Cement may not be sexy, but it's in great demand. Developed and developing countries alike need it to build everything from housing foundations to critical infrastructure such as roads, bridges, and airports. It's so important that it's hard to imagine what a shortage of the ubiquitous, gray material would do to any economy.

Logistics managers at CEMEX Inc., the largest ready-mix concrete producer and the third-largest cement producer in the world, are well aware of the growing demand for this critical commodity. Founded in Mexico 100 years ago, CEMEX manufactures and sells cement and concrete products to industrial, commercial, residential, and municipal construction projects.

Two years ago, when soaring demand in the Maricopa County/Phoenix, Ariz., market coincided with a shortage of rail capacity, CEMEX could not meet its customers' delivery requirements. That problem has largely been resolved through discussions between CEMEX and its primary carrier, the Union Pacific Railroad (UP). Not only were the shipper and carrier able to introduce efficiencies that benefited both parties, they also developed commercial terms to support the new operations.

CEMEX's shipments to the United States begin in Hermosillo, Mexico, where the dry components of cement are loaded onto the Ferrocarril Mexicano (Ferromex) railroad. This extremely dense material is unsuited for truck transportation and is more cost-effective to ship by rail. The cement crosses the U.S. border at Nogales, Ariz., and UP takes over from there.

CEMEX is one of Union Pacific's largest customers, using the railroad to ship unfinished cement products throughout the western United States. UP is a good-sized company in its own right: It is the largest railroad in North America, operating about 7,500 locomotives and 87,500 railcars over 32,615 route miles in 23 states. But the nation's growing economy has stretched even that considerable capacity in the last few years, causing bottlenecks and shipment delays.

While rail capacity was tightening, explosive growth in housing development in the Sun Belt caused demand for CEMEX's products to soar. Disruptions caused by weather, rail service problems, and supply limitations made stock-outs at CEMEX's Arizona terminals increasingly frequent. Suddenly, builders couldn't get cement when they needed it.

"Stock-outs became a weekly occurrence," recalls Logistics Manager Gary Burns, "By mid-2004, our ability to meet customer needs was significantly negatively impacted, not just in timing but even in our ability to meet demand over any reasonable time frame."

To be sure, both the shipper and the carrier shared the blame. UP was unsure of exactly how many cars CEMEX needed because the shipper was late in notifying the railroad of its requirements. And shipping schedules were flexible to a fault: If CEMEX shipped so much that demand overloaded UP's capacity, the excess sat for days or even weeks. Continued...

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