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Fall in Volumes Minus Coal Pulled Down Norfolk Southern’s Carloads

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Norfolk Southern’s carloads

In the Eastern United States, Norfolk Southern (NSC) operates alongside CSX (CSX). In the week ended December 31, 2016—the 52nd week of the year—NSC’s overall railcar volumes shrank by just 1%. Total railcars topped 52,000 plus, compared to ~53,000 in the corresponding week ended January 2, 2016.

Railcar volumes, excluding coal and coke traffic, declined 4.9% in the reported week of 2016 on a YoY (year-over-year) basis. Unlike US railcars’ overall growth, NSC’s volumes slightly dropped in the 52nd week of 2016.

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Why coal carloads matter to NSC

Coal (CNX) made up 15% of Norfolk Southern’s 3Q16 revenues, which was a fall from coal’s 23% in 2009. Surprisingly, NSC’s coal and coke traffic (ARLP) rose ~11% in the week ended December 31, 2016. However, on a year-to-reported-week basis, coal carloads fell 16.3%.

In its 3Q16 conference call, NSC stated that the warm summer and sequential rise in natural gas prices reduced the contraction in its utility coal volume. The company expects higher stockpiles to be a hindrance to the rise in coal carloads going forward.

Notably, railroads (UNP) make up part of the industrial sector. If you’re seeking exposure to transportation and logistics, you can invest in the iShares US Industrials ETF (IYJ). Major US railroads make up 5.8% of the portfolio holdings of IYJ.

Leaders and laggards

In the week ended December 31, 2016, advancing commodity groups were as follows:

  • food and kindred products
  • iron and steel scrap
  • motor vehicles and equipment
  • waste and scrap material

The major laggards in the same week were the following:

  • chemicals
  • grain mill products
  • grain
  • petroleum products

In the next part, we’ll look at NSC’s intermodal traffic for the week ended December 31, 2016.

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