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KSU’s Intermodal Traffic Falls despite Mexico’s Intermodal Rise

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Kansas City Southern’s intermodal traffic

Kansas City Southern (KSU) reported a 5.5% fall in overall intermodal traffic in the week ended April 16, 2016. Container traffic fell by 5.4% in the same week. The company witnessed 19,000 containers moving in the week compared to 20,000 in the corresponding week of 2015.

In the week ended April 16, KSU moved 231 trailers. During the same period last year, it moved nearly 300 trailers. KSU, the smallest US Class I railroad, operates in the United States and Mexico. The fall in KSU’s intermodal traffic was in-line with the fall in US intermodal traffic. However, it contrasted the marginal rise reported by Mexican railroads.

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Why is intermodal traffic important to KSU?

KSU operates in Mexico through Kansas City Southern de Mexico (or KCSM). In 2015, nearly 48% of KSU’s revenue came from Mexico. Intermodal traffic accounted for ~16% of the company’s total revenue 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 volumes in the second half of 2016, mainly due to the upcoming APMT container terminal at Lázaro Cárdenas. The terminal is expected to be operational in the second half of 2016.

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 Logistics.

Investors looking for exposure to the transportation sector can invest in the Guggenheim S&P 500 Equal Weight ETF (RSP). All US-originated Class I railroads make up the portfolio holdings of RSP.

For more information on last week’s rail traffic, visit Market Realist’s Week Ended April 9: North American Rail Traffic, Intermodal Slump. In the next article, we’ll go through the traffic of Canada’s largest freight rail, Canadian National Railway (CNI).

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