Shortly after establishing his first local rail line in 1887, Arthur E. Stilwell started working toward a vision for a new rail route many of his peers considered unrealistic. Although most railroads at the time were being built east to west, Stilwell envisioned a north-south route linking his home of Kansas City, Mo., directly to the Gulf of Mexico.

Stilwell, the founder of the Kansas City Suburban Belt Railway – which served industrial districts in Kansas City as well as Independence, Mo., and Kansas City, Kan., – realized his dream in 1897, when he completed the Kansas City, Pittsburg and Gulf Railroad. The railroad ran south from Kansas City through Shreveport, La., terminating at Port Arthur, Texas – a gulf port city named for Stilwell.

Today, more than 125 years after its founding, Stilwell’s vision has been taken even further by the Kansas City Southern (KCS) railroad, the KCP&G’s successor. In the 1990s, KCS partnered with Grupo TMM, S.A. de C.V. (Grupo TMM) to become the only Class 1-designated railroad to extend into Mexico following a number of acquisitions and agreements. In 2005, KCS acquired full ownership of the Mexican rail line from Grupo TMM, allowing it to run the rail franchise as the only single-line network connecting the United States and Mexico.

“By securing the premier Mexican Northeast Line rail concession running through the industrial heartland of Mexico, KCS positioned its network to play an important role in the near-sourcing trend that is taking place in North America,” President and CEO David L. Starling says. “From our vantage point, near-sourcing makes sense.  The U.S. is Mexico’s largest trading partner, wage rates in Mexico and China are converging and most importantly, it is 50 to 80 percent less expensive to move products made in Mexico to the U.S. than it is to ship them from Asia.”

The company’s primary rail holdings include The Kansas City Southern Railway Company, serving the central and south central United States and Kansas City Southern de Mexico, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lázaro Cárdenas, Tampico and Veracruz. KCS’s ownership of companies on both sides of the Laredo, Texas and Nuevo Laredo, Mexico border gives it the ability to expedite customs requirements and eliminate unnecessary border delays experienced by trucks, the company says.

The company also owns a 50 percent interest in Panama Canal Railway Company, which provides ocean-to-ocean freight and passenger service along the Panama Canal.

“KCS’s strategic positioning as a North American carrier connecting the industrial heartland of Mexico to the industrial heartland of the U.S., with a single connection to every Class I carrier in the U.S. and Canada, gives us the opportunity to continue to grow our franchise and create better shipping options for our North American customers,” Starling says.

KCS’s entry into Mexico helped it transition from an aging regional carrier that unsuccessfully tried to sell during the railroad consolidation trend in the 1990s to the fastest-growing railroad in the United States. “We worked very hard to create a true international railroad, even when industry experts and analysts felt there was no way a company our size could successfully integrate Mexico into our operations,” Vice President of Investor Relations Bill Galligan says.  “We are tremendously proud of turning what once was considered a `haywire’ company barely hanging together by a thread with old locomotives and tracks that were falling apart to having a large modern fleet equal to any other railroad in the United States.”

A Seamless Connection

In addition to its service to Mexico, KCS is only one interchange away from the midwestern, southeastern and northeastern United States. Roughly 2.9 million truckloads originate or terminate within the company’s extended network.

“Given driver shortages, rising diesel fuel rates and security concerns, increasingly customers are searching for capacity options between the U.S. and Mexico,” KCS says. “With pre-clearance for customs, using rail instead of truck means shipments will cross the border four to 12 hours faster, and at a lower cost.”

In addition to its intermodal service, KCS offers customers of all sizes a complete network able to move bulk shipments of grain, coal, chemicals, petroleum, industrial and consumer products, automotive products, machinery and appliances.

“We are large enough to provide critical economies of scale to keep costs in line with the market, yet we provide customized solutions, attention to detail and friendly customer service like you would expect from a small family business,” the company says. “Whether we have the long haul or are simply in the route, KCS treats bulk shippers to full service from origin to destination with dedicated shuttle trains and a 24/7 bulk desk manager.” The bulk desk manager monitors equipment availability and shuttle train transit times, coordinates with connecting carriers and regularly communicates with the shipper, KCS adds.

The company serves gulf and ocean ports in Lázaro Cárdenas, Altamira, Tampico and Veracruz, Mexico; Houston, Beaumont, Port Arthur, Brownsville and Corpus Christi, Texas; Lake Charles and New Orleans, La.; Gulfport, Miss.; and Mobile, Ala. KCS also serves river ports in Baton Rouge and Natchitoches, La.; Columbus, Vicksburg and Yellow Creek, Miss.; and St. Louis and Kansas City, Mo.

KCS has close relationships with shippers, port receivers, consignees, ocean carriers, third-party freight payers, customs brokers, freight forwarders and port management. These relationships help it create customized freight delivery systems to customers, it says.

“With rail links across Mexico and the United States, connecting with Gulf of Mexico ports is simple and accessible through Kansas City Southern,” the company adds. “Once inland, shipments are further expedited with our time-efficient and cost-effective alternatives in consolidation and distribution through our transload program.

“Partnering with selected warehouses, trucking and logistics firms, Kansas City Southern essentially extends the economies of rail to a shipment’s ultimate destination.”

KCS’s claims rate for theft, vandalism or accidents for shipments into Mexico is roughly 0.02 percent. Measures are taken to ensure the safety of all cargo, including the placement of surveillance equipment along the entire line, full-time security agents, X-ray cargo imaging and radiation scanning. Safety and security efforts are also supported by federal, state and local law enforcement.

A Quick Response

Galligan says the company’s size and management structure allow it to quickly respond to changes in the marketplace. “While I think we can be classified among the major railroads, in terms of our culture and, to a degree, our size, we are smaller and can be more efficient than many of our colleagues,” he says. “For many of the larger railroads, making a change is like turning an aircraft carrier: You can’t turn on a dime. We are often able to change direction within a day or two; if it’s an operational issue, it gets to our chief operations manager very quickly, or if it’s a purchasing issue, it goes to our purchasing manager.

“Our president is very involved in what’s going on in the railroad, and our board is regularly in contact and can make decisions without a lot of bureaucratic red tape.”

As an example, the company within the last year has reallocated locomotives and crews as a result of the reduction in volume of coal shipments brought about through a combination of warm weather and low natural gas prices. The company took similar measures to address a decline in grain volume.  “We put together a plan, reacted immediately to a decline in the marketplace and cut expenses,” Galligan adds.  “For companies that are not as nimble as this one, it takes a while to reallocate resources, but we’ve been able to do it a few times just within the last year.”

KCS continues to invest in technology and system upgrades in preparation for future needs. Recent investments include building an intermodal facility in Houston and upgrading three intermodal facilities in Mexico.

Currently, KCS is upgrading tracks and storage facilities near the Gulf of Mexico to take advantage of opportunities in the crude oil market, which Galligan expects will expand greatly. The railroad connects with Canadian Pacific and Canadian National railroads, giving it the ability to transport oil from Canada and the Bakken shale play into the Gulf region. “We’re moving some of our capital spends to areas that are encountering growth and constantly readjusting to the marketplace,” Galligan says.

A Growing Asset

Significant expansion efforts are underway at the Port of Lázaro Cárdenas, located in Mexico on the Pacific coast.  The deep-water seaport is one of the largest of its kind in Mexico, the company says.  It can support high volumes and has ample land available for expansion.  Importantly, KCS is the only rail that serves this port, which is strategically positioned to serve the expanding middle class population in Mexico City and surrounding communities.

“Having the sole concession to serve Lázaro Cárdenas is a significant competitive advantage for us,” the company adds. “This massive and modern port offers the capability to receive post-Panamax ships from the Asia-Pacific markets without the congestion and the high costs associated with Southern California ports.”

The port currently has a single container terminal operated by Hutchinson Port Holdings with a footprint that would allow it to expand to up to 2.6 million twenty-foot equivalent units (TEU) annually.  The operator also plans to install five new vessel cranes in 2013. In addition to the container concession, the port has bulk handling and auto facilities.

Additional expansion plans include building a new container terminal and a new automotive terminal.  APM Terminals won the second container terminal concession at the port. The company has stated that it will invest $900 million to develop its concession. Additionally, SSA Marine has secured a concession to develop a specialized auto terminal capable of handling up to 750,000 cars per year.

Positive Impact

Environmental stewardship is a common thread through all of KCS’s operations. One of the ways the company works toward a better environment is through maximizing its fuel efficiency.

Between 2006 and 2008, the company reduced the average age of its locomotive fleet from 17.2 to 10.9 years through purchases as well as leases and overhauls, the company says.

New locomotives purchased by KCS include the EMD SD70Ace and GE ES44AC models. New “GenSet” locomotives – powered by three diesel engines and generators as opposed to one large diesel engine and generator, reducing fuel consumption – have also been acquired. “Because we’re growing so fast and have had to buy so many new locomotives, we now have the youngest locomotive fleet in the industry,” Galligan says.

Several older locomotives have had their engines replaced with EMD 710ECO Tier II engines.

“This solution provides a unique combination of emissions reduction, fuel efficiency and locomotive reliability, improving railroad operations and addressing environmental concerns,” the company says. The company has also obtained EPA certifications for its heritage fleet of EMD locomotives, bringing them up to Tier 0 emissions levels.  All locomotives are fueled with ultra low sulfur diesel fuel, and all locomotive engineers are trained to handle trains in a way that conserves fuel.

Fuel efficiency is also stressed through the use of technologies and engineering techniques such as straightening curves on tracks, lowering track grades and lubricating the rail with a non-petroleum friction modifier. The modifier reduces wheel and rail wear. Efficiency and conservation guidelines are set by company committees, which set standards, publish guidelines and monitor fueling, consumption, train-handling, shutdown and isolation procedures.

“These committees also evaluate new technologies that contribute to fuel efficiency and conservation, promote these efforts among employees and even offer incentives to employees who make a marked difference in the effort,” according to KCS.

KCS’s emphasis on fuel efficiency is not the only way the company reduces its impact on the environment. The company employs a number of tactics to reduce, reuse and recycle the resources it uses. These include:

  • Transporting used locomotive lubricating oils to a petroleum refiner for reclamation;
  • Monitoring CO2 emissions from rail operations to track energy efficiency and environmental improvement;
  • Conducting audits of facilities to identify opportunities for energy and environmental improvements;
  • Removing all free oil from spent locomotive oil filters;
  • Recycling cardboard and paper generated at offices, workshops and warehouses;
  • Monitoring the fuel oil collected at locomotive fueling stations, preventing fuel spillage;
  • Monitoring fuel consumption in company vehicles;
  • Monitoring business travel to eliminate or reduce trips;
  • Monitoring energy and water usage at operating facilities to identify leaks and excessive energy losses;
  • Recycling used locomotive and signal batteries;
  • Reducing electric energy consumption in rail yards and inside facilities by replacing traditional lighting systems with more environmentally friendly, cost-effective and energy-efficient technology;
  • Installing solar panels and rechargeable batteries on remote wayside signal systems; and
  • Extending the life of railroad ties by as much as 10 years (approximately 35 percent) through a KCS tie-treatment facility.

“The implementation of environmental initiatives throughout the entire organization is a major objective for KCS,” Starling says. “Not only is environmental consciousness imperative to employee and public health and safety, it is also reflective of a company dedicated to efficiency and best practices. Inevitably, an environmentally conscious company is a well-run and profitable company.”

The company participates in a number of associations and programs that affirm its commitment to operating in a responsible manor. KCS is a member of the American Chemistry Council's Responsible Care® program, which includes a mandatory, independent third-party certification of its safety, security and environmental management system.

KCS is a partner in SmartWay Transport, a collaboration between the U.S. EPA and freight providers aimed at improving energy efficiency, reducing greenhouse gas and air pollutant emissions and improving energy security.

In addition, the company participates in the Transportation Community Awareness Emergency Response (TRANSCAER®) program, a community outreach program focusing on hazardous material transportation. As a part of the program, KCS hosts instructional events for community responders that include training on safe transportation methods and emergency procedures.

TRANSCAER training events include the use of specially equipped rail cars for hands-on training. Instruction topics include emergency contacts, tank car damage assessment, approaching an accident, securing hazardous material data and emergency locomotive shutdown.

The company’s belief in having a positive impact on its surrounding environment also extends to its support of charitable organizations within its service area. KCS’s Charitable Fund contributes to a number of organizations and events benefiting residents within its communities, and also has a program that matches charitable donations made by its employees, the company says.

One of the company’s most popular annual events also has a charitable component. Each September, KCS operates a six-car “Holiday Express” bringing Santa Claus and his elves to communities throughout its U.S. network. The event is free and open to the public.

The train, led by KCS’s Southern Belle business train, includes a smiling tank car dubbed “Rudy,” a flatcar carrying Santa’s sleigh; a gingerbread boxcar, reindeer and a miniature village, an “elves’ workshop,” a reindeer stable and a little red caboose, the company says.

Employees donated more than 8,000 volunteer-hours to transform retired rail cars into a holiday wonderland complete with music and lights, KCS adds.

The KCS Charitable Fund makes a contribution of gift cards to the Salvation Army organization in each community to provide warm clothing and other necessities for children in need. More than $1 million in gift cards has been donated by employees, vendors and friends since the Holiday Express debuted in 2001.

The train is the successor to the former Gateway Western (GWWR) Santa Train, which made stops between East St. Louis, Ill., and Blue Springs, Mo., for several years before KCS purchased the railroad in 1996.

KCS employees revived the concept after noting that many children in those communities didn’t have winter essentials such as coats, hats and gloves, the company adds.

The Next 125 Years

With 125 years of operation now in the books, KCS is looking ahead.

“Our vision for KCS is to optimize the value of our unique rail franchise for our customers, shareholders and employees,” Starling declares. “The continued emergence of new and expanded business opportunities coming online throughout our entire network, coupled with a dynamic and dedicated workforce, positions KCS extremely well for long-term growth. Management is committed to ensuring KCS has the financial, technological and personnel resources in place to take full advantage of our abundant business opportunities.”


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