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Executives with Kansas City Southern (NYSE:KSU) are cautiously optimistic about rail volumes in 2021, with optimism for an economic recovery tempered by uncertainties related to the coronavirus pandemic.
“The recovery has been remarkable, if a bit uneven,” said Kansas City Southern (KCS) Chief Marketing Officer Mike Naatz during the company’s third-quarter 2020 earnings call Friday. Although certain businesses remain under pressure and COVID-19 is still a risk, KCS has good reason to be optimistic about an economic recovery, Naatz said. He based his observations on customers’ feedback as well as on market conditions such as a tightening truck market.
Cross-border traffic between the U.S. and Mexico could drive volumes in 2021 amid improving markets for intermodal, motor vehicles and parts, grain and industrial products. But an outlook for refined products is unclear and dependent on the economy and on whether many people will continue to work remotely.
KCS declined to provide specifics on metrics such as operating ratio in 2021, train lengths and plans for how it expects to encourage truck-to-rail conversions, saying that some of those discussions will occur when the company reveals its fourth-quarter results in January.
Instead, KCS executives stressed a bullish outlook on cross-border intermodal and viewed the railroad as an option for customers that want cross-border movement and connections to the other Class I railroads but don’t want to commit to intermodal marketing companies or other railroads.
“We believe that we have a nice opportunity to convert cross-border truckload over to rail,” including converting truckload volumes moving through Laredo, Texas, Naatz said.
Despite waiting until January to offer guidance, KCS said it expects its capital expenditures to equal roughly 17% of revenue. The railroad plans to keep this level of capital investment so that it can expand its network capacity by improving fluidity through yard and siding expansions. The railroad is considering 17 siding expansions and is planning to finalize that list and determine the pace of dep