In the week ended January 28, 2017, Kansas City Southern (KSU) reported a YoY (year-over-year) fall of 6.8% in its overall intermodal traffic. Container volumes fell by almost an equal percentage, while trailer traffic contracted sharply by 22.9% YoY. The percentage fall in KSU’s intermodal traffic was in tune with the fall reported by Mexican railroads, though in contrast with the rise recorded by US rail carriers. Investors interested in comparing this week’s freight volume data with the previous week’s can read Tracking Freight Rail Traffic for the Week Ended January 21.
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KSU operates in Mexico through KCSM (Kansas City Southern de México). KSU receives nearly 48% of its revenue from Mexican operations. In 2016, intermodal accounted for 16% of the company’s total revenue. In Mexico, the company has the sole concession to serve the busy Port of Lázaro Cárdenas. However, with ongoing talks of constructing a wall on the US-Mexico border, investors should pay attention to how KSU’s business compares with that of other US Class I railroads.
Apart from seasonality, intermodal traffic is affected by exclusive access to ports, highway-to-rail conversions, and levels of retail sales. KSU’s US intermodal business competes with major Western carriers such as BNSF Railway (BRK-B) and Union Pacific (UNP). In Mexico, KCSM’s intermodal competes with Landstar System (LSTR), Trinity Logistics, and ByExpress Logistics.
If you want exposure to the transportation sector, you could invest in the Guggenheim S&P 500 Equal Weight ETF (RSP). All US-originated Class I railroads are included in the portfolio holdings of RSP. In the next part of this series, we’ll look at traffic for Canada’s largest freight rail carrier, Canadian National Railway (CNI).