Norfolk Southern’s Railcars Slide in Line with the US Rail Traffic
Week Ended April 30: North American Rail Traffic Falls, Mexico Up
Norfolk Southern’s railcars
Norfolk Southern Corporation (NSC) is a major freight rail carrier in the Eastern US. NSC’s overall railcar units went down by 14.2% in the week ended April 30, 2016. The total railcars were just above 64,000 units in the same week against 75,000 plus units in the corresponding week of 2015.
The company’s railcar units, except coal and coke, recorded a 2.5% decline in the reported week of 2016 on a year-over-year basis. The fall in NSC’s total railcars, when compared with the total US railcars’ fall, was almost in line with the latest reported week of 2016.
Why coal carloads matter for NSC
NSC’s coal and coke traffic declined by a whopping 40% in the week ended April 30, 2016, on a year-over-year basis. Norfolk’s coal and coke traffic in the latest reported week of 2016 formed 22% of total railcars against 31% in the previous year. Investors should note that coal formed roughly 17% of the company’s 2015 revenues, coming down from 23% in 2009.
Environmental regulations and a shift from coal-fired electricity to natural gas-based (UNG) electricity in the recent past have impacted coal production across the US. The slowdown in US steel production has negatively impacted the demand for metallurgical coal.
Lower crude oil prices have affected coal producers such as Alliance Resource Partners (ARLP), Peabody Energy (BTU), and CONSOL Energy (CNX). The sharp decline in coal price led BTU to file Chapter 11 bankruptcy protection on April 13.
Investors can consider the iShares Global Industrials ETF (EXI) for investment in US railroads. All of the US-originated Class I railroads are included in the portfolio holdings of EXI.
Leaders and the laggards
In the week ended April 30, 2016, the advancing commodity groups were:
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Crushed stone, sand, and gravel
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Motor vehicles and equipment
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Food and related products
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Stone, clay, and glass products
The major laggards in the same week were chemicals, pulp, paper and related products, grain mill products, non-metallic minerals, and petroleum products. In the next part, we will discuss the state of NSC’s intermodal traffic for the week ended April 30, 2016.
For more information on the last week’s rail traffic, please visit Market Realist’s Week Ending April 23: North American Rail Traffic Fell.
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