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Why Did Norfolk Southern’s Intermodal Volumes Rise in the Week?

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Norfolk Southern’s intermodal traffic

Norfolk Southern’s (NSC) total intermodal traffic was almost the same for the week ended August 20, 2016. Volumes in the reported week were nearly 77,000 containers and trailers, which was almost the same as the corresponding week last year.

NSC’s container traffic rose ~8% from ~66,000 units in the week ended August 22, 2015, to near 71,000 units in the reported week of 2016. However, trailer traffic declined 42% in the week ended August 20, 2016, on a year-over-year basis.

NSC’s sizable decline in trailer volumes is primarily due to the restructuring of the underperforming subsidiary, Triple Crown Services (or TCS). NSC has been shifting shippers to other intermodal lanes. The restructured TCS aims to focus on specific merchandise such as auto parts (TM).

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Why is intermodal traffic important?

It’s worth noting that the intermodal businesses of all major US railroads face strong competition from the trucking industry (JBHT). Although railroads are four times more fuel-efficient than trucks, the fall in fuel prices has made truckers more competitive.

However, with fuel prices now on the rise, intermodal volumes should pick up in the upcoming quarters. This is due to the cost-efficient nature of railroads on medium to long hauls. Trucking won’t be that lucrative if fuel prices rise.

Investing in ETFs

Railroads form part of the industrial sector. Investors opting for an exposure to the transportation and logistics sector can invest in the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR). Major US airlines and railroads are part of FXR’s portfolio holdings.

You can compare this week’s rail data from the previous week in North American Freight Rail Traffic Fell in Week Ended August 13.

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

In the next part, we’ll look at the rail traffic for Norfolk Southern’s competitor, CSX Corporation (CSX).

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