Metals and Automotive Sectors Face Decline
Norfolk Southern (NS), a leading Class I railroad in the U.S., is facing difficulties in the metals and automotive sectors as it moves into Q4 2024. A decline in steel demand and automotive shipments is expected to offset gains in other areas, such as chemicals and grain. Automotive volumes dropped 4% year-over-year, totaling 87,900 carloads. This decline aligns with the broader slowdown in the global automotive industry. Metals and construction shipments also decreased by 2%, though revenue remained stable at $420 million, reflecting steady per-carload earnings despite lower volumes.
Warnings from other rail operators, including CSX, highlight similar trends, as weaker demand for steel and automotive products continues to weigh on the industrial sector amid economic uncertainties.
Coal Market Sees Mixed Results Amid Declining Metallurgical Coal Demand
Norfolk Southern’s coal sector had mixed results in Q3. While coal carloads increased by 11% to 185,300 units, revenue from coal shipments fell 2% due to lower benchmark prices. The decline in metallurgical coal shipments, affected by global market fluctuations and weakening prices in Asia, remains a challenge. Geopolitical factors and shifting energy demands, particularly from China, continue to impact the sector.
However, thermal coal exports remained resilient, helping offset losses in metallurgical coal volumes. Norfolk Southern expects ongoing demand for thermal coal to provide stability within its diversified freight portfolio.
Intermodal Freight Growth Offsets Industry Challenges
Despite challenges in other sectors, Norfolk Southern’s intermodal business experienced positive growth. Intermodal volumes increased 9% in Q3, reaching 1.05 million carloads and generating $763 million in revenue, a 4% increase from the prior year. However, domestic intermodal rates remain under pressure due to stagnant truck pricing, which has limited overall rate growth in the sector.
International intermodal shipments rebounded following disruptions caused by a labor strike from the International Longshoremen’s Association in early October. This recovery has been a bright spot for NS, helping to counterbalance domestic rate pressures.
Steady Growth in Merchandise Segment
Norfolk Southern’s merchandise segment, which includes agricultural, forest, and consumer products, posted solid performance in Q3. Volume in this segment grew 6% to 186,300 carloads. Chemical shipments rose by 4%, contributing to a 9% revenue increase, reaching $543 million. Overall, the merchandise segment grew 2% in revenue, totaling $624 million. This reflects steady demand for essential goods despite difficulties in other freight categories.
Outlook for Q4 2024 and Beyond
Looking ahead, Norfolk Southern projects moderate growth in Q4 2024, supported by easing interest rates and ongoing infrastructure investments. However, the company remains cautious due to volatility in key commodity markets such as steel and coal. Geopolitical risks, particularly those affecting coal and steel demand, present ongoing challenges.
Despite these headwinds, the company remains optimistic about its long-term prospects. NS Chief Marketing Officer Ed Elkins predicts that by 2025, the company will outpace inflation in major markets, driven by continued expansion in intermodal and merchandise sectors, as well as investments in infrastructure and technology.
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