NSC vs CSX vs UNP: How Does Coal Freight Business Compare For The Leading U.S. Railroad Companies?

Norfolk Southern (NYSE:NSC), Union Pacific (NYSE:UNP), and CSX Corporation) NYSE:CSX) have seen declines in coal freight revenue over the last few years. This can be attributed to lower volume shipped, as the U.S. coal production itself has been on a decline. However, higher average selling prices, aided by fuel surcharges, has offset some of the revenue decline attributable to the volume side. In this note we discuss how does the coal freight business compare for the three railroad companies. You can  view our interactive dashboard analysis ~ How Does Coal Freight Business Compare For The Leading U.S. Railroad Companies? ~ for more details. In addition, you can see more of our data for industrial companies here.

Coal Freight Revenues Have Largely Declined Over The Last Five Years

• Union Pacific’s coal freight revenues declined from $4.1 billion in 2014 to $2.7 billion in 2018.
• CSX Corporation’s coal freight revenues declined from $2.8 billion in 2014 to $2.2 billion in 2018.
• Norfolk Southern’s coal freight revenues declined from $2.4 billion in 2014 to $1.8 billion in 2018.

The Decline Was Primarily Led By Lower Shipments

• Union Pacific’s total carloads shipped declined from 1.8 million in 2014 to 1.2 million in 2018.
• CSX Corporation’s total carloads shipped declined from 1.3 million in 2014 to 0.9 million in 2018.
• Norfolk Southern’s total carloads shipped declined from 1.3 million in 2014 to 1.0 million in 2018.

The Decline In Shipments Could Be Attributed To Lower Coal Production, Amid Lower Consumption For Coal.

• Coal production in the U.S. has been on a decline. It fell from 1,000 million short tons (Mst) in 2014 to 756 Mst in 2018.
• This can be attributed to lower consumption of coal, as consumers have moved to more cleaner sources of energy, such as natural gas. The coal consumption declined from 918 Mst in 2014 to 687 Mst in 2018.

The Trends In Natural Gas Pricing Were More Favorable As An Alternative Energy Source To Coal.

• Henry Hub natural gas average spot price declined from $4.37 per million BTU in 2014 to $3.15 in 2018.
• The price declined further to $2.22 in August 2019.
• Source ~ U.S. Energy Information Administration.

Average Revenue Per Carload Has Seen Some Growth In The Recent Years, Primarily Due To Higher Fuel Surcharges.

• Union Pacific’s average revenue per coal carload declined from $2,334 in 2014 to $2,093 in 2016, but recovered to $2,305 in 2018.
• CSX Corporation’s average revenue per coal carload declined from $2,258 in 2014 to $2,187 in 2016, but recovered to $2,532 in 2018.
• Norfolk Southern’s average revenue per coal carload declined from $1,855 in 2014 to $1,650 in 2016, but recovered to $1,762 in 2018.

Average Fuel Surcharges Are Largely Dependent On Fuel Prices, Which Have Seen Some Growth In The Recent Years.

• Average US WTI Crude oil price declined from $93.17 per barrel in 2014 to $65.23 in 2018, and it is estimated to average $56.31 in 2019, according to the U.S. Energy Information Administration.

Union Pacific’s Share In Total Carloads Shipped Has Declined In The Recent Years, While That of CSX Corporation And Norfolk Southern Has Increased.

• Union Pacific’s share in total carloads shipped declined from 41.0% in 2014 to 37.6% in 2018.
• CSX Corporation’s share in total carloads shipped increased from 29.3% in 2014 to 28.8% in 2018.
• Norfolk Southern’s share in total carloads shipped increased from 29.8% in 2014 to 33.6% in 2018.

Similarly, Union Pacific’s Share In Total Coal Freight Revenues Have Been On A Decline While That of CSX Corporation And Norfolk Southern Has Been On A Rise.

• Union Pacific’s share in total coal freight revenues declined from 44.1% in 2014 to 39.6% in 2018.
• CSX Corporation’s share in total coal freight revenues increased from 30.4% in 2014 to 33.3% in 2018.
• Norfolk Southern’s share in total coal freight revenues increased from 25.5% in 2014 to 27.0% in 2018.

Coal Is An Important Business, Given Its Contribution To The Top Line of Railroad Companies. The Contribution To Total Sales Has Been On A Decline Given The Revenue Trends Discussed Above, And Growth In Other Segments For The Railroad Companies.

• Coal freight revenues accounted for 17.2% of Union Pacific’s total sales in 2014, but declined to 11.7% in 2018.
• Coal freight revenues accounted for 22.5% of CSX Corporation’s total sales in 2014, but declined to 18.3% in 2018.
• Coal freight revenues accounted for 20.5% of Norfolk Southern’s total sales in 2014, but declined to 15.9% in 2018.

Conclusion

• Coal shipments have been on a decline in the recent years for all the railroad companies, and this trend is expected to continue in the coming years, and consumers shift to alternative cleaner sources of energy, including natural gas, which hasn’t seen any major surge in pricing in recent years.
• Given the demand outlook to be weak for coal, its production is expected to be lower, thereby impacting the railroad shipments.
• Also, given the trade tensions between the U.S. and other countries, including China, the coal export is also expected to be lower in the near term.
• As such, any significant growth in coal freight revenues is unlikely in the near to medium term.

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