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Norfolk’s Intermodal Traffic: Why Did Trailer Volumes Fall?

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Intermodal traffic

Norfolk Southern’s (NSC) total intermodal traffic rose 4.7% in the week ended October 29, 2016. Its volumes were over 80,000 containers and trailers in the reported week, compared to over ~77,000 in the corresponding week last year.

NSC’s container traffic rose 10.4%, from nearly 67,000 units in the week ended October 24, 2015, to 74,000 units in the reported week of 2016.

The company’s trailer traffic fell 34.6% in the week ended October 29, 2016. NSC’s overall intermodal traffic fell 1.6% in the first 43 weeks of 2016, compared to the corresponding period last year. Its container traffic rose 5% during the same period.

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NSC’s sizable fall in trailer volumes can primarily be attributed to the restructuring of its underperforming subsidiary, Triple Crown Services (or TCS). NSC has been shifting shippers to other intermodal lanes. The restructured TCS will focus on specific merchandise such as auto parts (TM). The company reported reduced volumes of higher-rated Triple Crown freight in 3Q16, resulting in lower intermodal revenue per unit for the company.

Why is intermodal traffic important?

The intermodal businesses of all major US rail companies face strong competition from the trucking industry (JBHT). Although railroads are four times more fuel efficient than trucks, falls in fuel prices have made truckers more competitive. 

However, intermodal volumes should pick up in the quarters to come due to the cost-efficient nature of railroads on medium to long hauls, whereas trucking won’t be so lucrative if fuel prices rise.

Investing in ETFs

Railroads form part of the industrial sector. Investors opting for exposure to the transportation and logistics sector can invest in the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR). Major US airlines and railroad companies make up part of the portfolio holdings of FXR.

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

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