Norfolk Southern’s intermodal

Norfolk Southern’s (NSC) total intermodal traffic for the week ended July 30, 2016, tanked by nearly 3%, reaching just over 75,000 containers and trailers, as compared with more than 77,000 units in the corresponding week of last year.

The surprise came from the increase in NSC’s container traffic, which climbed 3.8% from more than 66,000 units in the week ended August 1, 2015, to nearly 69,000 units last week. But trailer traffic declined by 41.5% in the same week on a YoY (year-over-year) basis.

Week Ending July 30: Why Did Norfolk Southern’s Intermodal Slump?

NSC’s sizable drop in trailer volumes is primarily attributed to the restructuring of the underperforming subsidiary, Triple Crown Services, or TCS. NSC has been shifting shippers to other intermodal lanes, and the restructured TCS aims for specific merchandise like auto parts (TM).

Why is intermodal traffic important?

Investors should note that the intermodal businesses of all major US railroads are facing 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. But with fuel price on the rise, intermodal volumes should pick up in the quarters to come, given the cost-efficient nature of railroads on medium and long hauls—trucking won’t be as lucrative if fuel prices keep going up.

Investing in ETFs

Remember, railroads make up part of the industrial sector. Investors opting for exposure to the transportation and logistics sector can invest in ETFs like the First Trust Industrials/Producer Durables AlphaDEX Fund (FXR), which has major US airlines and railroads in its portfolio holdings.

In the next part, we’ll discuss Norfolk Southern’s competitor, CSX Corporation (CSX).

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