Kansas City Southern (KSU) reported a 24.3% fall in intermodal traffic in the week ended March 12, 2016. The most noteworthy aspect of this fall was the huge fall in trailer traffic.
Trailer traffic fell by a staggering 55%, from 589 units in the week ended March 14, 2015, to 266 units in the comparable week of 2016. Containers followed suit, tumbling by 24% in the week ended March 12, 2016.
KSU has operations in both the United States and Mexico. Its recent fall in intermodal traffic was much higher compared to the total falls in the United States and Mexico.
Why intermodal matters
KSU operates in Mexico through Kansas City Southern de Mexico (or KCSM). In 2015, nearly 48% of KSU’s revenues came from Mexico. Intermodal revenues accounted for ~16% of the company’s total revenues in 2015. In Mexico, the company has the sole concession to serve the Port of Lázaro Cárdenas, an important port in Mexico.
Apart from seasonality, intermodal traffic is impacted by exclusive access to ports, highway-to-rail conversions, and retail sales levels. KSU may witness increased intermodal volume in the second half of 2016. This will mainly be due to an upcoming APM container terminal at Lázaro Cárdenas. This terminal is expected to be operational in the second half of the current year.
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 business competes with Landstar System (LSTR), Trinity Logistics, and BYEXPRESS.
Investors opting for pure play in the transportation sector can invest in the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR). This ETF has 5.4% exposure to railroads and 10.2% exposure to airlines.
In the next article, we’ll take a look at Canada’s largest freight rail, the Canadian National Railway (CNI).