Kansas City Southern’s profits soars 34.8% on increasing trade between US, Mexico

23 October, 2018

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Kansas City Southern’s (KCS) profits increased 34.8% in the third quarter boosted by a strong growth of cross-border traffic between the United States and Mexico, a segment where the company leads among rail freight operators and which represents nearly 30% of its total revenue.

The company reported net income of US$ 174 million -up from US$ 129 million in the third quarter of 2017- on record revenues of US$ 699 million, which represented an increase of 6% from prior year on 4% volume growth.

Revenues increased in three commodity groups, led by a 17% increase in Chemicals and Petroleum due to refined product shipments to Mexico. In fact, fuel carloads moving into Mexico from the U.S. increased by 164% from 5,132 units in the third quarter of 2017 to 13,355 in the same period of 2018, said company officials at the Q3 earnings conference call.

“We expect this accelerated growth phase to continue over the coming years as result of the new terminals coming online,” said Brian Hancock, the company’s executive vice president.

Automotive and Intermodal each grew by 8%. Industrial and Consumer Products and Agriculture and Minerals were each flat compared to prior year, and Energy declined by 2%.

KCS cargo volume increased after the Mexico government introduced new regulations on truckers, however, the company now faces some real challenges as car congestion has increased at two key cross-border switching facilities, Monterrey and Sanchez, located in Salinas Victoria, Nuevo Leon and Nuevo Laredo, Tamaulipas respectively. As result, the figure of weekly cars online in Mexico has increased to 32,000 during September, up from about 26,000 through the first half of the year.

“Our long-term operating plan for this area is to move some of the switching activity for Monterrey into Sanchez, where we will be able to handle the increasing volumes more efficiently,” said Jeff Songer, KCS chief operating officer, adding that the company will lease 30 additional locomotives in the short-term and have temporarily relocated crews into the region.

During his participation, CEO Patrick Ottensmeyer praised the outcome of the new United States, Mexico and Canada (USMCA) trade deal. “The new USMCA still has some work to do, but It looks like a good agreement,” Ottensmeyer said adding that comments from President-elect Andres Manuel Lopez Obrador have further reduced uncertainty. “Most of the signals that we’ve gotten are positive and encouraging that we will not see any major shift in either foreign relations or economic policy on Mexico.”

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