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Norfolk Southern’s Intermodal Traffic Saw a Surge in Containers

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Norfolk Southern’s intermodal

Norfolk Southern’s (NSC) total intermodal traffic for the week ended April 2, 2016, fell by 6.6% to 71,000 containers and trailers compared with ~76,000 units in the corresponding week of 2015. The containers went slightly up from 65,200 units in the week ended April 4, 2015, to 65,300 units in the corresponding period in 2016.

The fall in trailer traffic was more significant. The company reported a steep fall of ~48% in the latest reported week compared with the corresponding period in 2015. Investors should know that NSC’s fall in total intermodal units was almost on par with the fall in US intermodal traffic for the latest reported week in 2016.

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Why is intermodal traffic important?

Intermodal traffic includes the movement of containers and trailers. Normally containers’ share of total intermodal traffic is much higher than trailers’ share. Including NSC, all major railroads such as CSX (CSX), Union Pacific (UNP), BNSF Railway (BRK-B), Genesee & Wyoming, and Kansas City Southern have pumped substantial resources into intermodal growth.

The intermodal businesses of these railroads face strong competition from the trucking industry. Railroads are four times more fuel efficient than trucks. However, the fall in fuel price in 2015 made truckers more competitive. For specific time-sensitive deliveries, truckers proved more efficient than railroads.

NSC’s sizable drop in trailer volumes is primarily attributed to the restructuring of the underperforming subsidiary, Triple Crown Services (or TCS). TCS, through specialized equipment RoadRailer trailers, provides service in the Eastern US, Ontario, and Quebec.

Investing in ETFs

Railroads form part of the industrial sector. Investors who want exposure to the transportation and logistics sector can invest in the iShares US Industrials ETF (IYJ). Major US railroads make up 4.9% of the portfolio holdings of IYJ. For more information on Norfolk Southern, read the Norfolk Southern overview.

In the next part, we will go through the rail traffic of Norfolk Southern’s competitor, CSX Corporation (CSX).

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