Understanding Kansas City Southern’s Intermodal Volumes

Kansas City Southern’s intermodal volumes

Kansas City Southern (KSU) reported a YoY (year-over-year) rise of 20.8% in its overall intermodal traffic in the week ended December 24, 2016. Much of the fall in volumes was shared by trailer traffic, which rose 17.8% on a YoY basis. The percentage rise in KSU’s intermodal traffic was lower than the rise reported by US and Mexican railroads overall.

Understanding Kansas City Southern’s Intermodal Volumes

Why is intermodal important to KSU?

KSU operates in Mexico through KCSM (Kansas City Southern de México). KSU receives nearly 48.0% of its revenue from Mexican operations. In 3Q16, intermodal accounted for 14.7% of the company’s total revenues. In Mexico, the company has the sole concession to serve the Port of Lázaro Cárdenas—a busy port.

Apart from seasonality, intermodal traffic is impacted by exclusive access to ports, highway-to-rail conversions, and levels of retail sales. 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.

ETF investment

If you want exposure to the transportation sector, you can always invest in the Guggenheim S&P 500 Equal Weight ETF (RSP). All the US originated Class I railroads are included in the portfolio holdings of RSP.

In the next part of this series, we’ll look at the traffic for Canada’s largest freight rail, Canadian National Railway (CNI).