Week Ending April 23: North American Rail Traffic Fell

(Continued from Prior Part)

Kansas City Southern’s railcars

In the week ended April 23, 2016, Kansas City Southern’s (KSU) total railcars were up 4% against the corresponding period last year. In the reported week of 2016, KSU moved approximately 22,000 railcars against 21,000 units on a year-over-year basis. Railcar movement excluding coal and coke was up by 5% in the latest reported week of 2016. This upward movement can be attributed to KSU’s rail traffic moving to normalcy after the heavy floods in the Southeastern US in mid-March.

You should note that KSU’s freight transportation prospects are also linked with the movement of overall Mexican railcar units. Kansas City Southern’s upward rail traffic remains the exception in the week ended April 23, 2016, compared to North American rail traffic in the same period.

Are coal carloads important to KSU?

Kansas City’s coal and coke railcar units were down by a mere 1.3% in the week ended April 23, 2016. In the same week, KSU hauled 2,500 units of coal and coke against 2,530 units in the week ended April 25, 2015.

You should note that utility coal, other coal, and petroleum coke accounted for 7.4% of KSU’s total revenues in 2015. Plus, the utility coal and petroleum coke carloads represented ~11% of total 2015 carloads. Even though percentage-wise, these may not be significant, they are important given the company’s relatively small scale of operations.

The company moves coal originating from the Powder River Basin in Wyoming and coal mined in the Midwest US. The coal producers operating in that region such as Alpha Natural Resources (ANR) and Peabody Energy (BTU) have anticipated weak coal shipments in 2016. BTU filed for Chapter 11 bankruptcy protection in the US on April 13. However, Black Hills (BKH) also operates in the same region but doesn’t produce coal commercially.

Investors may opt to invest in the iShares Global Industrials ETF (EXI) to gain exposure to the transportation sector. All major US railroads and airlines are included in the portfolio holdings of EXI.

Advancing and declining commodities

For the week ended April 23, 2016, the main commodity groups in the positive zone were:

• grain

• iron and steel scrap

• grain mill products

• petroleum products

• metals and products

• iron and steel scrap

The major commodities in the negative growth zone were:

• crushed stone, sand, and gravel

• pulp, paper, and allied products

• chemicals and allied products

For information on the previous week’s rail traffic, visit Market Realist’s Week Ended April 16: US, Canadian Railcars, and Intermodal Slumped. In the coming part, we’ll take a look at Kansas City Southern’s intermodal traffic.