North American Railroads as of March 26: Slipping off the Tracks
Kansas City Southern’s intermodal volumes
Kansas City Southern reported a 50.2% fall in intermodal traffic in the week ended March 26, 2016. No trailers moved in the latest reported week. In the corresponding week of 2015, KSU observed 386 trailers moving.
Containers also reported a huge fall of 50% in the week ended March 26, 2016. KSU has operations in both the United States and Mexico. However, the huge fall in KSU’s intermodal traffic is in-line with the nearly 35% fall in Mexican intermodal traffic for the latest reported week of 2016.
Why is intermodal traffic important to KSU?
KSU operates in Mexico through Kansas City Southern de Mexico (or KCSM). In fiscal 2015, nearly 48% of KSU’s revenues came from Mexico. Intermodal traffic accounted for ~16% of the company’s total revenues in 2015. The company has the sole concession to serve the Port of Lázaro Cárdenas, an important port in Mexico.
Apart from seasonality, intermodal traffic is impacted by exclusive access to ports, highway to rail conversions, and retail sales levels. KSU may witness increased intermodal volumes in the second half of 2016. This will mainly be due to an upcoming APMT container terminal at Lázaro Cárdenas. This terminal is expected to be operational in the second half of 2016.
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 business 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 US-originated Class I railroads make up the portfolio holdings of RSP.
In the next article, we’ll take a look at Canada’s largest freight rail, Canadian National Railway (CNI).
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