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What Sank CSX’s Intermodal Revenues in 4Q17?

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CSX’s intermodal revenue in 4Q17

CSX’s (CSX) intermodal revenues shrank 1.3% to $471.0 million in 4Q17, down from $477.0 million in the fourth quarter of 2016. But the segment’s share in CSX’s total operating revenues rose to 16.5% in 4Q17, up from 15.7% in the same quarter of 2016.

On a non-GAAP basis, intermodal revenues rose 4% to $471.0 million in the last quarter of 2017, riding on a volume rise of 1%. Notably, this comparison excludes the extra week that CSX had in 4Q16.

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Intermodal volumes in 4Q17

CSX saw its intermodal segment volumes decline by 5% in 4Q17 to 719,000 units. But bucking the trend, intermodal revenues per unit jumped 4% to $655.0 per unit, up from $629.0 per unit in 4Q16.

The reduction in volumes came on account of the inclusion of an extra week in 2016. Lower highway-to-rail conversions and stiff competition from the trucking industry (XTN) also pulled down intermodal volumes.

Notably, the business rationalization initiative ate up ~7% of CSX’s total intermodal volumes in 4Q17, though the company it was positively impacted by solid peak season volumes.

Earnings call transcripts

In its 4Q17 earnings call transcripts and earnings release, CSX didn’t quantify on the gain or loss of domestic intermodal and international intermodal volumes. The company just mentioned that domestic intermodal volumes declined due to the rationalization of low-density lanes and competitive losses, which weighed on growth with existing customers.

International intermodal volumes gained from the growth at Eastern US port volumes. This means that the company’s domestic intermodal business has been facing strong headwinds.

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Management insights

Acting on its Precision Scheduled railroading program, CSX deviated from the hub-and-spoke intermodal network system. As a result, it closed down its Northwest Ohio facility, and it’s hoping not to encounter service disruptions in 2018.

CSX expects top-line growth in the intermodal segment in 2018. New service offerings in the international intermodal could boost CSX’s international intermodal business.

The implementation of the electronic log-in device has created service issues for US trucking companies (ODFL), and these issues should benefit rail intermodal. On the fuel (DBO) price front, any rise will likely reduce trucking companies’ (JBHT) (WERN) competitive advantage in medium- and long-haul routes. This could benefit CSX’s intermodal business going forward.

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