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I am long with both CSX and NSC. I'll say that, over the last 2 years I've been very disappointed in the stock price performance of both CSX and NSC, they've been hurt badly by the demise of coal shipments. And I'll admit that UNP is the king of the railroads right now, in terms of pps gains. A lot of traffic and goods from overseas comes into and leaves the Western seaboard, and UNP has a monopoly on transporting those goods to the American heartland..
That being said, CSX and NSC may experience turn arounds with the widening of the Panama Canal that is to be completed by 2014. The improved canal will allow for cargo ships 3 times larger than those currently traversing the canal. These larger ships will enable them to economically load and unload their cargo on East Coast facilities. And both CSX and NSC are preparing terminals for the new traffic. CSX and NSC should both experience an increase in both imports/exports from the wider canal. Hopefully, this increase in traffic will ramp up quickly in 2014-2015 and benefit the PPS for CSX and NSC.
Remembering the old axiom, "Buy low and sell high", now isn't the time to buy UNP as it's pps is too high. But CSX and NSC are at two year lows and they offer a better opportunity.
Article providing more info on the Panama Canal expansion in regards to CSX and NSC:
Panama Canal Expansion will Change the Landscape for Freight
By Daniel Ferry - June 20, 2012
A century after opening, the Panama Canal is due to inaugurate a third set of locks in 2014. This added capacity will not just increase the throughput of the canal, it will also accommodate significantly larger vessels. Today, the Panama Canal is one of the most notorious bottlenecks in global trade, with a particular class of ship, the Panamax, designed specifically to be the largest vessel that can still fit through the canal's narrow locks. The lifting of these constraints could change the face of global freight movement.
While Panamax ships have an advantage in accessing more ports, they're not as cost-effective as larger vessels. The biggest container ships can move freight for as much as 50% less per container than Panamax ships. Because the largest ships can't reach the US East Coast from Asia without a lengthy diversion around the tip of South America or through the Suez Canal, West Coast ports accept around 75% of Asian traffic, and freight is sent on Class I railroads like Union Pacific (NYSE: UNP) and Canadian National (NYSE: CNI) to reach the Midwest and beyond. I've written before on how natural gas could affect railroads, but the Panama Canal project will change their geography.
The expansion will nearly triple the Canal's capacity, increasing the maximum vessel size from 4,400 TEUs to 12,600 TEUs (a TEU, or twenty-foot equivalent unit, is about the size of one intermodal container). This means that larger, more cost-effective vessels will be able to call on East Coast ports, bypassing the transcontinental trip on western railroads. Most eastern ports are building out new capacity in anticipation of larger ships, and ports like Houston, Charleston, Hampton Roads, and New York expect dramatically greater volumes after the Canal expansion. A report from MIT academics estimates that East Coast ports will capture 20–35% of current West Coast volumes after the expansion.
Typically, rail captures a greater share of the freight market at West Coast ports than at East Coast ports, leading CSX (NYSE: CSX) CEO Michael Ward to claim, “Quite frankly, we’d prefer West Coast port growth.” This is because the densely populated East Coast is more amenable to the flexibility and short distances offered by trucking. However, with highway congestion increasing and fuel prices volatile, eastern railroads are making big investments in building rail corridors to the Midwest. Norfolk Southern (NYSE: NSC) invested more than $320 million in 2010 in its Heartland Corridor, connecting the Hampton Roads port to Columbus, Cincinnati, and Chicago. So far CSX has committed $575 million of the total $850 million in expected costs to fund the National Gateway initiative, whereas the remainder of the funds will come from state and federal coffers. Upon completion, the National Gateway project will allow double-stacked intermodal containers to travel on the railroad's lines from eastern ports all the way to the Midwest.
Eastern railroads also stand to benefit in the export market. Ships that come into Hampton Roads full of Chinese-made consumer goods may well leave full of food and coal. After the expansion, eastern ports and railroads will have better access to America's breadbasket of the Midwest than their western counterparts, and China's appetite for American foodstuffs -- nearly $50 billion in 2010 -- is growing robustly. And as domestic demand for dirty bituminous coal mined in Appalachia cools, China, with its lack of environmental regulations and pressing need to generate more electricity, may prove a willing buyer.
And yet, while the expansion project looks poised to benefit eastern ports and railroads tremendously, it isn't clear that the West Coast infrastructure providers actually stand to lose. The biggest constraint at West Coast ports is congestion, and with trade volumes growing every day, western infrastructure is stretched to its limit in accommodating freight growth. Even with the planned construction of six new terminals in Washington and Oregon, it seems like West Coast ports and railroads have more than enough volume to keep them busy and growing. The Panama Canal expansion seems to offer the prospect of actually adding value to the American import/export industry as a whole, rather than simply shifting value from the west to the east.
To be completely straightforward, the opening of the 'expanded' Panama Canal has experienced delays and is now scheduled to open in April of 2015, more than two years from now. This might provide an excellent time period, window, for accumulating NSC or CSX while theirs PPSs are at two year lows.
Again, the old axiom, "Buy Low".
Thanks for your constructive comments as well as the following post on the impact of the Panama Canal (PANC). One finally shares my pain with NSC performance. I have held the stock a long time and you can review my past posts to understand areas of concern.
There was an AAR sponsored report “National Infrastructure Capacity and Investment Study” done by Cambridge Systematics back in 2007. In sum the report discusses current rail infrastructure and where lanes need to be upgraded due to increase in traffic. The report addresses all Class I in the US. The report does not even mention the PANC project let alone ramifications.
Second the report at the time written could not account for the energy-related shale boom. The shale boom has world-wide impact and you and I know, it is impacting, perhaps saving some of the rails now as coal revenues and such are very weak.
I think the jury PANC story and potential ramifications to rail and well as shippers is still out. Time will tell.
My concern is that west to east coast intermodal business could be impacted negatively. South Gulf of Mexico (GOM) and east coast ports could see an increase in business. Both NS and CSX have been anticipating this potential grow by upgrading south to north routes and ports.
The next big trick is making intermodal short runs profitable, say at or less than 500 mile runs inland.
Some thoughts/opinions to the author’s remarks on the PANC article:
1. “I've written before on how natural gas could affect railroads, but the Panama Canal project will change their geography.” No doubt about it. Shale business is a major positive impact to the rails. Question is, pipeline alternatives are underway to get that business, and more may be following in key areas. Mid-west to east coast is prime for that.
2. “This means that larger, more cost-effective vessels will be able to call on East Coast ports, bypassing the transcontinental trip on western railroads.” One of my concerns. A recent interview I noted on Journal of Commerce web site (see Elkins discusses public-private partnership interview at Trans Pacific Martine Conference) with NS’s Ed Akins gave me the impression that PANC is not necessarily the ace in the hole for eastern rails. Mr. Elkin’s summary is “no one knows the right answer on that yet.”
3. However based on his comments and knowing is ready will current project completion I do see that is great news for NS.
4. “And as domestic demand for dirty bituminous coal mined in Appalachia cools, China, with its lack of environmental regulations and pressing need to generate more electricity, may prove a willing buyer.” Why is coal so POLITCALLY INCORRECT these days? It is a vital natural resource, cheaper than natural gas as natural gas is cheaper than wind and solar generated power. The fact is, coal has is now completive with natural gas thus nat gas is stuck at low 3’s per m/cf. Recall price per m/cf was around $12 m/cf just a couple of years ago. Coal is keeping a lid on higher nat gas to some extent.
5. “Eastern railroads also stand to benefit in the export market. Ships that come into Hampton Roads full of Chinese-made consumer goods may well leave full of food and coal.” Well ships are pretty much dedicated to the freight they haul. Food coming in on the same ship will not be carrying coal out. Coal as well and LNG will be dedicated vessels. This could be an advantage for coal outfits as well as rail shipments from the mines to GOM and east coast ports. Elkins also noted that customers want more short-line nontraditional service. This is one reason that lawsuit between NSC/WLE and PW interest me so much. Shale business is in question in this matter as well. The old PWVa was built in 1901 unknowingly at that time having today’s double-stack clearance requirements. So this line is ideal for short run intermodal.
6. “So far CSX has committed $575 million of the total $850 million in expected costs to fund the National Gateway initiative, whereas the remainder of the funds will come from state and federal coffers.” Well this is another pet peeve issue for me, rails drunk on tax-payer funds. These funds will likely be reduced if not eliminated as the US (including state) debts must be addressed, that is cut spending. Rails are going to have to adjust, and that means running a lean mean business.
Your thought on buying NS and CSX as they are at lows is only based on the assumption that future operating fundamentals depict improvement. The others noted are doing a better job, thus on pullbacks, I would prefer them over NS and CSX. On NS and CSX, I believe CSX has less risk to the downside over NS at this time. Just because the stock price is high does not in any way indicate the price won’t go higher. At that point it all depends upon the fundamentals for a long-term goal investment. Again unless management effects changes that investors (especially large institutions) view a precursors to better future rates of return, the stock price will remain depressed.
Chrxind, you seem to be very negative in your outlook toward NSC and it's stock. You aren't satisfied with it's past performance and you seem to be very pessimistic about NSC's future potential. It's obvious that you nitpick, in order to find any drawbacks to owning this stock. Maybe you are shorting the stock, purposely trying to put a bad light on it, so that you will profit by convincing others to sell.
Chrxind, as a NSC shareholder, you absolutely have the right to own NSC stock and to voice your opinions on the stock. But, if you are so dissatisfied with the stock's past performance and if you see no hope for it's future performance, why do you continue to hold on to NSC stock? There are many other companies, besides NSC, in which to invest.
Great insight guys, looking for nsc to close the value gap to it's more expensive peers. I'm really excited about the bakken shale oil, energy indepence is coming, nsc could benifeit huge from oil transport. i'm a tecnical trader/investor, the weekly low( before the big drop) at 69+ has not been tested, I think we see it before earns on the 22nd. good luck all