Norfolk Southern’s Other Railcar Units Up despite Fall in Coal



NSC’s weekly carloads

Norfolk Southern (NSC) is a major freight rail carrier in the Eastern US. Though NSC’s overall railcar units went down in the week ended April 2, 2016, its railcar units excluding coal and coke recorded a 2.6% rise compared with the corresponding week in 2015. On an overall basis, NSC’s total railcar units went down by ~10% in the week ended April 2, 2016, against the same period in 2015.

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Why coal carloads matter for NSC

NSC’s coal and coke railcar units declined by ~35% in the week ended April 2, 2016, compared with the corresponding period in 2015. Norfolk’s coal and coke traffic in the latest reported week of 2016 formed 24% of total railcar units against 33% in the previous year. Investors should note that coal formed roughly 17% of the company’s 2015 revenues, coming 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. The slowdown in US steel production has negatively impacted the demand for metallurgical coal. Lower crude oil prices have affected coal producers such as Alliance Resource Partners (ARLP), Peabody Energy (BTU), and CONSOL Energy (CNX).

Investors can consider the Industrial Select Sector SPDR Fund (XLI) to get exposure in US railroads. The US Class I railroads make up 7.4% of XLI.

Leaders and laggards  

In the week ended April 2, 2016, the advancing commodity groups were:

  • chemicals
  • grains
  • iron and steel scrap
  • metals and products
  • motor vehicles and equipment

The major laggards were crushed stone, sand and gravel, grain mill products, petroleum products, and stone, clay, and glass products.

In the next part, we will discuss the state of NSC’s intermodal traffic for the week ended April 2, 2016.


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