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Did BNSF’s Intermodal Volumes Shrink Too Much?

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BNSF’s intermodal volumes

BNSF Railway’s (BRK-B) total intermodal traffic for the week ended June 4, 2016, was down by 14.8%. From nearly 101,000 containers and trailers in the comparable week of 2015, it fell to 86,000-plus containers and trailers in the reported week of 2016.

In the same week, container traffic declined by 13% on a year-over-year basis to 78,000 from 89,000 in the week ended June 6, 2015. Trailer traffic declined by 29% for the week ended June 4, 2016, at 9,000 trailers from 12,000-plus trailers in the corresponding week in 2015.

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Why does intermodal matter for BNSF?

BNSF Railway’s domestic and international intermodal operations are part of the consumer products freight business. This business also includes automotive freight earned by the company. Investors should note that this business segment accounted for ~31% of BNSF’s total revenues in 2015.

The company’s share of the Western US rail traffic in 2015 was ~50%. In addition, the company handles 1 million more intermodal units every year than any other Class I railroad. Intermodal represents nearly 50% of BNSF’s business portfolio by volume.

If we compare intermodal’s share to revenues with other Class I carriers, then BNSF Railway’s intermodal accounts for the largest share of total revenues. This major Western carrier’s intermodal segment faces strong competition from Union Pacific (UNP), another dominant railroad in that region.

BNSF’s intermodal competition

BNSF Railway also faces tough competition from truckers like J.B. Hunt Transport (JBHT) and Swift Transportation (SWFT) in the intermodal space. Intermodal volumes, apart from seasonality, are also affected by highway-to-rail conversions and the carrier’s exclusive access to certain high-traffic ports.

Investors with an affinity for the transportation space can invest in the Wisdom Tree Earnings 500 ETF (EPS). All US-based Class I railroads are included in the portfolio holdings of EPS.

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

For more information on the major railroad stocks in the US, please visit Market Realist’s Railroads page.

In the next part, we will analyze the carload volumes of smallest US Class I railroad, Kansas City Southern.

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