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Carloads in the Week Ending June 11: Norfolk Southern versus CSX

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Norfolk Southern’s carloads

Norfolk Southern (NSC) is a major freight rail carrier in the eastern United States, and NSC’s overall railcars witnessed a YoY (year-over-year) fall of 6.3% in the week ending June 11, 2016. The company’s total railcars reached nearly 68,400 units that week, as compared to ~73,000 units in the corresponding week of 2015.

Railcars excluding coal and coke didn’t record a similar fall, however—this traffic contracted by only 2.6% YoY. Notably, the decline in NSC’s total railcars was less than half of the decline in rail traffic by its arch rival, CSX Corporation (CSX), in the week ending June 11.

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Why coal carloads matter for NSC

NSC’s coal and coke traffic dropped by 15.6% YoY for the week, whereas CSX’s coal and coke traffic tanked by 32%. Norfolk’s coal and coke traffic formed 25% of total railcars that week, as compared to 28% of total railcars one year previously. Investors should also note that coal formed roughly 17% of the company’s 2015 revenues, as compared to 23% in 2009.

Environmental regulations and the shift from coal-fired electricity to natural-gas-based electricity (UGAZ) in the recent past have impacted coal production across the US. The slowdown in US steel production has meanwhile negatively impacted the demand for metallurgical coal. Lower crude oil prices in the past have affected coal producers such as Alliance Resource Partners (ARLP), Peabody Energy (BTU), and CONSOL Energy (CNX), and the sharp decline in coal prices even led BTU to file for Chapter 11 bankruptcy protection on April 13.

Transporation investors can consider the iShares Global Industrials ETF (EXI) for investment in US railroads. EXI has all US-originated Class I railroads in its portfolio.

Leaders and laggards  

In the week ending June 11, 2016, the advancing commodity groups included the following:

  • chemicals
  • food and kindred products
  • grain mill products
  • waste and scrap material

The major laggards in the same week were crushed stone, sand and gravel, grain, lumber and wood products, petroleum products, and pulp, paper, and allied products.

In the next part, we’ll check in with NSC’s intermodal traffic.

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