A Look At CSX Corporation’s Industrial Freight Segment

by Trefis Team
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CSX Corporation (NYSE:CSX) generates its revenues primarily from various commodities freight, including agriculture, coal, and industrial, among others. The Industrial Freight is the largest segment for the company, and accounts for over one-third of the company’s total revenues and profits. We forecast the segment revenues to see modest growth in the near term, and mid-single digits in the later years. We have created an interactive dashboard ~ A Quick Snapshot of CSX Corporation’s Industrial Freight Business. You can adjust the segment revenue drivers and margins for 2018 and 2019 to see how it impacts the company’s overall revenues, EBITDA, earnings, and price estimate. Below we discuss our expectations and forecasts for the segment.

Industrial Freight Segment Will Likely See Modest Growth In The Near Term 

CSX Corporation’s Industrial Freight segment consists of the transportation of chemicals and petroleum products, metals, and automotive. We forecast the segment revenues to see only a modest growth in 2018. Industrial freight revenues are dependent on two factors – Number of Carloads, and Revenue Per Carload. We expect low to mid-single digit growth in average revenue per industrial carload, primarily due to higher fuel surcharges, given the trend in oil prices.

However, we forecast a decline in volume. This can be attributed to an expected decline in automotive shipments. Automotive shipments haven’t seen any significant growth, amid a decline in North America light vehicles production. The production was down 4.3% in 2017, and is expected to see a modest decline in the near term. This will likely weigh on the railroad automotive shipments.

Having said that, the chemicals shipments should see an uptick, as the U.S. chemicals production is expected to grow by over 3% in 2018 and 2019. The oil prices are moving higher with Brent above the $80 mark. The trend in oil prices will likely boost drilling activity and increase the demand for crude oil related shipments in the near term.

Looking at other commodities, steel shipments are expected to increase, as many players in the U.S. are adding capacity. Favorable demand-supply dynamics with respect to these commodities will help offset some of the volume decline on the automotive side.

 

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