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How Did Norfolk Southern’s Carloads Fare at the End of July?

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Norfolk Southern’s carloads

Norfolk Southern’s (NSC) overall railcars witnessed a 7.4% fall in the week ended July 30, 2016. Total railcars reached ~68,000 the same week, as compared to more than 73,000 units in the corresponding week last year. Last week, railcars excluding coal and coke traffic declined by 3.6% on a YoY (year-over-year) basis. The decline in NSC’s total railcars was somewhat higher than the fall in traffic reported by US railroads for the week.

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Why coal carloads matter to NSC

NSC’s coal and coke traffic (ARLP) declined by 15.9% in the week ended July 30, 2016, while for rival CSX, the decline was 18%. Norfolk’s coal and coke traffic made up 27.9% of total railcars that week, as compared to 29.9% one year previously. Investors should note that coal (CNX) made up roughly 17% of the company’s 2015 revenues, which is down from 23% in 2009.

Investors should note that coal (CNX) made up roughly 17% of the company’s 2015 revenues, which is down from 23% in 2009. Investors should also note that coal inventory in the regions served by NSC has declined in the second quarter of 2016. According to Lee Klaskow of Bloomberg, “The fact that coal stockpiles have been coming down is a good data point for people waiting for any inclination of a bottom for coal.”

Remember, railroads (UNP) are part of the industrial sector. Investors seeking exposure to transportation and logistics can invest in the iShares US Industrials ETF (IYJ), whose portfolio has holdings in major US railroads (5.5%).

Leaders and laggards  

In the week ended July 30, 2016, the advancing commodity groups were:

  • crushed stone, sand, and gravel
  • food and kindred products
  • lumber and wood products
  • metals and products
  • waste and scrap material

The major laggards in the same week were chemicals, grain mill products, iron, and steel scrap, motor vehicles and equipment, and petroleum products

In the next part, we’ll examine NSC’s intermodal traffic for the week ended July 30, 2016.

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