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BNSF’s Intermodal Traffic Slips on Par with Total US Intermodal

North American Railroads as of March 19: Coal, Intermodal Matters

(Continued from Prior Part)

BNSF’s intermodal traffic

BNSF Railway’s (BRK-B) total intermodal traffic for the week ending March 19, 2016, was down by 10.2% YoY (year-over-year), at about 87,000 compared with just over 97,000 units during the same period in 2015. In the latest reported week of 2016, container units declined by 9.1% YoY to ~77,000 against 84,983 units one year previously.

Keeping with this trend, trailers declined by 17.3% YoY for the week ending March 19, 2016. But the fall for BNSF Railway’s intermodal for the week was on par with the fall in total US intermodal traffic.

Why intermodal matters for BNSF

BNSF Railway’s domestic and international intermodal operations are part of the consumer products freight business. This business also includes automotive freight earned by the company. Investors should note that this business segment accounted for ~31% of BNSF’s total revenues in 2015, and the company’s share of rail traffic in the US West in 2015 was 49.8%.

In addition, the company handles one million more intermodal units every year than any other Class I railroad. Intermodal represents nearly 50% of BNSF’s business portfolio by volume. The company is the only railway to offer direct service between the US West Coast and Atlanta, Georgia.

Intermodal share

If we compare intermodal’s share to revenues to that of other Class I railroads, it’s clear that Berkshire Hathaway’s railway has the highest share of intermodal in total revenues. Still, BNSF Railway’s intermodal faces strong competition from Union Pacific (UNP) as well as from truckers like J.B. Hunt Transport (JBHT), Swift Transportation (SWFT), and Hub Group (HUBG) in the intermodal space.

Investors should understand that intermodal volumes, apart from seasonality, are also affected by highway-to-rail conversions and the carrier’s exclusive access to certain high traffic ports. If you’re looking for indirect exposure to the transportation sector, you might consider investing in the Morningstar Wide Moat ETF (MOAT). Major US railroads make up 15.3% of the portfolio holdings of MOAT.

Now let’s analyze the carload volumes of smallest US Class I railroad, Kansas City Southern (KSU).

Continue to Next Part

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