Metals and Automotive Sectors Struggle
Norfolk Southern (NS), a leading Class I railroad in the U.S., is facing difficulties in the metals and automotive sectors as it heads into Q4 2024. A decline in steel demand and automotive shipments is anticipated to offset gains in other sectors such as chemicals and grain. Automotive volumes saw a 4% decrease year-over-year, with the railroad transporting 87,900 carloads. This decline in automotive shipments comes amidst a broader slowdown in the global automotive sector. Metals and construction volumes also decreased by 2%, although revenue remained slightly higher at $420 million, reflecting stable per-carload revenue despite the drop in volume.
The slowdown in these sectors aligns with warnings from other rail operators, including CSX, about lower demand for steel and automotive products. This trend reflects the broader struggles in industrial sectors due to fluctuating global demand and economic uncertainties.
Coal Market: Mixed Results with Declining Metallurgical Coal Demand
Norfolk Southern’s coal sector showed mixed results in Q3, with an overall 11% increase in coal carloads, reaching 185,300 units. However, revenue from coal shipments fell by 2%, primarily due to reduced benchmark prices. Metallurgical coal shipments, which have been impacted by global market fluctuations and declining coal prices, especially in Asia, saw a dip. This slowdown is linked to geopolitical factors and shifting energy demands, particularly from China.
On the other hand, thermal coal exports showed resilience, which helped NS somewhat offset the losses in metallurgical coal volumes. Despite the challenges in the coal sector, NS expects ongoing demand for thermal coal to provide stability as part of its diversified portfolio.
Strong Intermodal Growth Amid Domestic Rate Pressures
While the metals and automotive sectors face challenges, Norfolk Southern has seen positive growth in its intermodal business. Intermodal volume grew by 9%, reaching 1.05 million carloads in Q3, generating $763 million in revenue, a 4% increase from the previous year. However, domestic intermodal rates remain under pressure, affected by stagnant truck pricing, which has limited overall rate growth in this area.
International intermodal shipments have started to rebound following disruptions caused by a labor strike from the International Longshoremen’s Association in early October. The recovery of international shipments has been a bright spot for NS, helping to offset domestic rate pressures.
Merchandise Segment Performance Continues to Grow
Norfolk Southern’s merchandise segment, which includes agricultural, forest, and consumer products, posted a solid performance in Q3. The segment saw a 6% increase in volume to 186,300 carloads, with chemicals shipments growing 4%, contributing to a 9% increase in revenue to $543 million. Overall, the merchandise segment grew by 2% in revenue to $624 million, demonstrating resilience in essential goods transportation despite challenges in other sectors.
Outlook for Q4 2024 and 2025
Looking ahead, Norfolk Southern is anticipating “sedate growth” in Q4 2024, supported by easing interest rates and ongoing infrastructure development. However, the company remains cautious about the volatility in key commodity markets such as steel and coal. Geopolitical risks, particularly in coal markets and steel demand, continue to pose challenges to future growth.
Despite these headwinds, the company is optimistic about its long-term outlook. NS Chief Marketing Officer Ed Elkins forecasts that the company will outpace inflation in major markets by 2025, driven by continued growth in intermodal and merchandise sectors, as well as investments in infrastructure and technology.
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