Canadian Pacific’s intermodal traffic

For the week ended June 4, 2016, Canadian Pacific (CP) reported a double-digit fall of 9.8% in overall intermodal traffic. In the same week, the domestic intermodal volumes shrank by 5% on a year-over-year basis.

In line with this trend, the international intermodal volumes fell by 13.3% in the same week in 2016. Compared with rival Canadian National’s (CNI) 10% fall in overall intermodal volumes, CP’s fall in the same category was almost the same for the reported week of 2016.

Canadian Pacific’s Intermodal Slump on Par with Rival CNI

Canadian Pacific (CP), unlike other Class I railroads, doesn’t report its intermodal traffic in the same format. Rather, it segregates its intermodal volumes into domestic and international segments. Intermodal volumes are generally measured in a number of containers and trailers hauled.

Why is intermodal important to CP?

Domestic intermodal formed 11.2% of CP’s revenues and 15.8% of its total volumes in 2015. International intermodal contributed ~9% of revenues and 21.3% of volumes 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. Because most of the company’s domestic intermodal business comes from Canada, it would 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 its Transpacific trade with China can affect the international intermodal volumes of other Class I rail carriers.

Intermodal railroads compete with major US trucking companies such as J.B. Hunt Transport (JBHT), Old Dominion Freight Line (ODFL), Swift Transportation (SWFT), and XPO Logistics (XPO).

Investors opting for an exposure to the transportation sector can invest in the Guggenheim S&P 500 Equal Weight ETF (RSP). All the US-originated Class I railroads make up the portfolio holdings of RSP.

You can compare this week’s rail data with the earlier week by reading North American Rail Traffic on Ambiguous Track Last Week.

In this series, we analyzed the rail traffic data of all US Class I railroads for the 22nd week, which ended on June 4, 2016. For more information on the major railroad stocks in the US, please visit Market Realist’s Railroads page.

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