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Canadian Pacific’s Domestic Intermodal Traffic Shines

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Canadian Pacific’s intermodal traffic

For the week ended April 2, 2016, Canadian Pacific (CP) reported a nearly 3% rise in domestic volumes to ~8,000 units from ~7,600 units in the corresponding period of 2015. However, the international intermodal volumes were down by approximately 18% in comparison to the corresponding week last year. On an overall basis, the company’s intermodal fall was on par with the fall in the Canadian railroad, but it was slightly more than the fall reported by US railroads.

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Canadian Pacific (CP) unlike other Class I railroads doesn’t report the intermodal traffic in the same format. Rather, it segregates the intermodal volumes into domestic and international. Investors should know that intermodal volumes are usually measured according to the number of containers and trailers hauled.

Why is intermodal important to CP?

Investors should realize that domestic intermodal formed 11.2% of revenues and 15.8% of total carloads in 2015. The international intermodal contributed ~9% of revenues and 21.3% of carloads in the same year. Increased truck capacity in CP’s short-haul lane will most likely result in tough competition in the domestic intermodal space going forward. Since the company gets most of the domestic intermodal business from Canada, it will be largely impacted by the growth of the Canadian economy.

The company’s international intermodal business consists of containerized traffic moving between the ports of Vancouver, Montreal, and New York. CP’s international intermodal growth is tied to the capacity growth at these ports. In addition, the retail demand and the pace of transpacific trade with China can affect the international intermodal volumes of carriers like Canadian National (CNI), Union Pacific (UNP), and BNSF Railway (BRK-B).

All the major US railroads make up 21% of the iShares Transportation Average ETF (IYT). In this series, we analyzed the rail traffic data of all US Class I railroads for the 13th week, or the week ended April 2, 2016. For more analysis, visit Market Realist’s weekly rail traffic.

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