Higher Intermodal Freight Pricing Will Aid Norfolk Southern’s Overall Growth In The Near Term

by Trefis Team
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Norfolk Southern
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Norfolk Southern (NYSE:NSC) will increase its non-contract Intermodal freight prices by 15% as of June 2018. The Intermodal segment was already seeing strong growth of late, with a double digit revenue growth in Q1. Increased pricing will further aid the segment’s performance. We have created an interactive dashboard highlighting the company’s Intermodal freight business. You can adjust revenue drivers and income margin for 2018 and 2019 to see how it impacts the company’s overall revenues and EBITDA. Below we discuss our expectations and forecasts for the company.

Intermodal Segment Will See Strong Growth In 2018

We forecast Norfolk Southern’s Intermodal freight revenue to grow 9% 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 the shippers. Drivers are restricted on the number of hours of service, which has resulted into 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. In light of this enactment, we expect Norfolk’s Intermodal shipments to grow strongly in the near term. Norfolk Southern, cognizant of this fact, has sharply increased the average pricing, much higher than the current inflation rate. Beyond the ELD Mandate, the company’s management in its first quarter earnings conference call stated that e-commerce growth will further aid the Intermodal segment performance. Also, higher fuel surcharges will aid the pricing growth. Fuel surcharges are dependent on oil prices, which have been trending higher in 2018, with WTI crude trading above $70 levels. Accordingly, we estimate low-mid single digit growth in both volume and pricing for the Intermodal segment in 2018.

 

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