uploads///NSC Intermodal

Norfolk Southern’s Intermodal Volumes Continue Their Momentum

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Jan. 9 2017, Updated 10:38 a.m. ET

Norfolk Southern’s intermodal

Norfolk Southern’s (NSC) total intermodal traffic rose 21.7% in the week ended December 31, 2016, or in the 52nd week of 2016. Volumes that week were above 60,000 containers and trailers, compared to 49,500 in the corresponding week of 2015.

In the 52nd week of 2016, NSC’s container traffic rose 20.3%, up from 45,000 units in the week ended January 2, 2016, to 60,000-plus units. On a comparative basis, this rise in NSC’s intermodal volumes was almost double the rise reported by US railroads overall.

Trailer traffic rose 35.5% in the week ended December 31, 2016. NSC’s overall intermodal traffic slightly expanded in 52 weeks of 2016 on a year-over-year basis. The share of the rise was accounted by containers, where the traffic rose 6.3% during the same period.

Investors interested in a weekly comparison of North American freight rail traffic data can refer to the previous week’s Pre-Christmas Freight Rail Traffic Rides High on Festivities.

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Why is intermodal traffic important?

NSC’s rise in trailer volumes appears to mark the end the hardship due to the restructuring of TCS (Triple Crown Services), an underperforming subsidiary. NSC has been shifting shippers to other intermodal lanes. The restructured TCS intends to focus on specific merchandise like auto parts (TM).

The company reported reduced volumes of higher-rated Triple Crown freight in 3Q16, which resulted in lower intermodal revenues per unit for the company.

Notably, 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 in 2016 has made truckers more competitive.

But with fuel prices on the rise again, intermodal volumes should rise in coming quarters. This rise would be due to the cost-efficient nature of railroads on medium and long hauls, where trucking would be less lucrative.

Investing in ETFs

Railroads make up part of the industrial sector. If you want exposure to the transportation and logistics sector, you can invest in the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR). Major US airlines and railroads are part of the portfolio holdings of FXR.

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

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