Kansas City Southern’s intermodal traffic
In the past few weeks, Kansas City Southern (KSU), the smallest Class I railroad company in the United States, has seen its intermodal traffic slow. However, in the week ended March 18, 2017, KSU reported a solid YoY (year-over-year) rise of 39% in its overall intermodal traffic.
The sharp rise of 62% in trailer volumes gave a boost to the overall rise in KSU’s intermodal volumes. The company’s container volumes also rose an impressive 38.8% in the 11th week of 2017.
Why is intermodal traffic so important to KSU?
KSU operates in Mexico through KCSM (Kansas City Southern de México). KSU receives nearly 48% of its revenue from its Mexican operations. In 2016, intermodal traffic 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, given President Donald Trump’s ongoing talks of constructing a wall on the US-Mexico border, investors should pay attention to how KSU’s business compares to other US Class I railroad companies.
Apart from seasonality, intermodal traffic is affected by exclusive access to ports, highway-to-rail conversions, and 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.
If you want exposure to the transportation sector, you can invest in the Guggenheim S&P 500 Equal Weight ETF (RSP). All US-originated Class I railroad companies are part of RSP’s portfolio holdings.
Continue to the next part of this series to look at the traffic of Canada’s largest freight rail carrier, Canadian National Railway (CNI).