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Norfolk Southern’s Carloads Beat the Trend, Reports Rise

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Mar. 15 2016, Updated 10:06 a.m. ET

Norfolk Southern’s carloads

Norfolk Southern Corporation (NSC) is a major freight railroad operating in the eastern US. NSC’s major competitor in the region is CSX Corporation (CSX). For the week ended March 5, 2016, NSC broke with the overall trend, recording a ~10% rise in total merchandise, excluding coal and coke combined. Overall, the company’s total railcar units swam against the tide as well, reporting a 5% rise compared with overall total US weekly carloads in the same week.

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Why coal carloads matter for NSC

NSC’s coal including coke carloads went down by 7.7% and settled at 18,148 units for the week ended March 5, 2016, against 19,679 railcar units in the same period in 2015. The company’s coal including coke traffic in the week ended March 5, 2016 made up 27% of total carloads, compared to 30% in the previous year. Investors should note that coal formed roughly 17% of the company’s 2015 revenues, which is down from 23% in 2009.

Environmental regulations and the shift from coal-fired electricity to natural-gas-based electricity in the recent past have impacted coal production across the US. Meanwhile, the slowdown in US steel production has negatively impacted the demand for metallurgical coal, and lower crude oil prices have affected coal producers such as Alliance Resource Partners (ARLP), Peabody Energy (BTU), and CONSOL Energy (CNX).

Leaders and the laggards   

In the week ended March 5, 2016, the prominent front-runner merchandise included the following:

  • motor vehicles and equipment
  • miscellaneous carloads
  • primary forest products
  • stone, clay, and glass products
  • crushed stone, sand, and gravel
  • chemicals

The major laggards were other farm products, non-metallic minerals, petroleum products, pulp, paper, and allied products. The year-to-date 4% fall in iron and steel scrap also indicated weakness in US steel production.

If you’re interested in railroads, you can considering investing in 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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