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Decoding Kansas City Southern’s Carload Growth Story

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Kansas City Southern’s carloads

In the week ended March 18, 2017, Kansas City Southern’s (KSU) total railcars rose 24% compared to the corresponding week of 2016. In the reported week, KSU hauled ~25,000 railcars, compared to over 20,000 units in the week ended March 19, 2016. Carloads other than coal and coke rose an impressive 21% YoY (year-over-year).

KSU’s recent growth in coal and coke carloads has been remarkable. The company’s coal and coke carloads rose a staggering 42.4% in the 11th week of 2017. The company hauled ~4,000 railcars of coal and coke, compared to 3,000 carloads in the corresponding week of 2016.

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Are coal carloads vital to KSU?

Utility coal, other coal, and petroleum coke accounted for 9% of KSU’s total revenue in 2016. The share of these commodities’ carloads out of total carloads was 11.7% in 2016. Although that percentage may not seem significant, it’s noteworthy given KSU’s small scale of operations.

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

Investors interested in the transportation sector could consider investing in the iShares US Industrials ETF (IYJ). Major US railroad companies make up 6.2% of IYJ’s portfolio.

Rising and falling commodities

In the week ended March 18, 2017, the following commodity groups rose:

  • grain
  • motor vehicles and equipment
  • food and kindred products
  • pulp, paper, and allied products
  • chemicals and allied products
  • iron and steel scrap

Major commodities that fell during the week included the following:

  • grain mill products
  • crushed stone, sand, and gravel
  • metals and products

In the next article, we’ll focus on KSU’s intermodal volumes.

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