14 Feb

Understanding Kansas City Southern’s Intermodal Traffic

WRITTEN BY Samuel Prince

Kansas City Southern’s intermodal traffic

In the week ended February 4, 2017, Kansas City Southern (KSU) reported a YoY (year-over-year) fall of 6.5% in its overall intermodal traffic. Container volumes fell by an almost equal percentage, but trailer traffic grew 1.8% YoY.

Notably, the percentage fall in KSU’s intermodal traffic was in tune with the fall reported by Mexican railroads, though it was in contrast with the rise recorded by US rail carriers.

Understanding Kansas City Southern’s Intermodal Traffic

Why is intermodal so important to KSU?

KSU operates in Mexico through KCSM (Kansas City Southern de México). KSU receives nearly 48% of its revenue from Mexican operations. In 2016, intermodal accounted for 16% of the company’s total revenue.

In Mexico, the company has the sole concession to serve the busy Port of Lázaro Cárdenas. However, with ongoing talks of constructing a wall on the US-Mexico border, investors should pay attention to how KSU’s business compares with that of other US Class I railroads.

Apart from seasonality, intermodal traffic is affected by exclusive access to ports, highway-to-rail conversions, and levels of retail sales. 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 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 US-originated Class I railroads are included in the portfolio holdings of RSP.

Investors interested in comparing this week’s freight volume data with the previous week can check out Market Realist’s Your Freight Rail Traffic for the Week Ended January 28.

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

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