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Getting a Read on the Railroad Industry

2Q15 Hedge Fund Activity in Norfolk Southern

(Continued from Prior Part)

Carload volumes undermine industry performance

The AAR (American Association of Railroads) releases rail freight volume data on a weekly basis. To date, carload volumes have been on a downward trajectory, largely on account of softening volumes of energy-related commodities.

In particular, total carloads of coal have fallen by 9.3% year-over-year to ~3.4 million. Class I railroads such as Union Pacific (UNP), CSX (CSX), Norfolk Southern (NSC), and Kansas City Southern (KSU) transport coal to fuel power plants. Nearly two-thirds of coal shipments are carried by rail.

In recent years, however, the abundant supply of coal has put downward pressure on the commodity’s price. Competition from cheaper, less...