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Canadian National Railway: Behind 2Q17 Intermodal Revenue Rise

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Jul. 31 2017, Updated 9:11 a.m. ET

CNI’s 2Q17 intermodal revenues

In this part of the series, we’ll take a look at the 2Q17 intermodal revenue for Canadian National Railway (CNI). With a 24.0% share, this segment is the largest contributor to CNI’s total operating revenues. The segment’s 2Q17 revenues were $815.0 million Canadian, a 17.0% rise from $697.0 million Canadian.

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Behind the 2Q17 intermodal volumes

In the second quarter of 2017, CNI’s intermodal units expressed in containers and trailers rose 16.0% year-over-year. The company moved 628,000 units in the same quarter against 542,000 units a year before. The intermodal average revenue per unit rose 1.0% in 2Q17. The rise was due to higher fuel surcharges and increased freight rates.

The international intermodal volume growth was primarily due to increased container traffic through the ports of Halifax, Prince Rupert, Vancouver, and Montreal. Higher domestic retail volumes in the consumer and industrial products segments also fueled shipment growth. However, these rises were negatively impacted by reduced domestic wholesale shipments.

Management’s outlook

Recently, Whirlpool (WHR) said it has set up a regional distribution center at CNI’s Calgary Logistics Park. That should be positive for the company’s intermodal volumes going forward. On the domestic intermodal side, the company doesn’t see the capacity tightening on the trucking front. That should trigger pricing growth for that front.

In international intermodal, CNI expects decent volumes in the rest of 2017. The expansion at the Port of Prince Rupert will be operational by September 2017. CNI anticipates Deltaport to be ready by the end of the year. In addition, increased inland intermodal terminal capacity and destinations for large streamlines should lead to higher international intermodal volumes in the second half of 2017.

Peers’ intermodal revenues

With the rise in fuel and international trade showing signs of improvements, Class I railroads’ intermodal revenues have had a boost. Let’s take a look at the changes in their intermodal revenues in 2Q17:

  • Canadian Pacific Railway (CP): rose 8.0%
  • CSX (CSX): rose 7.0%
  • Kansas City Southern (KSU): fell 1.0%
  • Union Pacific (UNP): rose 3.0%
  • Norfolk Southern (NSC): rose 10.2%

Investors interested in the transportation and logistics sector may want to opt for the iShares US Industrials (IYJ), which holds 5.9% in major US railroad companies.

Next, let’s look at CNI’s petroleum and chemicals revenues for 2Q17.

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