How Much Revenue Can Norfolk Southern’s Intermodal Business Generate By 2020?

by Trefis Team
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Norfolk Southern’s (NYSE:NSC) intermodal freight, which refers to the shipment of containers that can be moved from one form of transport to another, accounts for over a quarter of Norfolk Southern’s total revenue, and it will likely generate $3.1 billion revenue in 2020, compared to $2.9 billion in 2018, according to our estimates. It has seen steady growth over the recent years, led by growth in both volume and pricing. Norfolk Southern’s Intermodal volume is higher than that of its peers. The segment revenue growth in the recent past was driven by capacity constraints in the trucking industry, and this benefited the overall railroad industry at large. The full implementation of electronic logging device (ELD) mandate weighed on the trucking capacity in 2018. However, as we look forward, the capacity constraints appear to have eased, and a high base for 2018 will likely result in slower segment revenue growth in the near term. As such, we don’t expect any significant growth in the segment’s contribution to the company’s overall revenues over the coming years. You can look at our interactive dashboard analysis on Norfolk Southern’s Intermodal business for more details.

Norfolk Southern’s Intermodal Revenues Have Been Trending Higher Led By Pricing Growth

  • Intermodal revenue grew from $2.2 billion in 2016 to an estimated $3.0 billion in 2019.
  • This was driven by volume as well as pricing growth.
  • Volume grew from 3.9 million in 2016 to an estimated 4.3 million in 2019.
  • Average revenue per unit (ARPU) grew from $573 to $687 over the same period.
  • The jump in 2018 can be attributed to capacity constraints in the trucking industry, amid full implementation of the Electronic Logging Device (ELD) mandate.

Norfolk Southern’s Intermodal Revenue Is Higher Than That of CSX But Lower Than Union Pacific’s

  • CSX’s Intermodal revenue grew from $1.7 billion in 2016 to $1.9 billion in 2018, and they are estimated to be $1.7 billion in 2019, due to the company’s ongoing efforts of rationalization of its lanes.
  • Union Pacific does not report separate numbers for its Intermodal freight. They are clubbed with automotive freight under Premium segment.
  • Union Pacific’s Premium segment revenues grew from $5.7 billion in 2016 to an estimated $6.5 billion in 2019.

Norfolk Southern’s Intermodal Volume Has Been Higher Than Its Peers

  • CSX’s Intermodal units have declined from 2.8 million in 2016 to an estimated 2.6 million in 2019.
  • Union Pacific’s Premium units grew marginally from 4.1 million to 4.3 million over the same period.
  • This compares with Norfolk Southern’s Intermodal units, which grew from 3.9 million to 4.3 million over the same period.
  • Looking at ARPU, CSX’s ARPU grew from $614 to an estimated $647 between 2016 and 2019.
  • Union Pacific’s ARPU is much higher at around $1,500 levels. This can be attributed to the mix of Automotive shipments in its Premium segment.
  • This compares with Norfolk Southern’s Intermodal ARPU, which grew from $573 to $687 over the same period.

Intermodal’s Contribution To Norfolk Southern’s Total Revenue Has Increased

  • Intermodal as % of Norfolk Southern’s total revenue grew from 22.4% in 2016 to an estimated 25.7% in 2019.
  • This was driven by higher average growth for the Intermodal segment, compared to the overall revenue growth.
  • Intermodal revenue grew at a CAGR of 10.1% between 2016 and 2019 estimated, while the company’s total revenue grew at CAGR of 5.5% over the same period.
  • Look at our analyses on Norfolk Southern’s revenues for more details.

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