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Why Did Norfolk Southern’s Intermodal Volumes Rise?

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Norfolk Southern’s intermodal volumes

Norfolk Southern’s (NSC) total intermodal traffic rose 6.9% in the week ended January 28, 2017. Volumes in the reported week reached above 76,000 containers and trailers, compared with nearly 72,000 in the week ended January 30, 2016. NSC’s container traffic rose 6%, from ~65,000 units in the week ended January 30, 2016, to ~69,000 units. Investors interested in comparing this week’s freight volume data with the previous week’s can read Tracking Freight Rail Traffic for the Week Ended January 21.

NSC’s trailer traffic expanded 15.1% from ~6,800 units in the week ended January 30, 2016, to 7,700 units. Since the beginning of 2017, NSC’s overall intermodal traffic in the first four weeks was up 2.2% on a year-over-year basis.

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NSC’s thrust on intermodal

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 such as auto parts (TM).

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 made truckers more competitive.

Meanwhile, the implementation of ELDs (electronic logging devices) in the trucking industry will most likely create service issues, thereby tightening truck capacity (KNX). With the tightening of the trucking market in 2017, intermodal should stand to benefit, according to Norfolk Southern.

However, 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 could invest in the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR). FXR’s portfolio holdings include major US airlines and railroads. In the next part, we’ll look at the rail traffic of Norfolk Southern’s competitor, CSX (CSX).

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