Norfolk Southern’s carloads
Norfolk Southern (NSC) is a rail giant in the US East that competes with CSX Corporation (CSX), another major carrier in that region. NSC’s overall railcars witnessed a fall of 4.6% in the week ending October 22, 2016. Total railcars amounted to ~68,000 that week, as compared to nearly 71,000 units in the corresponding week of 2015.
The traffic of railcars excluding coal and coke fell 2.3% in the week ending October on a YoY (year-over-year) basis. NSC’s 4.6% fall was higher than CSX’s 2% fall in total carloads during the reported week.
Why coal carloads matter for NSC?
Investors should note that coal (CNX) made up 15% of the company’s 3Q16 revenues, as compared to 23% in 2009. NSC’s coal and coke traffic (ARLP) fell 10% in the week ending October 22, 2016, whereas YTD (year-to-date), coal carloads fell 20%. Although coal volumes as a percentage of total volumes fell last week, it’s still significant at 28.7%.
However, in its 3Q16 conference call, NSC stated that the warm summer and sequential rise in natural gas prices have reduced the fall in utility coal volumes. But the company expects higher stockpiles will be a hindrance for the rise in coal carloads.
Remember, railroads (UNP) make up part of the industrial sector. Investors looking for exposure to transportation and logistics can invest in the iShares US Industrials ETF (IYJ). Major US railroads make up 5.6% of the portfolio holdings of IYJ.
Leaders and laggards
In the week ending October 22, 2016, the advancing commodity groups were:
- crushed stone, sand, and gravel
- metals and products
- motor vehicles and equipment
- waste and scrap material
The major laggards during the same week were chemicals, petroleum products, iron and steel scrap, pulp, paper and allied products, and stone, clay, and glass products.
In the next part, we’ll go through NSC’s intermodal traffic for the week ending October 22, 2016.