Kansas City Southern’s carloads
In the week ended July 30, 2016, Kansas City Southern’s (KSU) total railcars rose by 3.7%, as compared to the corresponding week of 2015. KSU hauled 25,000 railcars, as compared to ~24,000 railcars during the same period in 2015. But carloads other than coal and coke declined by 2.9%. Notably, among the carload data reported so far in 2016, KSU has recorded the smallest fall.
Remember, KSU also operates in Mexico, which is a fast-growing economy, and the company has already benefited from its Mexican operations, which have put a premium on KSU in its peer group.
Are coal carloads important to KSU?
Surprisingly, in the week ended July 30, 2016, Kansas City’s coal and coke railcar units rose by 32.8%. In the same week, KSU hauled ~6,000 units of coal and coke, as compared to ~4,000 units in the corresponding week of 2015.
Utility coal, other coal, and petroleum coke accounted for 7.4% of KSU’s total revenues in 2015. Utility coal and petroleum coke carloads represented ~11% of the company’s total carloads that year. While it may not seem significant percentage-wise, this figure still holds importance, given the company’s relatively small scale of operations.
KSU moves coal originating from the Powder River Basin in Wyoming and coal mined in the Midwest US. Coal producers operating in that region, such as Alpha Natural Resources (ANR) and Peabody Energy (BTU), have anticipated weak coal shipments in 2016. BTU filed Chapter 11 bankruptcy protection in the US on April 13. Black Hills (BKH) operates in the same region but doesn’t produce coal commercially.
Investors in the transportation sector might consider ETFs like the iShares US Industrials ETF (IYJ), which has all major US railroads (5.5%) in its portfolio holdings.
Advancing and declining commodities
For the week ended July 30, 2016, the main commodity groups in the green zone were:
- grain mill products
- food and kindred products
- chemicals and allied products
- iron and steel scrap
The major commodities in the red zone included:
- crushed stone, sand, and gravel
- lumber and wood products (except furniture)
- pulp, paper, and allied products
- metals and products
- motor vehicles and equipment
In the next part, we’ll take a look at Kansas City Southern’s intermodal traffic.