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Canadian National Railway: Does It Have a Strong Intermodal?

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Dec. 4 2020, Updated 10:53 a.m. ET

CNI’s intermodal business

Canadian National Railway (CNI) is the only railway that connects the Pacific Coast, the Atlantic Coast, and the Gulf of Mexico. What differentiates the railroad from its peer group is its strong trucking network in Canada, its wholly owned subsidiary Canadian National Transportation (CNTL). CNTL is a strong support of CNI’s intermodal business in Canada.

Now let’s see how CNI’s intermodal revenue in 2016 has changed on a YoY (year-over-year) basis.

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Intermodal revenue for CNI and its peers

As you can see in the above graph, intermodal revenue for Canadian National Railway fell the least at 2.0%. CSX (CSX) also had a moderate fall. Union Pacific (UNP) fell the most at 9.0%, followed by Norfolk Southern (NSC) at 8.0%. The only exception was Genesee & Wyoming (GWR), whose intermodal revenue rose 10.3%. That was mainly due to its acquisition of Freightliner, the UK-based logistics company.

Growth in Canadian National’s intermodal segment depends on highway-to-rail conversions along with the ratio of inventory to sales. The higher the ratio, the lower the intermodal business prospects. Due to its access to three major coasts, Canadian National Railway benefited from the growing trade between the United States and China and other Asian nations.

In the first quarter of 2017, CNI’s management remained bullish on intermodal growth for the rest of the year.

What about the ETF?

If you want to invest in transportation stocks, you can consider the iShares US Industrial (IYJ). Prominent US railroads and airlines form 6.3% and 4.8% of IYJ’s portfolio holdings, respectively.

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