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US Economy on the Tracks: Rail Traffic, Week Ended February 4

PART:
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Part 2
US Economy on the Tracks: Rail Traffic, Week Ended February 4 PART 2 OF 15

Norfolk Southern’s Carloads: Coal Could Be Bouncing Back

Norfolk Southern’s carloads

Norfolk Southern (NSC) and CSX (CSX) run a virtual duopoly in the eastern United States. In the week ended February 4, 2017, NSC’s overall railcar volumes grew 8%. There were over 70,000 railcars, as compared to more than 65,000 in the week ended February 6, 2016.

However, railcar volumes excluding coal and coke traffic didn’t witness a sharp rise. These railcars grew 1.6% in the reported week of 2017 on a YoY (year-over-year) basis. As in the fourth week, the boost to NSC’s overall carloads in the fifth week of 2017 came from coal volumes. NSC’s coal (ARLP) volumes rose a substantial 26.8% YoY in the week ended February 4, 2017.

Norfolk Southern&#8217;s Carloads: Coal Could Be Bouncing Back

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Why coal matters for NSC

Investors should note that coal (CNX) made up ~15% of the company’s 2016 revenue, falling from 23% in 2009. However, recent trends in coal prices have kindled the hopes of coal producers.

NSC expects to handle 17 million–19 million tons of utility coal per quarter in 2017. The company assumes weather-related normalizations in the utility coal segment. Similarly, it anticipates handling 3.5 million–4.5 million tons of export coal in 2017 on a quarterly basis. The tightening of the international coal supply, better seaborne pricing will most likely boost export coal tonnage over the next four quarters.

If you’re seeking exposure to transportation and logistics, you could invest in the iShares US Industrials ETF (IYJ). Major US railroads (UNP) make up 6.4% of the portfolio holdings of IYJ.

Leaders and laggards

In the week ended February 4, 2017, advancing commodity groups were as follows:

  • grain mill products
  • metals and products
  • stone, clay, and glass products
  • waste and scrap material

The major laggards in the same week were the following:

  • chemicals
  • motor vehicles and equipment
  • petroleum products
  • pulp, paper, and allied products

If you want to compare this week’s freight volume data with the previous week, read Market Realist’s Your Freight Rail Traffic for the Week Ended January 28.

In the next part, we’ll look at NSC’s intermodal traffic for the week ended February 4, 2017.

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