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Kansas City Southern: Trailer Volumes Drive Intermodal Growth

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Kansas City Southern’s intermodal traffic

Since the beginning of 2017, Kansas City Southern (KSU) has seen its intermodal traffic slow. However, in the week ended April 1, 2017, KSU reported a YoY (year-over-year) rise of 10% in its overall intermodal traffic.

Kansas City Southern’s sharp 28% rise in trailer volumes gave a boost to its overall rise in intermodal volumes. The company’s container volumes also rose to 10% in the 13th week of 2017.

Investors interested in comparing this week’s freight volume data with the previous week’s levels can visit Market Realist’s Week 12: North American Freight Rail Traffic on the Fast Track.

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Does intermodal traffic matter to KSU?

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

ETFs

If you want exposure to the transportation sector, you can invest in the Rydex 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).

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