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Kansas City Southern boosts rail shipments of refined products to Mexico

Highlights

Carloads rise 61% in Q3

Cross-border business fuels growth

Mexican imports recovering from May

Mexico City — Kansas City Southern increased rail shipments of refined products to Mexico during the third quarter as gasoline and diesel demand slowly recovered from the economic effects of the coronavirus pandemic, the company said Oct. 16

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Carloads of refined products to Mexico increased by 61% on the year to 25,900, pushing revenues in the segment up 55% to $49.8 million.

The refined products segment aided the performance of Kansas City Southern's intermodal freight business, which consists of hauling freight containers or truck trailers to and from Mexico, and represented 13% of total revenues in 2019, according to the company's earnings report.

However, the increase was not able to compensate for lower shipments of frac sand and crude oil, and total Q3 carload volumes were down 4% on the year, resulting in a 12% fall in Q3 revenue to $659.6 million.

Cross-border business will continue to fuel Kansas City Southern's growth in the medium term, as it includes not just refined products, but industries like automobiles and agriculture, the company said.

"Our focus is to continue to improve our consistency and reliability," said President and CEO Pat Ottensmeyer during the company's earnings call. Ottensmeyer pointed to improvements the company is working on, including a planned bridge over the border in Nuevo Laredo.

The company is making other investments to improve its network, including rail expansions and increasing the length of trains.

Cross-border volumes ended the quarter at roughly 2,000 carloads per day, above pre-pandemic levels, company data showed. Volumes of refined products into Mexico ended above 300 carloads per day, also above pre-pandemic levels.

Since 2016, total cross-border volumes at Kansas City Southern's network have grown at around 11% per year, according to the company's annual financial reports.

For 2021, the performance of the refined products business will greatly depend on the impacts of the coronavirus pandemic on Mexico's economy and personal mobility, said Executive Vice President and Chief Marketing Officer Michael Naatz.

"Given the current trends, I would expect that that will continue to improve," Naatz said.

Total imports of gasoline and diesel into Mexico averaged 697,547 b/d in August, up from 495,173 b/d in May, when the pandemic hit the hardest, but down 16.2% on the year, according to the most recent monthly data from the Energy Secretariat.