How Bad Was Canadian Pacific’s Intermodal Traffic Slump?
North American Railroads as of March 26: Slipping off the Tracks
Canadian Pacific’s intermodal traffic
For the week ended March 26, 2016, Canadian Pacific (CP) reported a nearly 16% fall in domestic volumes at ~7,000 units, compared to ~9,000 units in the same period of 2015. International intermodal volumes fell by 11% in the same week in 2016 compared to the corresponding week in 2015.
On an overall basis, the company’s intermodal fall was less than the falls in total US and Canadian intermodal volumes of 14% and ~19%, respectively.
Canadian Pacific doesn’t report intermodal traffic in the same format as other Class I railroads. It segregates its intermodal volumes into domestic and international categories. Intermodal volumes are largely measured by the number of containers and trailers hauled.
Why is intermodal business important to CP?
Domestic intermodal business formed 11.2% of CP’s revenues and 15.8% of its total carloads in 2015. CP’s international intermodal business contributed ~9% of its revenues and 21.3% of its carloads in the same year.
Increased truck capacity in CP’s short-haul lane will most likely result in tough competition in the domestic intermodal space going forward. Since the company receives most of its domestic intermodal business from Canada, it will be largely impacted by Canadian economic growth.
The company’s international intermodal business consists of containerized traffic moving between the ports of Vancouver, Montreal, and New York. CP’s international intermodal growth is tied to capacity growth at these ports.
In addition, retail demand and the pace of transpacific trade with China can affect the international intermodal volumes of carriers such as Canadian National Railway (CNI), Union Pacific (UNP), and BNSF Railway (BRK-B).
Investors may opt for investment in the iShares Global Industrials ETF (EXI) to gain exposure to the transportation sector. All major US railroads and airlines make up 3.8% and 7.5%, respectively, of the portfolio holdings of EXI. Union Pacific makes up nearly 2% of the portfolio holdings of EXI.
In this series, we’ve analyzed the rail traffic data of all US Class I railroads for the 12th week of 2016. For a comparison between sequential weekly data, you can read last week’s rail traffic data series.
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