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BNSF Railway’s Intermodal Growth and Other Railcar Units

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Mar. 15 2016, Updated 8:06 a.m. ET

BNSF Railway’s Intermodal

BNSF Railway’s (BRK-B) total intermodal traffic for the week ended March 5, 2016, was up by 96,759, or ~8%, compared to 89,451 units in the same period in 2015. That week, container units were up by 86,499, or about 12%, compared with 77,166 units in 2015. Trailers reported a fall of 16.3% for the same week in 2016 compared to the week ended March 7, 2015. So the overall intermodal growth for BNSF Railway last week was higher than the total US intermodal traffic growth during the period.

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Why intermodal matters

BNSF Railway’s domestic and international intermodal operations are part of the consumer products freight business. This business also includes automotive freight earned by the company. Investors should note that this business source contributed to nearly 31% of BNSF’s 2015 total revenues. BNSF’s share of Western US rail traffic in 2015 was 49.8%.

In addition, the company handles one million more intermodal units every year than any other Class I railroad. Intermodal represents nearly 50% of BNSF’s business portfolio by volume, and the company is the only railway to offer direct service between the US West Coast and Atlanta.

Berkshire’s jewel

If we compare intermodal’s share to revenues for other Class I railroads, then clearly Berkshire Hathaway’s jewel has the highest share of intermodal in total revenues. However, BNSF Railway’s intermodal faces strong competition from Union Pacific (UNP). At the same time, truckers like J.B. Hunt Transport (JBHT), Swift Transportation (SWFT), and Hub Group (HUBG) are giving tough competition to BNSF Railway in the intermodal space.

We should also note that intermodal volumes, apart from seasonality, are also affected by highway-to-rail conversions and by the carrier’s exclusive access to certain high traffic ports. Investment-wise, you might opt for the iShares US Industrials ETF (IYJ). Prominent trucking companies and major US railroads make up ~1.6% and ~5.2%, respectively, of the total portfolio holdings of IYJ.

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