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Behind Norfolk Southern’s 3Q17 General Merchandise Revenue Growth



NSC’s General Merchandise segment

Norfolk Southern’s (NSC) General Merchandise segment includes the transportation of agricultural items, chemicals, paper and forest products, metals and construction, and automotive. General Merchandise revenues rose 3.1% YoY (year-over-year) to $1.60 billion in 3Q17, up from $1.55 billion in 3Q16.

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3Q17 General Merchandise volumes

In 3Q17, NSC’s total merchandise volumes contracted 1% YoY. The company hauled 627,000 carloads of industrial merchandise, compared with 630,000 carloads in 3Q16. The highest share in the volume decline was borne by automotive (TSLA) freight, wherein shipments fell 10% YoY to ~97,000 carloads, down from 107,000 carloads in 3Q16.

The volumes of agriculture (ADM), consumer (HD) and government-related commodities remained nearly unchanged at 148,000 carloads. Metal and construction-related commodities saw 4% volume gains YoY in 3Q17, while volumes of paper, pulp, clay and forest-related merchandise rose 2% YoY. Volumes of chemicals (DOW) fell 2% YoY to 115,200 carloads, down from 117,500 carloads in 3Q16.

The only exception in industrial merchandise (IYJ) was metals and construction freight, wherein volumes rose 5% YoY. The revenue per unit in this segment, however, rose 2% YoY on account of higher fuel surcharges and freight rate hikes.

Management outlook

Norfolk Southern anticipates low-single-digit growth for its General Merchandise segment in 4Q17. The company believes that US industrial production should boost the demand for steel. Construction sector growth is expected to lift NSC’s aggregate commodities volumes, while a rise in Marcellus-Utica drilling activity should fuel higher fractionating sand volumes going forward

However, with the North American Light Vehicle production contracting, automotive freight will likely be lower. High pipeline capacity could result in reduced crude-by-rail transportation in the short term.


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