uploads///CSX Intermodal

CSX’s Intermodal Traffic Declines on Par with Rival NSC

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CSX’s intermodal

In the week ended April 30, 2016, CSX Corporation’s (CSX) total intermodal traffic declined by 7.1%. The overall traffic fell from ~57,000 units in the week ended May 2, 2015, to nearly 53,000 units in the reported week of 2016.

Container volumes declined by 7% in the same week on a year-over-year basis. Trailers’ traffic also fell by 19% in the same week on a year-over-year basis. However, the fall in CSX’s total intermodal traffic was on par with the US traffic and rival Norfolk Southern’s intermodal volumes slump in the week ended April 30, 2016.

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Intermodal growth

Railroads are four times more fuel efficient than trucks, and the driver shortage in trucking is meanwhile fueling intermodal growth. While about half of US’s rail intermodal volume consists of imports and exports, railroads are more environmentally desirable than the heavy reliance on highways for freight transportation. In 2015, intermodal accounted for ~20% of revenue for major US railroads.

Why does this matter? Intermodal is being considered as a solution to subsidize the shrinking coal business by all the Class I railroads. Intermodal volumes were roughly 42% of CSX’s total volumes in 2015, and its share of the company’s 2015 revenues was ~15%.

Key factors affecting intermodal traffic

Intermodal traffic is largely dependent on factors such as access to major seaports, highway-to-rail conversions, exclusivity to certain ports and retail sales. The AAR (Association of American Railroads) has observed a strong positive correlation between retail sales and rail intermodal in recent years.

The Association of American Railroads noted that the intermodal growth came through highway conversions rather than consumption. However, according to AAR, the rise in intermodal doesn’t essentially translate into retail sales’ growth.

All major freight rail carrier such as Norfolk Southern (NSC), Union Pacific (UNP), Genesee and Wyoming (GWR), BNSF Railway (BRK-B), and Kansas City Southern (KSU) have focused on improving intermodal volumes and pricing in the recent past.

Investors looking for exposure to the transportation space can invest in the Morningstar Wide Moat ETF (MOAT). All major US originated railroads make up the portfolio holdings of MOAT.

For more information on the last week’s rail traffic, please visit Market Realist’s Week Ending April 23: North American Rail Traffic Fell.

In the coming part, we’ll look into the direction of railcars’ traffic for Union Pacific.

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