Wednesday, February 08, 2012

An increasingly intermodal railroad

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An increasingly intermodal railroad

Norfolk Southern is increasingly an intermodal railroad. As of Feb. 18, nearly half of total revenue units year-to-date — 412,077 out of 911,473 or 48.6% — were intermodal boxes (an intermodal container or trailer is one AAR revenue unit as is one conventional carload). A year ago intermodal was 43.7% of the total. Where’s it coming from?

Highway conversions, mainly. Total “merchandise” carloads (all but coal and intermodal) increased 4.2% in the same period with particular strength in the Automotive (both finished vehicles and parts) and the Metals & Construction (includes metals, aggregates, and ores) commodity groups.

However, total NS revenue units were virtually flat year-over-year — down 0.3%. How can this be? Coal, mainly. The combination of an unusually warm winter in the NS service area, combined with record low natural gas prices, has meant utilities needed less coal to meet heating demand, and where they could switch to cheaper natural gas, they did. As a result, year-to-date coal carloads have decreased by 28,316 carloads and from 23.3% of total revenue units to 21.8%.

What we’re seeing is a major shift in the commodity mix at NS and, to a lesser degree, at all Class I’s. The difference is NS has built a powerful intermodal network and dominates rail access to the booming Marcellus Shale natural gas fields in central and western Pennsylvania. So as coal volumes fall due to decreased demand for electric power generation in the near term, long-term carload volumes related to natural gas and automotive offset the losses in coal.

Best of all, the NS intermodal franchise is sustainable and natural gas isn’t going away. And as coal comes back, it will be on top of the intermodal and merchandise carload gains.

Roy Blanchard

Roy Blanchard is principal of The Blanchard Company and a Contributing Editor to Railway Age.

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