Kansas City Southern’s Intermodal Is in the Line of Fire

Week Ending April 23: North American Rail Traffic Fell

(Continued from Prior Part)

Kansas City Southern’s intermodal

Kansas City Southern (KSU) reported a 7% fall in overall intermodal traffic in the week ended April 23, 2016. Container traffic went down by 7% in the reported week of 2016. The company moved 18,000 containers last week compared to 20,000 in the corresponding week of 2015.

In the week ended April 23, 2016, KSU moved 274 trailers against 321 trailers on a year-over-year basis. KSU, the smallest US Class I railroad, operates in the US and Mexico. The fall in KSU’s intermodal traffic is in line with the fall in US intermodal traffic. However, it’s much higher than the decline in intermodal traffic reported by Mexican railroads in the week ended April 23, 2016.

Why is intermodal important to KSU?

KSU operates in Mexico through Kansas City Southern de Mexico (or KCSM). In fiscal 2015, ~48% of KSU’s revenues came from Mexico. Intermodal accounted for ~16% of the company’s total revenues in 2015. In Mexico, the company has the sole concession to serve the Port of Lázaro Cárdenas, an important port in Mexico.

Apart from seasonality, the intermodal traffic is impacted by exclusive access to ports, highway to rail conversions, and levels of retail sales. KSU may witness some increased intermodal volumes in the second half of 2016. This is mainly due to an upcoming APMT container terminal at Lázaro Cárdenas. This terminal is expected to be operational in the second half of the current year. 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.

Investors opting for exposure in the transportation sector can invest in the Guggenheim S&P 500 Equal Weight ETF (RSP). All the US originated Class I railroads make up the portfolio holdings of RSP.

For information on the previous week’s rail traffic, visit Market Realist’s Week Ended April 16: US, Canadian Railcars and Intermodals Slumped. In the next article, we’ll go through the traffic of Canada’s largest freight rail, the Canadian National Railway (CNI).

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Mexican Rail Traffic Fell Less than US and Canadian Rail Traffic

• Part 2 - Norfolk Southern’s Railcars Slid in Line with Other US Railroads

• Part 3 - Norfolk Southern’s Intermodal: Containers Go Up as Trailers Slump