Norfolk Southern’s intermodal volumes
Norfolk Southern’s (NSC) total intermodal traffic rose 2.4% in the week ended March 11, 2017. Volumes reached nearly 76,000 containers, which was in line with traffic in the week ended March 12, 2016. Notably, trailers followed containers in terms of percentage increase. NSC’s container traffic rose 2% YoY (year-over-year), up from 67,000 plus units in the week ended March 12, 2016, to ~69,000 units in the reported week.
Norfolk Southern’s percentage rise in intermodal volumes in the first ten weeks of 2017 was much higher than the US railroad overall average. NSC’s trailer traffic rose 7.7% YoY in the tenth week of 2017. Since the beginning of 2017, NSC’s overall intermodal traffic has risen 3.6% YoY. If you want to compare this week’s freight volume data with the previous week’s, check out Market Realist’s Week Ended March 4: Was US Rail Traffic on the Right Track?
Why is intermodal vital for NSC?
NSC’s rise in trailer volumes appears to mark the end of its 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.
Electronic logging devices
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.
With fuel prices on the rise again, intermodal volumes should rise in coming quarters. This rise will likely be due to the cost-efficient nature of railroads on medium and long hauls where trucking will 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 railroads.
In the next part, we’ll look at the rail traffic of CSX (CSX).