Growth in Intermodal division
CSX’s (CSX) Intermodal division competes with, and provides an alternative to, transporting freight on the highways using trucks. According to the company’s July 14 earnings release, the division reported flat revenues of $450 million in 2Q15, compared with 2Q14. Overall volumes increased by 5%, which was partially offset by a decline in prices.
CSX’s domestic volume increased by 9%, mainly driven by continued success with CSX’s highway-to-rail (H2R) conversion program, growth with existing customers, and new service offerings. However, its international volume declined 1%, primarily as the continued recovery from West Coast port disruptions was more than offset by competitive losses.
CSX expects its strong intermodal performance to continue as its strategic network investments support highway-to-rail conversions and growth with existing customers. The division is expected to experience higher growth in the third quarter, as it goes into the peak season.
The pricing structure from truckers will be 3%–5% higher in the current year, which should result in increased demand for intermodal activity. CSX’s spot market in trucking door-to-door products has been very strong this year. The company’s trans-con product has been down because it is still rebuilding its owner–operator base in the Los Angeles basin after the strike. However, the core part of the Intermodal business and the pricing this year has remained fairly strong.
The electronic reporting that will be required in 2016 will put more stress on the industry, particularly the smaller truckload carriers, which should make CSX’s Intermodal business more attractive.
CSX has a BBB+ credit rating from Standard & Poor’s. Below are the credit ratings of its peers:
- Canadian National Railway (CNI): A
- Union Pacific (UNP): A
- Canadian Pacific Railway (CP): BBB+
- Norfolk Southern (NSC): BBB+
- Kansas City Southern (KSU): BBB-
- Genesee & Wyoming (GWR): BB
Together, these companies form 9.30% of the Industrial Select Sector SPDR ETF (XLI).