Kansas City Southern: A Look at Its Intermodal Traffic

In the past few weeks, Kansas City Southern (Kansas City Southern), the smallest Class I railroad company in the United States, has seen its intermodal traffic slow. In the week ended April 29, 2017, Kansas City Southern reported a YoY (year-over-year) fall of 6.1% in its overall intermodal traffic. Kansas City Southern’s trailer volumes fell 16%, and the company’s container volumes also fell, by 6%.

Kansas City Southern operates in Mexico through KCSM (Kansas City Southern de México). Kansas City Southern receives nearly 48.0% of its revenue from its Mexican operations. In 2016, KCSM’s intermodal traffic accounted for 16.0% of the company’s total revenue. In Mexico, the company has the sole concession to serve the busy Port of Lázaro Cárdenas.

However, given President Donald Trump’s ongoing talks of constructing a wall on the US-Mexico border, we should pay attention to how Kansas City Southern’s business compares with that of other US Class I railroad companies.

Apart from seasonality, intermodal traffic is affected by exclusive access to ports, highway-to-rail conversions, and retail sales. Kansas City Southern’s US intermodal business competes with major Western US 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.

For exposure to the transportation sector, you can invest in the Guggenheim S&P 500 Equal Weight ETF (RSP). All US-originated Class I railroad companies are part of RSP’s portfolio holdings. Continue to the next part of this series for a look at the traffic of Canada’s largest freight rail carrier, Canadian National Railway (CNI).