Train robberies lead to rising insurance, freight costs

(Bloomberg) – Head southeast out of Mexico City for about four hours or so and you will come upon the town of Acultzingo.

It is an impoverished, dusty little place nestled up against the rugged peaks of the Sierra Madre. Most inhabitants work the land for a living. They grow corn and avocados and raise cattle and pigs. They also rob trains. Lots of trains. So many, in fact, that Acultzingo (pronounced ah-coolt-ZEEN-go) is not only the train robbery capital of Mexico but, arguably, of the world.

Massive, choreographed robberies

Over the past year alone, there were 521 crimes committed against cargo trains in the town. And a chunk of those incidents bore no resemblance to the run-of-the-mill petty crime seen in the bigger cities of northern Mexico — vandalizing a train car or stealing railway signs. No, these were massive, choreographed affairs that often started with a low-tech trick that dates back to the days of the Wild West — piling rocks up high on the tracks — and involved small armies of thieves who descended on the derailed cars in waves to cart off the loot.

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They’ve swiped tequila, shoes, toilet paper, tires, whatever they could get their hands on. One particularly violent incident alone, which derailed dozens of train cars a few miles east of Acultzingo, saddled railroad giant GMexico Transportes with more than $15 million in losses. And at Mazda Motor’s offices back in Mexico City, executives got so sick of hearing about how parts were being stripped from their vehicles that they started shipping some of them through the region by highway. Analysts estimate this tacks 30% on their transportation costs. (Mazda declined to provide figures.)

Overwhelmed security forces

Security forces are so overwhelmed by the sheer number of attackers, says political-risk analyst Alejandro Schtulmann, that a sense of impunity prevails in the area. “The problem is getting worse all the time,” says Schtulmann, who heads Mexico City-based consultancy EMPRA.

It’s this kind of extreme lawlessness that has led some Mexico observers to wonder at times whether the country is something of a failed state struggling to rule over the entirety of its territory. Homicides are at a record high. Kidnappings are on the rise, too. Reining this crime in, at least somewhat, will soon be the task of Andres Manuel Lopez Obrador, the populist leader who rolled to a landslide election victory this month in part on his pledge to restore law and order.

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But the train-heist boom underscores just how tricky this assignment will be. The phenomenon only really took off recently after federal authorities managed to crack down on another crime wave — in the fuel market — that had swept over the same section of the country. As soon as some of the huachicoleros, as the gangs are known, were driven out of the stolen-fuel business, they shifted into train robbery, giving the whole thing a certain whack-a-mole feel.

“We saw a mutation in organized crime,” says Benjamin Aleman, head of the country’s railway regulator.

Outbreak concentrated in southeastern Mexico

It can be a bit surprising to hear that professional train robbers still roam the Earth. Their heyday, of course, was the 19th century, when the likes of Jesse James and Butch Cassidy were marauding their way across the American West. A few decades later, the young caudillo Doroteo Arango — better known as Pancho Villa — terrorized railroad engineers on the other side of the Rio Grande.

The robberies largely faded into lore as trains got faster and, consequently, harder to raid. Nowadays, it’s difficult to even track down the heist data in much of the world. But of those countries where it’s available, Mexico reports the most, according to Sensitech, a subsidiary of United Technologies that monitors supply-chain logistics.

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The outbreak is predominantly concentrated in southeastern Mexico — in Veracruz, where Acultzingo is located, and in the neighboring state of Puebla. All the ingredients are there: Poverty is rampant, the mountains provide natural cover, and a steady supply of cargo earmarked for export rumbles right through the heart of the region en route to the nearby port in Veracruz.

Grisly car pileups & injuries

When gangs aren’t stacking up rocks on the tracks, they’re derailing the trains by sabotaging the brakes — a technique that can cause even more grisly car pileups and injuries. They’ve also started inviting the townspeople to partake in the spoils. This both earns their loyalty, experts say, and gains the bandits an added layer of protection against police officers and soldiers tempted to open fire.

Grainy video images taken by local media depict the same scene playing out over and over again: dozens of people storming a derailed train like a colony of ants while outnumbered officers helplessly look on.

Growing headache

It’s not hard, Schtulmann says, to persuade the locals to join in. Like the people who took up arms against the military in neighboring Chiapas state two decades earlier, many of them feel neglected by the politicians back in Mexico City. “Communities argue that the rich are getting richer and poor poorer,” Schtulmann says, “so it’s social justice.”

Perhaps, but for corporate Mexico, it’s becoming a growing headache. Eduardo Solis, the head of the country’s auto industry association, called the situation “simply unacceptable” at a press conference last month. And Audi, which ships as many as 3,300 cars a day to the Veracruz port from its plant in Puebla, said the thefts have had a “big impact” on its distribution operations. “Every car we make has a client waiting for it.”

No official estimates of economic losses have been roughed out yet, but Schtulmann says that the costs can be seen in things like rising freight rates and insurance costs and the way that the government and railroad operators are forced to keep spending more on security in the area.

Highway theft also a problem

And that solution that Mazda came up with — shipping some of its cars by highway — may not prove much of a long-term fix. Enrique Gonzalez, the head of Mexico’s trucking association, was granted a sit-down with Lopez Obrador earlier this month. In it, he pressed the president-elect to appoint a special prosecutor to fight highway theft. The nation’s fleet of trucks, Gonzalez said, is under attack day and night.