A Quick Snapshot of CSX Corporation’s Intermodal Freight Business

CSX Corporation (NYSE: CSX) generates its revenues primarily from various commodities freight, including agriculture, coal, and industrial, among others. The Intermodal segment accounts for over 15% of the company’s value, according to our estimates. We forecast mid-single digit segment revenue growth in the near term. This can be attributed to the expected steady growth in volume and pricing, led by a positive impact of capacity constraints in the trucking industry. We have created an interactive dashboard analysis ~ A Quick Snapshot of CSX Corporation’s Intermodal Freight Business, highlighting the company’s Intermodal segment. You can adjust revenue drivers and margins for 2018 and 2019 to see how it impacts the company’s overall revenues and income. Below we discuss our expectations and forecasts for the company.

Expect Intermodal Revenues To Grow At A Steady Pace

We forecast CSX’s Intermodal freight revenue to grow 4% in 2018, primarily due to a positive impact of capacity constraints in the trucking industry, given the full implementation of the ELD (electronic logging device) Mandate. It should be noted that the ELD Mandate represents a major regulatory change for the U.S. trucking industry, as the increased costs are passed on to the shippers. Drivers are restricted on the number of hours of service, which has resulted in a reduction in available capacity. While the trucking industry is expected to be hit by this law, other modes of transportation, particularly railroads, are expected to benefit from this. We thus expect CSX’s Intermodal shipments to grow steadily in the near term.

CSX has invested in a number of intermodal terminals over the past years, including intermodal terminals at Winter Haven, FL and Quebec, Canada in 2014 and Pittsburgh, Pennsylvania in 2015. This week, CSX along with the NC Department of Transportation, entered into an agreement to build a major rail transportation center at Edgecombe County. CSX will invest $96 million while the transportation agency will spend $118 million for the project. This will benefit the company in the long run. The company has also considerably improved its value proposition to customers with improvements in certain performance metrics such as network velocity, transit times, on-time originations and arrivals, as well as customer satisfaction over the last few years. This will likely aid the pricing growth. It should be noted that the company enters into long-term contracts with its customers and pricing is usually not changed in the short term. However, it may vary for the new contracts. We believe that an impact from higher fuel surcharges will aid the pricing growth over the next few years. Fuel surcharges are dependent on oil prices, which have been trending higher in 2018, with benchmark Brent trading above $78 levels. Accordingly, we estimate low-mid single digit growth in both volume and pricing for the Intermodal segment in 2018 and 2019.

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