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How KSU’s Intermodal Traffic Compared to the Industry’s

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Kansas City Southern’s intermodal traffic

Kansas City Southern (KSU) reported a fall of 4.8% in its overall intermodal traffic in the week ended October 1, 2016. Its container traffic fell 4.3% in the week. Even its trailer traffic fell 23.9% on a year-over-year basis.

The percentage fall in KSU’s intermodal traffic was in line with the total fall reported by US railroad companies. However, the fall was in contrast to the rise in intermodal traffic reported by Mexican railroads in the week.

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Why is intermodal traffic important to KSU?

KSU operates in Mexico through Kansas City Southern de Mexico (or KCSM). Last year, nearly 48% of KSU’s revenue came from Mexico, and intermodal traffic accounted for ~16% of the company’s total revenue in the same period. 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 2H16, mainly due to the APMT container terminal at Lázaro Cárdenas. This terminal is expected to be operational in 2H16.

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 opting for exposure to the transportation sector can invest in the Guggenheim S&P 500 Equal Weight ETF (RSP). All US-originated Class I railroad companies are included in the portfolio holdings of RSP.

In the next article, we’ll discuss the traffic of Canada’s largest freight rail, Canadian National Railway (CNI).

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