In this article, we’ll take a closer look at CSX Corporation’s (CSX) intermodal business. CSX’s intermodal revenue was $477.0 million in 4Q16, a rise of 7% from $446.0 million in 4Q15.
On a yearly basis, intermodal’s share of CSX’s total revenue rose to 15.6%, compared to 14.9% in 2015.
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CSX’s intermodal volumes rose 4% in 4Q16. On a yearly basis, its volumes fell 1%. The company’s revenue per unit rose 3% due to core pricing gains.
CSX’s Intermodal segment competes primarily with rival Norfolk Southern (NSC). In the transportation sector, this segment also competes with major trucking companies such as J.B. Hunt Transport (JBHT), Old Dominion Freight Line (ODFL), and Swift Transportation (SWFT). Major railroad companies make up 5.8% of the portfolio holdings of the iShares US Industrials ETF (IYJ).
CSX expects neutral intermodal business over the next year. The company has lost some of its international intermodal business due to competition. However, it expects its losses to be offset by steady domestic growth, driven by strategic investments supporting highway-to-rail conversions.
In recent quarters, almost all US Class I railroad companies have sensed opportunities to subsidize their coal businesses’ revenue losses in the intermodal space. CSX expects positive core pricing gains in the intermodal space over the next 52 weeks.
According to CSX’s executive vice president and chief sales and marketing officer, “We see the ELD mandate coming into play here as we get into the second half of 2017. So I think things are lining up for a better pricing environment as we move through the second half of 2017, but it might not fully be where we want it to be until we get to 2018.”
CSX’s Pittsburgh facility is expected to reach 50% completion in 2017. The company’s mega hub outside the Rocky Mountains, Carolina Connector, is also expected to better its intermodal game.
However, there’s an excess capacity in the intermodal market at present. Slack truck capacity and soft truck rates in the spot market will likely impact the intermodal space for all Class I railroad companies, including CSX.
In the next part of this series, we’ll take a look at CSX’s merchandise business.