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Kansas City Southern’s Intermodal: Containers Rose as Trailers Fell

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Kansas City Southern’s intermodal volumes

Kansas City Southern (KSU) reported a marginal drop in overall intermodal traffic in the week ended July 9, 2016. Container traffic was up 2.2% in the reported week. However, the trailer traffic went down 52.8% on a year-over-year basis. KSU’s container traffic in the week ending July 9 was flat compared to the corresponding week last year.

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Why is intermodal important to KSU?

KSU operates in Mexico through Kansas City Southern de Mexico (or KCSM). In the last fiscal year, ~48% of KSU’s revenues came from Mexico. Intermodal 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, the intermodal traffic is affected by exclusive access to ports, highway-to-rail conversions, and retail sales. KSU may witness some increased intermodal volumes in the second half of 2016. This is mainly due to an upcoming APMT 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 like BNSF Railway (BRK-B) and Union Pacific (UNP). In Mexico, KCSM’s intermodal competes with Landstar System (LSTR), Trinity Logistics, and ByExpress Logistics.

Investors who want exposure to the transportation sector can invest in the Guggenheim S&P 500 Equal Weight ETF (RSP). All the US originated Class I railroads are part of RSP.

You can compare this week’s rail data with data from the previous week in Why Freight Rail Traffic Rose in the Week Ending July 2. In the next article, we’ll go through the traffic of Canada’s largest freight rail, Canadian National Railway (CNI).

For more information on major US railroad stocks, visit Market Realist’s railroads page.

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