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Why Norfolk Southern’s Carloads Increased

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Norfolk Southern’s carloads

In the eastern United States, Norfolk Southern (NSC) operates alongside CSX (CSX). In the week ended January 21, 2017, NSC’s overall railcar volumes grew 16.3%. The number of railcars topped 69,000, compared with ~60,000 in the week ended January 23, 2016.

Railcar volumes, excluding coal and coke traffic, rose 9.6% in the reported week of 2017 on a YoY (year-over-year) basis. The growth in NSC’s volume, in percentage terms, was much higher than that of US railroads. If you want to compare this week’s freight volume data with that of the previous week, read A Carload of Freight Rail Traffic Data: The Week Ended January 14.

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Why coal carloads matter for NSC

Investors should note that coal (CNX) made up 15% of the company’s 3Q16 revenue, falling from 23% in 2009. NSC’s coal and coke traffic (ARLP) rose 36.2% in the week ended January 21, 2017.

NSC expects to handle 17 million–19 million tons of utility coal per quarter in 2017. The company assumes weather-related normalizations in the utility coal segment. Similarly, it anticipates handling 3.5 million–4.5 million tons of export coal in 2017 on a quarterly basis. The tightening of the international coal supply along with better seaborne pricing will most likely boost export coal tonnage over the next four quarters.

If you’re seeking exposure to transportation and logistics, you could invest in the iShares US Industrials ETF (IYJ). Major US railroads (UNP) make up 6.4% of the portfolio holdings of IYJ.

Leaders and laggards

In the week ended January 21, 2017, advancing commodity groups were as follows:

  • grain
  • crushed stone, sand, and gravel
  • motor vehicles and equipment
  • waste and scrap
  • metals and products

The major laggards in the same week were the following:

  • farm products (ex-grain)
  • grain mill products
  • lumber and wood products
  • petroleum products

In the next part, we’ll look at NSC’s intermodal traffic for the week ended January 21, 2017.

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