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Behind Norfolk Southern’s Intermodal Volumes in Week 11

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Norfolk Southern’s intermodal volumes

Norfolk Southern’s (NSC) total intermodal traffic slumped 2.3% in the week ended March 18, 2017. Its volumes reached nearly 71,000 containers. Its container traffic also contracted 4.1%, but its trailers followed the reverse trajectory.

NSC’s trailer traffic rose 16.4% YoY (year-over-year) to ~7,500 units in the week, compared to 6,400 units in the week ended March 18, 2016.

Since the beginning of 2017, Norfolk Southern’s overall intermodal traffic has risen 3% YoY, compared to the marginal rise reported by US railroad companies overall.

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Why is intermodal traffic vital for NSC?

NSC’s rise in trailer volumes appears to mark the end of its hardship due to its restructuring of TCS (Triple Crown Services), its 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 railroad companies are facing 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.

Electronic logging devices

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

With fuel prices on the rise again, intermodal volumes should rise in the coming quarters. The rise will likely 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). FXR’s portfolio holdings include major US airlines and railroad companies.

In the next article, we’ll look at the rail traffic of CSX (CSX).

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