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How the Fall in Coal Carloads Pulled down Kansas City Southern

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Kansas City Southern’s carloads

In the week ended October 22, 2016, Kansas City Southern’s (KSU) total railcars fell 0.1% from the corresponding period in 2015. KSU hauled ~25,000 railcars that week, as compared to nearly 25,000 railcars during the same period in 2015. However, carloads other than coal and coke rose 3.6% in the week ended October 22, 2016.

Investors should note that in the carload data reported so far in 2016, KSU has recorded the slightest fall in carloads among Class I peers. KSU’s exposure to emerging Mexican markets has helped push the company’s volumes up.

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Are coal carloads important to KSU?

In the week ended October 22, 2016, Kansas City’s coal and coke railcar units fell 13.2%. In the same week, KSU hauled ~4,800 units of coal and coke, as compared to the 5,500 units hauled in the corresponding week of 2015.

Investors should note that utility coal, other coal and petroleum coke accounted for 9% of KSU’s total revenues in 3Q16. Utility coal and petroleum coke carloads represented 12.5% of total carloads during the quarter, and though percentage-wise, it may not be significant, this still holds importance, given the company’s relatively small scale of operations.

The company moves coal originating from the Powder River Basin in Wyoming and coal mined in the US Midwest. Coal producers operating in that region such as Alpha Natural Resources (ANR) and Peabody Energy (BTU) have anticipated weak coal shipments in 2016. Black Hills Corp (BKH) also operates in the same region but doesn’t produce coal commercially.

Transportation-specific investors can invest in the iShares US Industrials ETF (IYJ), which has 5.6% exposure to major US railroads.

Advancing and declining commodities

For the week ended October 22, 2016, the main commodity groups in the green zone include:

  • grain
  • crushed stone, sand, and gravel
  • grain mill products
  • food and kindred products
  • chemicals and allied products
  • iron and steel scrap

The major commodities in the red zone include:

  • pulp, paper, and allied products
  • crushed stone, sand, and gravel
  • petroleum products
  • metals and products
  • motor vehicles and equipment

In the next part, we’ll take a look at the intermodal traffic of Kansas City Southern.

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