Canadian Pacific: Domestic Intermodal Growth Matters

Canada’s second-largest freight railroad company, Canadian Pacific (CP), has seen rising intermodal volumes during the last few weeks. In the week ended April 1, 2017, Canadian Pacific reported a 6.3% rise in overall intermodal traffic. Its domestic container and trailer traffic rose to 9,000, up 14% year-over-year (or YoY).

However, the volumes for Canadian Pacific International Intermodal business in terms of containers and trailers were flat. The company’s volumes reached ~9,700 containers and trailers, similar to the previous year’s level.

In the week ended April 1, 2017, CP’s intermodal traffic was similar to the overall trend seen by Canadian railroad companies.

Increased truck capacity in Canadian Pacific’s short-haul lane could result in tough competition in its Domestic Intermodal business. Because the company’s Domestic Intermodal revenues come primarily from Canada, it could be heavily affected by growth in the Canadian economy.

Canadian Pacific’s International Intermodal business consists of containerized traffic between the ports of Vancouver, Montreal, and New York. CP’s International Intermodal growth is tied to capacity growth at these ports. Retail demand and the pace of transpacific trade with China also can influence the international intermodal volumes of other Class I rail carriers (XLI).

Railroad companies’ intermodal segments compete with major US trucking companies such as J.B. Hunt Transport Services (JBHT), Old Dominion Freight Lines (ODFL), Swift Transportation (SWFT), and XPO Logistics (XPO).

The ProShares Ultra S&P 500 ETF (SSO) invests ~7.6% in the industrial sector, which includes transportation and logistics.

Investors interested in comparing this week’s freight volume data with the previous week’s data can visit Market Realist’s Week 12: North American Freight Rail Traffic on the Fast Track.