial, los nórdicos un pensamiento colaborativo y los japoneses un método de 5S, el Bajío se está convirtiendo en un referente del pensamiento creativo en Latinoamérica“, declaró Federico Quinzaños, Presidente y Fundador de El Gran Bajío en entrevista para Forbes México.

El proyecto El Gran Bajío busca impulsar un ecosistema de pensamiento e innovación para fortalecer el desarrollo de la región mexicana evolucionando a industrias como: la aeroespacial, farmacéutica, movilidad, energías limpias, tecnología y otras más, de la mano de empresarios, innovadores, ejecutivos de negocios y emprendedores.

“El tema de El Gran Bajío es cómo evolucionar a una nueva era; cómo evolucionar hacia un nuevo panorama de nuevas industrias porque estamos en una nueva era y tenemos que entender cómo hacer una transición de la industria automotriz a la industria de la movilidad; cómo sacar de las tecnologías de las tradicionales a la 2.4; de la aeronáutica a la aeroespacial, así como impulsar las industrias creativas y energías limpias”, añadió Quinzaños.

No te pierdas: Inversión de empresarios en sector turístico es clave para su recuperación

Así mismo el directivo aseguró que si bien El Gran Bajío inició con el apoyo de empresarios ya se le han sumado innovadores, empresas globales, ejecutivos de negocios y startups formando un ecosistema con ejecutivos de todos los niveles e industrias que generen una nueva era para la región.

“Iniciamos con los grandes empresarios de la región pero se nos fueron sumando los innovadores que están facturando arriba de los 15 millones de dólares al año; son sólidos, están exportando y tienen alianzas en el extranjero y patentes. En un tercer nivel están las empresas globales y tenemos más de 4,400 en la región de 80 países que han decidido depositar su inversión aquí en El Bajío: es evidentemente que están viendo algo y la cuarta son los ejecutivos de negocios”.

Federico Quinzaños 2
25 de junio 2021. Foto: © Cortesía El Gran Bajío

Actualmente el Bajío cuenta con 157 parques industriales, 100 centros de investigación, más de 250 universidades, 76 viñedos, industrias consolidadas como la aeronáutica con 90 empresas, 800 firmas relacionadas con la industria automotriz y 12 armadoras de autos.

“El Bajío durante 20 años ha tenido una estrategia muy interesante de posicionamiento enfocada en crear y desarrollar. Se ha destacado contra otras regiones en México porque tiene un pensamiento creativo porque ha pasado de tener una producción y servicios muy básicos a generar industrias como la aeronáutica, automotriz y tecnología. Hoy tenemos 157 parques industriales, 100 centros de investigación, más de 250 universidades y 100 centros de alta especialización”.

Lee: Sectur digitalizará los 132 pueblos mágicos de la mano de Google

El Gran Bajío cuenta con cinco agencias internacionales para conectar proyectos y negocios nacionales con agencias globales, además de tener capacitación y guía por parte de Singularity University

Quinzaños agregó que actualmente Querétaro se ha enfocado en reforzar la industria aeroespacial, mientras que Aguascalientes ha optado por impulsar la industria de movilidad y en tanto, Guanajuato y San Luis Potosí se han centrado en el sector agroindustrial que está transitando hacia la biotecnología.

“Más que el tema de industrias El Gran Bajío tiene que ver con un tema de mentalidad: ¿cuál es la que estamos compartiendo? Hoy estamos impulsando el pensamiento creativo“, destacó Quinzaños.



China on Friday began in earnest work to advance its application to become a member of the Trans-Pacific Partnership free trade deal, a day after filing a bid to join the pact in an attempt to increase its economic clout in the Asia-Pacific region.

Chinese accession would significantly impact trade in the region, and its bid is aimed at countering moves that the United States and other partners are pursuing to decouple from the Chinese economy. It remains uncertain, though, whether China will be allowed to join the pact.

To join the deal, formally known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, China will need the unanimous approval of all 11 member countries, including Australia and Japan. The United States withdrew from the pact in 2017.

In a speech on Friday, Chinese President Xi Jinping said high barriers that would harm growth of trade, investment and technology should be “removed,” pledging to take measures to push forward the free trade system.

Foreign Ministry spokesman Zhao Lijian said Chinese participation in the TPP would “contribute to promoting the process of economic integration in the Asia-Pacific region” and encouraging “trade and investment growth” after the COVID-19 pandemic.

But one hurdle China faces is its strained ties with Australia.

In June, China said it had filed a complaint with the World Trade Organization over Australia’s anti-dumping tariffs, apparently retaliation against Canberra’s decision to complain to the WTO over China’s anti-dumping duties on wine exports.

Australia signaled Friday that it may not accept the start of talks on China’s possible participation, with the country’s minister for trade, tourism and investment, Dan Tehan, saying in a statement that existing members want to be confident that China has a “track record of compliance” with its commitments under the WTO and existing trade agreements.

The minister also reiterated the need for China to agree to restart ministerial-level talks between the two nations.

The other TPP members are Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Japan, a leading economy in the TPP, said it will carefully analyze whether China is ready to meet the requirements for joining the free trade deal.

“We must thoroughly assess whether China is ready to fulfill the high-standard rules of the TPP-11,” Chief Cabinet Secretary Katsunobu Kato said, adding Tokyo will “consult with other members while following the procedures for approving new members.

The United States originally promoted the trade pact to counter China’s growing economic influence, but after withdrawing from the treaty in January 2017, the U.S. government, now under President Joe Biden, remains cautious about returning to it.

Following the application, a U.S. State Department spokesperson said in a statement, “We would expect that China’s non-market trade practices and China’s use of economic coercion against other countries would factor into” a decision over Beijing’s accession.

If China joins the TPP, the gross domestic product of participating economies would account for around 30 percent of global GDP, compared with over 10 percent currently. It would also mark a new milestone for the world’s second-biggest economy, similar to its accession to the WTO in 2001.

China’s bid to join the free trade bloc follows Britain’s application filed in February this year. Taiwan has also expressed interest in joining.

According to the Chinese Commerce Ministry on Thursday, Chinese Commerce Minister Wang Wentao and Damien O’Connor, New Zealand’s trade and export minister, spoke on the phone to discuss necessary procedures.

Compared with some advanced countries such as Japan, China falls behind in liberalizing market access while the Asian economic powerhouse also faces other obstacles, such as reforms of preferential treatment for state-run companies and state subsidies to meet the standards shared among TPP members.

Xi announced his country’s intention to seriously consider participating in the TPP when he attended an Asia-Pacific Economic Cooperation forum summit in November last year.

In July, during an informal virtual meeting with APEC leaders, he called for “integration, not decoupling,” according to Chinese media.

Stock and Cash Transaction Represents an Enterprise Value of Approximately $31 Billion

Expected to Create Annualized Synergies of Approximately $1 Billion within Three Years

Historic Combination Enhances Competition, Creates New Options for Customers, and Supports Economic Growth in North America

Companies to Host Investor Conference Call Thursday at 8 a.m. ET

CALGARY, Alberta & KANSAS CITY, Mo.–(BUSINESS WIRE)–Canadian Pacific Railway Limited (TSX: CP, NYSE: CP) (“CP”) and Kansas City Southern (NYSE: KSU) (“KCS”) today announced they have entered into a merger agreement, under which CP has agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately USD$31 billion1, which includes the assumption of $3.8 billion of outstanding KCS debt. The transaction, which has the unanimous support of both boards of directors, values KCS at $300 per share, representing a 34% premium, based on the CP closing price on Aug. 9, 2021, the date prior to which CP submitted a revised offer to acquire KCS, and KCS’ unaffected closing price on March 19, 20212.

“Our path to this historic agreement only reinforces our conviction in this once-in-a-lifetime partnership,” said CP President and Chief Executive Officer Keith Creel. “We are excited to get to work bringing these two railroads together. By combining, we will unlock the full potential of our networks and our people while providing industry-best service for our customers. This perfect end-to-end combination creates the first U.S.-Mexico-Canada rail network with new single-line offerings that will deliver dramatically expanded market reach for CP and KCS customers, provide new competitive transportation options, and support North American economic growth.”

“We are glad to be partnering with CP to create a railroad that is able to compete by providing the best value for the transportation dollar,” said KCS President and Chief Executive Officer Patrick J. Ottensmeyer. “The CP-KCS combination will not only benefit customers, labor partners, and shareholders through new, single-line transportation services, attractive synergies and complementary routes, it will also benefit KCS and our employees by enabling us to become part of a growing and truly North American continental enterprise.”

While remaining the smallest of six U.S. Class 1 railroads by revenue, the combined company would have a much larger and more competitive network, operating approximately 20,000 miles of rail, employing close to 20,000 people, and generating total revenues of approximately $8.7 billion based on 2020 actual revenues. The CP-KCS combination is expected to create jobs across the joined network. Additionally, the companies expect efficiency and service improvements to achieve meaningful environmental benefits.

Transaction to Expand Options and Efficiencies for Customers

A CP-KCS combination would provide unprecedented reach via new single-line hauls across a combined network, offering:

  • New single-line competitive options for domestic intermodal shipments between Mexico, the U.S. Midwest, and Canada, providing a truck competitive product for time-sensitive shipments in the high-value parts, perishables, and expedited markets.
  • New single-line hauls linking key automotive manufacturing and distribution centers in Mexico, the U.S. Midwest, and Canada, capitalizing on CP’s best-in-class automotive compound network.
  • New single-line routes linking energy, chemical, and merchandise shippers to more quickly and efficiently connect origin and destination facilities and reach new markets and global consumers.
  • Unmatched access to Atlantic, Gulf, and Pacific ports, linking international intermodal shippers with North America’s largest consumer markets providing new optionality, capacity, and resiliency.
  • New single-line routes allowing the efficient flow of agricultural products from CP’s origin-rich franchise to KCS’ destination-rich franchise, generating new optionality for shippers and receivers.
  • Extended reach for short line and regional railroads coupled with new optionality for non-rail served customers via our extensive transload network.

Importantly, customers would not experience a reduction in independent railroad choices as a result of the transaction. CP-KCS have committed to keep all existing freight rail gateways open on commercially reasonable terms, while simultaneously competing aggressively to attract traffic via new single-line north-south lanes between Canada, the Upper Midwest and the Gulf Coast, Texas, and Mexico.

A CP-KCS combination would preserve the six-railroad structure of the North American Class 1 rail network: two in the west, two in the east and two in Canada, each with access to the U.S. Gulf Coast. The two companies once combined would remain the smallest of the Class 1 carriers.

Improving Highway Traffic, Environmental Sustainability, and Safety

The new single-line routes made possible by the transaction are expected to shift trucks off crowded U.S. highways, lowering emissions and reducing the need for public investments in road and highway bridge repairs. Rail is four times more fuel efficient than trucking, and one train can keep more than 300 trucks off public roads and produce 75 percent less greenhouse gas emissions. The synergies created by this combination are expected to take tens of thousands of trucks off the highways annually.

CP is committed to sustainability and is currently developing North America’s first line-haul hydrogen-powered locomotive. Additionally, the combined company would maintain both CP and KCS’ pledges to improve fuel efficiency and lower emissions in-line with the Paris Agreement to support a more sustainable North American supply chain.

Creating Value for KCS and CP Shareholders

Following the closing into a voting trust, common shareholders of KCS will receive 2.884 CP shares and $90 in cash for each KCS common share held. Preferred shareholders will receive $37.50 in cash for each KCS preferred share held. The fixed exchange ratio implies a price for KCS of $300 per share, representing a 34% premium, based on the CP closing price on August 9, 2021 and KCS’ unaffected closing price on March 19, 20213.

Immediately following the closing into trust, KCS common shareholders are expected to own 28 percent of CP’s outstanding common shares, providing the ability to participate in the upside of both companies’ growth opportunities. Following final regulatory approval by the U.S. Surface Transportation Board (“STB”), KCS shareholders would also reap the benefits of synergies resulting from the combination.

The combined growth strategies of the two fastest-growing Class 1s will result in new efficiencies for customers and improved on-time performance under their respective Precision Scheduled Railroading programs. The combined company is expected to create annualized synergies of approximately $1 billion over three years.

The combination is expected to be accretive to CP’s adjusted diluted EPS4 in the first full year following CP’s acquisition of control of KCS, and is expected to generate double-digit accretion upon the full realization of synergies thereafter.

To fund the stock consideration of the merger, CP will issue 44.5 million new shares. Consistent with the previously announced transaction, the cash portion will be funded through a combination of cash-on-hand and raising approximately $8.5 billion in debt, for which financing has been committed. As part of the merger, CP will assume approximately $3.8 billion of KCS’ outstanding debt. Following the closing into trust, CP expects that its outstanding debt will be approximately $20 billion.

Pro forma for the transaction, CP estimates its leverage ratio against 2021E street consensus EBITDA to be approximately 3.9x with the assumption of KCS debt and issuance of new acquisition-related debt. In order to manage this leverage effectively, CP will continue to temporarily suspend its normal course issuer bid program, and expects to produce approximately $7 billion of levered free cash flow (after interest and taxes) over the next three years. CP estimates its long-term leverage target of approximately 2.5x to be achieved within 24 months after closing into trust. The combined company will remain committed to maintaining strong investment grade credit ratings while continuing to return capital for the benefit of shareholders.

Strong Stakeholder Support for CP-KCS

More than 1,000 stakeholders – including railroad labor unions, shippers, and community leaders – have written letters to the STB supporting CP’s proposed combination with KCS. These letters emphasize the enhanced competition and unsurpassed levels of service, safety and economic efficiency that the transaction will bring for shippers and communities across the U.S., Mexico, and Canada that a CP-KCS combination offers.

Clear Path to Complete Transaction and Merger

On May 6, 2021, the STB approved the use of a voting trust for a planned CP-KCS merger, and the pertinent circumstances surrounding this new agreement between CP and KCS have not changed relative to those underlying the STB’s decision approving a trust. To close into voting trust, the transaction requires approval from shareholders of both companies along with satisfaction of customary closing conditions, including Mexican regulatory approvals. CP would then acquire KCS and place the KCS shares into the voting trust, at which point KCS shareholders would receive 2.884 CP shares and $90 in cash for each KCS common share held. The companies expect the transaction to close and KCS shareholders to receive their consideration in Q1 2022.

CP’s ultimate acquisition of control of KCS’ U.S. railways is subject to the approval of the STB. In April, the STB decided that it would review the CP-KCS combination under the merger rules in existence prior to 2001 and the waiver granted to KCS in 2001 to exempt it from the 2001 merger rules. In August, the STB reaffirmed that the pre-2001 rules would govern its review of the CP-KCS transaction.

The STB review of CP’s proposed control of KCS is expected to be completed in the second half of 2022. Upon obtaining control approval, the two companies will be integrated fully over the ensuing three years, unlocking the benefits of the combination.

Board, Management, and Headquarters

Following STB approval of the CP’s control of KCS, Mr. Creel will serve as the Chief Executive Officer of the combined company. The combined entity will be named Canadian Pacific Kansas City (“CPKC”).

Calgary will be the global headquarters of CPKC, and Kansas City, Missouri will be the U.S. headquarters. The Mexico headquarters will remain in Mexico City and Monterrey. CP’s current U.S. headquarters in Minneapolis-St. Paul will remain an important base of operations.

Four KCS Directors will join CP’s expanded Board at the appropriate time, bringing their experience and expertise in overseeing KCS’ multinational operations.


BMO Capital Markets and Goldman Sachs & Co. LLC are serving as financial advisors to Canadian Pacific. Sullivan & Cromwell LLP, Bennett Jones LLP and the Law Office of David L. Meyer are serving as legal counsel. Creel, García-Cuéllar, Aiza y Enríquez, S.C. are serving as Mexican legal counsel to Canadian Pacific. Evercore is serving ‎as the Canadian Pacific Board’s financial advisors and Blake, Cassels & Graydon LLP is serving as the Board’s legal counsel.

‎BofA Securities and Morgan Stanley & Co. LLC are serving as financial advisors to Kansas City Southern. Wachtell, Lipton, Rosen & Katz, Baker & Miller PLLC, Davies Ward Phillips & Vineberg LLP, WilmerHale, and White & Case, S.C. are serving as legal counsel to Kansas City Southern.

Conference Call for Investment Community

CP and KCS will host a joint investor conference call Thursday, Sept. 16, at 8 a.m. ET to discuss this announcement. A live webcast of the call and the replay will be available on the CP website at and the KCS website at Supporting materials will be posted on To listen to the live conference call, dial (877) 830-2586 in the U.S. or (785) 424-1734 internationally, passcode 74335.

A conference call replay will be available for one week following the call and can be accessed by dialing (800) 753-5212 (no passcode needed).

For information on the benefits of a CP-KCS combination, visit


This news release includes certain forward looking statements and forward looking information (collectively, FLI) to provide CP and KCS shareholders and potential investors with information about CP, KCS and their respective subsidiaries and affiliates, including each company’s management’s respective assessment of CP, KCS and their respective subsidiaries’ future plans and operations, which FLI may not be appropriate for other purposes. FLI is typically identified by words such as “anticipate”, “expect”, “project”, “estimate”, “forecast”, “plan”, “intend”, “target”, “believe”, “likely” and similar words suggesting future outcomes or statements regarding an outlook. All statements other than statements of historical fact may be FLI.

Although we believe that the FLI is reasonable based on the information available today and processes used to prepare it, such statements are not guarantees of future performance and you are cautioned against placing undue reliance on FLI. By its nature, FLI involves a variety of assumptions, which are based upon factors that may be difficult to predict and that may involve known and unknown risks and uncertainties and other factors which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by these FLI, including, but not limited to, the following: the timing and completion of the transaction, including receipt of regulatory and shareholder approvals and the satisfaction of other conditions precedent; interloper risk; the realization of anticipated benefits and synergies of the transaction and the timing thereof; the success of integration plans; the focus of management time and attention on the transaction and other disruptions arising from the transaction; changes in business strategy and strategic opportunities; estimated future dividends; financial strength and flexibility; debt and equity market conditions, including the ability to access capital markets on favourable terms or at all; cost of debt and equity capital; potential changes in the CP share price which may negatively impact the value of consideration offered to KCS shareholders; the ability of management of CP, its subsidiaries and affiliates to execute key priorities, including those in connection with the transaction; general Canadian, U.S., Mexican and global social, economic, political, credit and business conditions; risks associated with agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures, including competition from other rail carriers, trucking companies and maritime shippers in Canada, the U.S. and Mexico; North American and global economic growth; industry capacity; shifts in market demand; changes in commodity prices and commodity demand; uncertainty surrounding timing and volumes of commodities being shipped; inflation; geopolitical instability; changes in laws, regulations and government policies, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; changes in fuel prices; disruption in fuel supplies; uncertainties of investigations, proceedings or other types of claims and litigation; compliance with environmental regulations; labour disputes; changes in labour costs and labour difficulties; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; sufficiency of budgeted capital expenditures in carrying out business plans; services and infrastructure; the satisfaction by third parties of their obligations; currency and interest rate fluctuations; exchange rates; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; trade restrictions or other changes to international trade arrangements; the effects of current and future multinational trade agreements on the level of trade among Canada, the U.S. and Mexico; climate change and the market and regulatory responses to climate change; anticipated in-service dates; success of hedging activities; operational performance and reliability; customer, shareholder, regulatory and other stakeholder approvals and support; regulatory and legislative decisions and actions; the adverse impact of any termination or revocation by the Mexican government of Kansas City Southern de Mexico, S.A. de C.V.’s Concession; public opinion; various events that could disrupt operations, including severe weather, such as droughts, floods, avalanches and earthquakes, and cybersecurity attacks, as well as security threats and governmental response to them, and technological changes; acts of terrorism, war or other acts of violence or crime or risk of such activities; insurance coverage limitations; material adverse changes in economic and industry conditions, including the availability of short and long-term financing; and the pandemic created by the outbreak of COVID-19 and its variants, and resulting effects on economic conditions, the demand environment for logistics requirements and energy prices, restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions, and disruptions to global supply chains.

We caution that the foregoing list of factors is not exhaustive and is made as of the date hereof. Additional information about these and other assumptions, risks and uncertainties can be found in reports and filings by CP and KCS with Canadian and U.S. securities regulators, including any proxy statement, prospectus, material change report, management information circular or registration statement to be filed in connection with the transaction. Reference should be made to “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward Looking Statements” in CP’s and KCS’s annual and interim reports on Form 10-K and 10-Q. Due to the interdependencies and correlation of these factors, as well as other factors, the impact of any one assumption, risk or uncertainty on FLI cannot be determined with certainty.

Except to the extent required by law, we assume no obligation to publicly update or revise any FLI, whether as a result of new information, future events or otherwise. All FLI in this news release is expressly qualified in its entirety by these cautionary statements.


Canadian Pacific is a transcontinental railway in Canada and the United States with direct links to major ports on the west and east coasts. CP provides North American customers a competitive rail service with access to key markets in every corner of the globe. CP is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit to see the rail advantages of CP. CP-IR


Headquartered in Kansas City, Mo., Kansas City Southern (KCS) (NYSE: KSU) is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. Its primary U.S. holding is The Kansas City Southern Railway Company, serving the central and south central U.S. Its international holdings include Kansas City Southern de Mexico, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lázaro Cárdenas, Tampico and Veracruz, and a 50 percent interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal. KCS’ North American rail holdings and strategic alliances with other North American rail partners are primary components of a unique railway system, linking the commercial and industrial centers of the U.S., Mexico and Canada. More information about KCS can be found at


CP will file with the U.S. Securities and Exchange Commission (SEC) a registration statement on Form F-4, which will include a proxy statement of KCS that also constitutes a prospectus of CP, and any other documents in connection with the transaction. The definitive proxy statement/prospectus will be sent to the shareholders of KCS. CP will also file a management proxy circular in connection with the transaction with applicable securities regulators in Canada and the management proxy circular will be sent to CP shareholders. INVESTORS, STOCKHOLDERS AND SHAREHOLDERS OF KCS AND CP ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND MANAGEMENT PROXY CIRCULAR, AS APPLICABLE, AND ANY OTHER DOCUMENTS FILED OR TO BE FILED WITH THE SEC OR APPLICABLE SECURITIES REGULATORS IN CANADA IN CONNECTION WITH THE TRANSACTION WHEN THEY BECOME AVAILABLE, AS THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT KCS, CP, THE TRANSACTION AND RELATED MATTERS. The registration statement and proxy statement/prospectus and other documents filed by CP and KCS with the SEC, when filed, will be available free of charge at the SEC’s website at In addition, investors and shareholders will be able to obtain free copies of the registration statement, proxy statement/prospectus, management proxy circular and other documents which will be filed with the SEC and applicable securities regulators in Canada by CP online at and, upon written request delivered to CP at 7550 Ogden Dale Road S.E., Calgary, Alberta, T2C 4X9, Attention: Office of the Corporate Secretary, or by calling CP at 1-403-319-7000, and will be able to obtain free copies of the proxy statement/prospectus and other documents filed with the SEC by KCS online at, upon written request delivered to KCS at 427 West 12th Street, Kansas City, Missouri 64105, Attention: Corporate Secretary, or by calling KCS’s Corporate Secretary’s Office by telephone at 1-888-800-3690 or by email at

You may also read and copy any reports, statements and other information filed by KCS and CP with the SEC at the SEC public reference room at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 or visit the SEC’s website for further information on its public reference room. This news release shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to appropriate registration or qualification under the securities laws of such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.


Although this news release includes forward-looking non-GAAP measures (adjusted diluted EPS and earnings before interest, tax, depreciation and amortization (EBITDA)), it is not practicable to reconcile, without unreasonable efforts, these forward-looking measures to the most comparable GAAP measures (diluted EPS and Net income, respectively), due to unknown variables and uncertainty related to future results. Please see Note on forward-looking statements above for further discussion.


This news release is not a solicitation of proxies in connection with the transaction. However, under SEC rules, CP, KCS, and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies in connection with the transaction. Information about CP’s directors and executive officers may be found in its 2021 Management Proxy Circular, dated March 10, 2021, as well as its 2020 Annual Report on Form 10-K filed with the SEC and applicable securities regulators in Canada on February 18, 2021, available on its website at and at and Information about KCS’s directors and executive officers may be found on its website at and in its 2020 Annual Report on Form 10-K filed with the SEC on January 29, 2021, available at and These documents can be obtained free of charge from the sources indicated above. Additional information regarding the interests of such potential participants in the solicitation of proxies in connection with the transaction will be included in the proxy statement/prospectus and management proxy circular and other relevant materials filed with the SEC and applicable securities regulators in Canada when they become available.

1 Except where noted, all figures are in U.S. dollars.
2 Based on KCS closing share price of $224.16 as of March 19, 2021 and CP closing share price of CAD$91.50 (at 1.2565 FX rate) as of Aug. 9, 2021.
3 Based on KCS closing share price of $224.16 as of March 19, 2021 and CP closing share price of CAD$91.50 (at 1.2565 FX rate) as of Aug. 9, 2021.
4 Accretion based on adjusted diluted EPS excluding one-time advisory, financing, and integration costs as well as incremental transaction-related amortization.



The offer is worth less but is more likely to get the go-ahead from regulators

The battle to buy United States railroad Kansas City Southern (KCS) has taken a fresh turn after the company accepted an improved offer from Canadian Pacific (CP), trumping a higher value offer from rival Canadian National (CN).

CP had originally agreed to a US $29-billion deal to take over KCS in March, only for Canadian National (CN) to come in with an improved $33.6-billion deal in May, which KCS accepted. However, that agreement left open the option of switching for a “Company Superior Proposal” pending further offers, which allowed CP to strike a new agreement with KCS.

The new CP offer is worth a more modest $31 billion, but is thought more likely to secure the green light from regulators, who rejected a key part of the CN’s offer last month. CN had three days to make amendments to its deal to quash the rival CP proposal. Both offers include the assumption of about $3.8 billion in KCS debt.

Either deal will be a game changer for North American railway industry. Both agreements would connect ports in Mexico, the United States and Canada, and create a direct line between ports south of Mexico City through the continent to Canada, which both CN and CP cover comprehensively.

Canadian Pacific CEO Keith Creel said he was satisfied to reach a deal. “We are pleased to reach this important milestone and again pursue this once-in-a-lifetime partnership,” he said.

“This merger proposal provides KCS stockholders greater regulatory and value certainty,” he added.

In Mexico, KCS transports freight to and from the ports of Tampico and Altamira in Tamaulipas, the port of Veracruz, and from the Pacific port of Lázaro Cárdenas in Michoacán through its wholly-owned subsidiary Kansas City Southern de México. But primarily it operates trains between the Valley of México and the El Bajío industrial region, taking automotive and industrial products into the United States via Texas.

CP began operating in 1881 and has approximately 20,100 kilometers of track in the United States and Canada, and acquired lines in the U.S. in 2009.

KCS is the smallest of the major freight railroads in the U.S, with 10,800 kilometers of track in the U.S. and Mexico.

CN is Canada’s largest railway company, spanning 32,831 kilometers of track. It gained control of the U.S. Illinois Central railroad in 1998, and Bill Gates is its biggest shareholder.



Adiconalmente, ambos gobiernos sostienen conversaciones sobre qué tanto Valor de Contenido Regional se le asignaría a México en estos proyectos para el cumplimiento de las reglas de origen en el Tratado entre México, Estados Unidos y Canadá (T-MEC).

México coproducirá semiconductores con Estados Unidos y, para ello, la secretaría de Economía, Tatiana Clouthier, se reunirá esta semana con varias empresas interesadas en Washington, DC.

Al respecto, el gobierno mexicano ha conversado con su contraparte estadounidense sobre la producción en México de “una parte importante” de los semiconductores y software en esa misma industria.

Al mismo tiempo, ambos gobiernos sostienen conversaciones sobre qué tanto Valor de Contenido Regional se le asignaría a México en estos proyectos para el cumplimiento de las reglas de origen en el Tratado entre México, Estados Unidos y Canadá (T-MEC).

El impulso de inversiones en esta industria ocurre luego de que la alta demanda de equipos electrónicos y de conectividad de red a nivel mundial originada por la pandemia de Covid-19 propició, a su vez, un desabasto de chips semiconductores para la industria automotriz.

Paralelamente, el gobierno estadounidense modificó las reglas para restringir la capacidad de Huawei de contratar chips semiconductores de instalaciones en el extranjero que utilizan tecnología estadounidense, como Taiwan Semiconductor Manufacturing Company (TSMC).

“¿Qué hemos planteado? Dos cosas: hacer una pieza importante y vincularla con la cadena de producción en Estados Unidos y, por otro lado, la parte de la programación; una parte en Jalisco y otra en Baja California”, dijo Clouthier este lunes en un foro organizado por Expansión.

Como una reacción a la carestía global de semiconductores, Estados Unidos atrajo inversiones por 32,000 millones de dólares en la construcción de esas piezas.

Por una parte, el gobierno de Estados Unidos negoció con la empresa taiwanesa TSMC para construir una fundición de chips de 5 nm de 12,000 millones de dólares en Arizona.

Además, Intel informó que invertirá 20,000 millones de dólares en la instalación de dos plantas de semiconductores, ambas también en Arizona.

“Si nosotros le vamos a meter (en la coproducción), cuál va a ser el compromiso que en el producto final me vas a dar, (qué) tanto porcentaje?, añadió Clouthier, en alusión a sus conversaciones con funcionarios estadounidenses.

Ya desde la anterior visita de Clouthier a Washington a finales de julio pasado, ella abordó con la secretaria de Comercio de Estados Unidos, Gina Raimondo, asuntos relacionados con la fabricación de semiconductores y las cadenas de suministro. A partir de entonces, se formaron grupos técnicos que están visualizando esta parte.

El Congreso estadounidense incluyó disposiciones en la Ley de Autorización de Defensa Nacional para el año fiscal 2021 a fin de impulsar las capacidades de Estados Unidos.

Fuente: El Economista

Por primera vez en los últimos 15 años, la entidad fronteriza se colocó en la cima nacional de atracción de IED durante el segundo trimestre del año en curso.

Durante el segundo trimestre del año en curso, Baja California se colocó por primera vez en los últimos 15 años como el principal receptor del país de Inversión Extranjera Directa (IED).

Ésta es la segunda ocasión que la entidad fronteriza se ubica en primer lugar nacional. La primera vez fue en el periodo julio-septiembre del 2006, cuando captó 328.1 millones de dólares, mientras esta hazaña la logró nuevamente en el lapso abril-junio del 2021, con una atracción de 1,321 millones de capital extranjero, de acuerdo con datos de la Secretaría de Economía.

Además, este último monto representó un crecimiento de 542.1% a tasa anual (el dato del primer trimestre de este año es preliminar; los demás son observados). Lo importante es que de los 1,321 millones de dólares que atrajo de IED Baja California, 81.1% corresponde a nuevas inversiones, situación que manifiesta certidumbre y confianza hacia el estado de los capitales foráneos. Por su parte, 18.1% se refiera a cuentas entre compañías y 0.8%, a reinversión de utilidades.

Por país, 1,240 millones de dólares provino de Estados Unidos, 495.1% más que en el segundo trimestre del 2020, lo que se traduce en la materialización de la economía binacional con California; el segundo lugar fue para Corea con 63 millones, que significó un incremento anual de 160.3 por ciento.

En tanto, la rama económica que dio este impulso positivo para la entidad de la frontera norte de México fue transporte de gas natural por ductos, con 1,006 millones de dólares de inversión. Otros resultados importantes se observaron en fabricación de productos de plástico (39 millones); fabricación de instrumentos de medición, control, navegación y equipo médico electrónico (25 millones); fabricación de aparatos eléctricos de uso doméstico (24 millones) y fabricación de automóviles y camiones (20 millones).

La política estatal de atracción de inversión extranjera se reflejó en la creación de empleos formales, ya que Baja California fue el mayor generador con 65,203 plazas laborales entre julio del 2021 y febrero del 2020 (nivel prepandemia), según información del Instituto Mexicano del Seguro Social (IMSS).

Asimismo, la primera entidad en superar los estragos que trajo consigo el Covid-19 en el mercado laboral fue Baja California, en agosto del 2020, con 3,790 nuevos puestos asegurados en el IMSS, respecto a febrero del mismo año, y considerando que al inicio de junio terminó la jornada nacional de sana distancia para evitar la propagación del virus (abril y mayo fueron de total confinamiento y paro de actividades no esenciales).

Los otros

Tras Baja California, los mayores receptores de IED en el segundo trimestre del presente año fueron Ciudad de México (953 millones de dólares), Chihuahua (533 millones), Coahuila (481 millones), Sonora (420 millones) y Zacatecas (400 millones). Mientras los menores montos fueron en Guanajuato (17 millones), Yucatán (16 millones) e Hidalgo (15 millones).

Sobresale que cuatro estados mostraron saldos negativos: Colima (-3 millones de dólares), Chiapas (-6 millones), Oaxaca (-49 millones) y Veracruz (-142 millones).

En el caso veracruzano, la merma provino de cuentas entre compañías (-216 millones de dólares), cuyo flujo negativo se debe a préstamos de las filiales a las matrices en el exterior y/o adelantos de pagos a filiales a sus matrices. Los saldos positivos fueron en reinversión de utilidades (19 millones) y nuevas inversiones (56 millones).


Por variación anual, 12 entidades presentaron incrementos, 13 redujeron su ritmo de captación de IED en el segundo trimestre del 2021, tres repuntaron (Aguascalientes, Morelos y Tamaulipas) y cuatro tuvieron saldos negativos, cuando un año antes eran positivos (no se pueden realizar tasas de crecimientos entre cifras negativas y positivas).

Los mayores aumentos en atracción de inversión extranjera fueron en Zacatecas, con 1,467.4% (pasó de 26 millones de dólares en el segundo trimestre del 2020 a 400 millones en igual periodo del 2021); Guerrero, con 573.3% (de 19 a 131 millones); Baja California, con 542.1% (de 206 a 1,321 millones); Yucatán, con 489.3% (de 3 a 16 millones), y Chihuahua, con 143.7% (de 219 a 533 millones).

Al otro extremo, las caídas más pronunciadas fueron en Tlaxcala, con -91.8% (de 250 a 21 millones de dólares); Guanajuato, con -93.2% (de 252 a 17 millones), y San Luis Potosí, con -93.8% (de 610 a 38 millones).

Es importante recalcar que los montos de IED en el segundo trimestre del 2020 fueron bajos por los estragos en el mundo que ocasionó el Covid-19.

Primera mitad del año

En el primer semestre del año, la entidad con mayor recepción de IED fue Ciudad de México (3,270 millones de dólares); de este monto, considerando los porcentajes más elevados por apartado, 57.7% perteneció a reinversión de utilidades, 33.4% provino de Estados Unidos y 22.0% se dirigió a banca múltiple.

Atrás de la capital del país se posicionaron Baja California (1,626 millones de dólares), Nuevo León (1,455 millones), Chihuahua (1,049 millones) y Guanajuato (1,016 millones). Mientras los montos más bajos se dieron en Hidalgo (66 millones), Yucatán (40 millones) y Colima (26 millones).

En el acumulado de la primera mitad del 2021, ningún estado exhibió saldos negativos de IED, por lo que en comparativo anual, 13 mostraron alzas anuales y 19, descensos. Los mayores aumentos fueron en Zacatecas (1,181.6), Michoacán (287.0%), Sonora (133.8%), Guanajuato (86.1%) y Quintana Roo (84.9 por ciento).

Sobre las entidades con los desplomes más pronunciados, es decir, que captaron menos inversión respecto a los primeros seis meses del 2020, sobresalen Sinaloa (-75.6%), Tlaxcala (-78.3%) y Nayarit (-81.6 por ciento).



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The new crossing aims to cut waiting times to 20 minutes but will charge a toll

A new crossing on the Mexico-U.S. border is set to open by late 2024 after an agreement was signed between officials from the two countries Monday.

The US $1 billion Otay Mesa East crossing, also known as Otay Mesa II, between Tijuana, Baja California, and Otay Mesa, California, will have five interchangeable lanes for vehicles and five more for commercial trucks. It aims to reduce waiting times to 20 minutes, representing a significant reduction and will charge travelers a toll. Toll revenues will be divided between the two countries.

The agreement commits both countries to complete their construction projects, resolve policy issues and establish a framework to share toll revenues.

In Tijuana, a US $186 million investment is contemplated for construction, which is set to begin next year. In the U.S. construction has already begun and the project has received US $565 million in funding.

Deputy Governor of California, Eleni Kounalakis, listed some of the benefits of the new crossing. “This new port of entry will not only spur economic activity, but it will also improve the quality of life for the millions of Californians and Mexicans who frequently cross one of the busiest borders in the world,” she said.

The Mexican Foreign Ministry’s North America representative, Roberto Velasco, said the crossing was symbolically important for the two countries’ relationship. “We believe in building bridges, not in building walls, and this is important for us in that sense,” he said.

“This is the future of the U.S.-Mexico relationship that we want. A future where we are more connected, and we allow for the many different possibilities that life on the border offers to both of our countries,” he added.

Plans for Otay Mesa East were first announced in 2014 during the Peña Nieto administration for completion in 2017. Last year, President López Obrador included the crossing among his infrastructure projects.

The area has long been an essential route for cross-border traffic. The Tijuana-San Ysidro crossing, only a short distance from where Otay Mesa East will be constructed, is the busiest crossing in the Western Hemisphere, according to U.S General Services Administration.