Transportation titan Norfolk Southern is the one big train that could. Its main subsidiary, Norfolk Southern Railway, transports freight over a network consisting of about 20,000 route miles in 20+ states in the eastern, southeastern, and Midwestern US and in Ontario and Quebec. The rail system is made up of more than 15,000 route miles owned by Norfolk Southern and nearly 5,000 route miles of trackage rights, which allow the company to use tracks owned by other railroads. Norfolk Southern transports coal and general merchandise, including automotive products and chemicals. It also offers intermodal services (freight transportation by a combination of train and truck) through its Triple Crown Services unit.
Norfolk Southern reports through three segments: General Merchandise, Coal, and Intermodal. General Merchandise accounts for 50% of the company's revenue. The segment is subdivided into five commodity groups: Agriculture/Consumer/Government (such commodities and products as soybeans, wheat, beverages, canned goods, ethanol, and military items); Chemicals (sulfur, petroleum products, plastics, among others); Metals/Construction (steel, aluminum, cement, bricks, etc); Automotive (finished vehicles from and auto parts for such auto OEMs as Ford, General Motors, and Toyota); and Paper/Clay/Forest (lumber and wood products, pulp board and paper products, wood fibers, wood pulp, scrap paper, and clay). The General Merchandise segment carried about 120 million tons on more than 2 million railroad carloads in 2011.
Coal is Norfolk Southern's single largest commodity group, accounting for 31% of revenue. The company carried about 178 million tons of coal in 2011, originating from major coal basins and destined for more than 100 coal generation plants as well as export, metallurgical, and industrial facilities. Operating in the eastern US, Intermodal carried more than 3 million units in 2011 for such clients as intermodal marketing companies, international steamship lines, and truckers.
Norfolk Southern's revenue rose 17% in 2011 compared with 2010 thanks mainly to higher revenue per unit in response to more consumer demand. General Merchandise revenue increased 12% in 2011 compared with 2010 as the result of higher rates and fuel surcharges. Within General Merchandise, the commodity group of Agriculture/Consumer Products/Government headed up 9% in 2011 compared with 2010. Chemicals increased 5%. Metals/Construction soared 23%. Paper/Clay/Forest Products headed up 6%. These commodity groups did well mainly as a result of increased rates and fuel surcharges. Automotive surged 20% in response to more output of light vehicles in North America.
Coal rose 27% in 2011 vs. 2010 to meet more demand from the domestic and global steel production market. Intermodal revenues went up 19% in 2011 compared with 2010 behind more traffic volume and higher rates and fuel surcharges. Net income for the company as a whole surged 28% in 2011 compared with 2010 thanks mainly to a 20% jump in railway operations income and lower taxes.
Looking ahead, Coal is expected to do well in response to more exports of coal for steel production and a tight supply in Australia after flooding. Among other forecasts: Domestic metallurgical coal will struggle with less demand. Industrial coal shipments will to rise in 2012 and 2013 to meet demand from new business. Demand for utility coal will decrease as a mild winter and low natural gas prices divert need for it. Agriculture/Consumer/Government's revenues will rise in response to more demand for ethanol and animal feed.
Chemicals are expected to enjoy a healthy next few years thanks to more shipments of crude oil from the Midwest to Eastern refineries and more demand for liquefied petroleum. Metals/Construction is forecast to respond to growth in the natural gas drilling market and higher metal-related traffic volumes. Automotive is also expected to respond to higher production of light vehicles in North America.
Thanks in part to $267 million of capital funding from several states and the federal government, Norfolk Southern will continue to work on the Crescent Corridor, an intermodal route spanning 11 states from New Jersey to Louisiana. Norfolk Southern is heralding the railroad as a solution to highway congestion relief. Other expansion efforts have included the Pan Am Southern joint venture between Norfolk Southern and Pan Am Railways that is responsible for a 155-mile track between New York and Massachusetts and the MidAmerica Corridor, a partnership between NS and Canadian National Railway for sharing track between the Midwest and Southeast. – less
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