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Norfolk Southern (NSC) |
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WIKI ANALYSIS
Norfolk Southern (NYSE:NSC) is a U.S. railroad shipping company. The most important commodity transported by NSC is coal, which accounted for 29% of NSC's $8 billion in 2009 total revenue. The largest commodities after coal are intermodal containers, agricultural products such as corn, cars, and consumer products.[1] Its principal subsidiary is wholly-owned Norfolk Southern Railway Company, and it also has joint ownership (along with CSX (CSX)) of Consolidated Rail Corporation. Altogether, it has a network of 21,000 miles of track throughout 22 U.S. states, the District of Columbia and Ontario, Canada.[1] NSC earned a net income of $1.03 billion in 2009.
In 2009, 105 million tons of freight, or approximately 65% of total general merchandise tonnage transported by NSC came from online orders.[1] As more and more customers are able to easily transport as well as track their orders online, this could prove to become an important area of growth for NSC.
Business Overview
In 2009, NSC had total revenues of $7.97 billion, earning a net income of $1.03 billion.[2] Compared to 2008, revenues decreased 25%, or $2.7 billion due to manufacturers reducing their production to meet lower consumer demand as a result of the tough economic climate. Part of the decrease in revenues was also due to the lower cost of fuel; with lower fuel costs, NSC was able to charge less for fuel surcharges. Its net income was also down significantly, from $1.7 billion in 2008.
The commodity that contributed the most to NSC's 2009 revenue was coal at 29%. Other commodities shipped by NSC include:[3]
- Intermodal Containers (19.2%)
- Metals (9.3%)
- Chemicals (13.2%)
- Agricultural Products (14.8%)
- Cars and Automotive Parts (6.6%)
- Paper, Clay, and Forest products (8.4%)
Trends and Forces
NSC's reliance on coal makes its earnings susceptible to coal
Since 29% of NSC's earnings come from shipping coal, its earnings rely heavily on the volume of coal being shipped. As a result, it is susceptible to the worldwide demand for coal. This reliance can be seen in its total revenues, as revenues from coal declined by $847 million in 2009, as there was lower demand among manufacturers as well as utility companies.[3] However, prior to this year, its coal earnings had grown significantly, highlighted by a 25% increase in the year 2007. [5] Whether the demand of coal remains high in the future may have large implications for the future earnings of NSC.
NSC and General Electric Company (GE) working together to improve efficiency
As of June 7, 2010 NSC and GE have been working on software technology that reportedly helps improve freight railroad capacity and reliability. This could increase train speed and, in turn, save fuel, according to NSC and GE.[6] While they are still testing this product, if successful it could improve efficiency by 10% to 20%, which could greatly help NSC reduce expenses.
NSC named as a defendant in fuel surcharge-fixing lawsuit
In March 2008, Archer-Daniels-Midland Company (ADM) filed an antitrust lawsuit against five U.S. railroad companies, including NSC. The suit alleges that Burlington Northern Santa Fe (BNI), CSX (CSX), Kansas City Southern (KSU), Union Pacific (UNP) and NSC cooperated in fixing their prices for fuel surcharges.[7] Fuel costs are a large part of NSC's operating expenses, making up 12% of total expenses in 2007.[8] As such, fuel surcharges are an important way of NSC to pass on some of these higher costs to its customers. As of July 2008, there was no news on the progress of the suit.
Competition
NSC's chief competitor is CSX (CSX), the other main freight railroad in the Eastern U.S. NSC and CSX cover most of the same territory.[9]
| Figures are for FY 2007 | Revenue (millions USD) | Net Income (millions USD) | Miles of Track | Locomotives |
| CSX | $10,321 | $1,447 | 21,166 | 4,007[10] |
| NSC | $9,432 | $1,464 | 20,891 | 3,816[11] |
Market Share
The Association of American Railroad reported that the total 2006 freight revenue in the U.S. rail industry was $54 billion (as of 7/28/08, 2007 figures were not yet available).[12] The following market share figures are based on this number.
| (millions USD) | 2006 Freight Revenue | Market Share |
| Union Pacific (UNP) | 14,791[13] | 27.4% |
| Burlington Northern Santa Fe (BNI) | 14,540[14] | 26.9% |
| NSC | 9,117[15] | 16.9% |
| CSX (CSX) | 8,281[16] | 15.3% |
| Grand Trunk (subsidiary of Canadian National Railway Company (CNI)) | 2,037[17] | 3.8% |
| Kansas City Southern (KSU) | 830[18] | 1.5% |
| Soo Line (subsidiary of Canadian Pacific Railway (CP)) | 718[19] | 1.3% |
References
- ↑ 1.0 1.1 1.2 2009 10-K Pg K3
- ↑ NSC 10-K 2009 Item 6
- ↑ 3.0 3.1 NSC 10-K 2009 Item 7
- ↑ NSC 2007 Annual Report, inside cover
- ↑ W. Va Could Benefit From Booming Coal Exports - Charleston Daily Mail, 1/30/08
- ↑ GE software speeds freight trains, cuts fuel consumption. Heather Clancy. ZDNet.
- ↑ Railroad shipping: Archers, Daniel, Midland Files Lawsuit Against Rail Carriers Over Fuel Surcharges - Logistics Management Magazine, 3/31/2008
- ↑ NSC 2007 10-K, pages K44
- ↑ NSC 2007 10-K, page K11
- ↑ CSX 2007 10-K, pages 24, 29
- ↑ NSC 2007 10-K, pages K5, K8
- ↑ Overview of American Railroads - Association of American Railroads, May 2008
- ↑ Union Pacific 2006 Report R-1, page 16
- ↑ BNSF 2006 Report R-1, page 16
- ↑ NSC 2006 Report R-1, page 16
- ↑ CSX 2006 Report R-1, page 16
- ↑ Grand Trunk Railroad 2006 Report R-1, page 16
- ↑ KSU 2006 Report R-1, page 16
- ↑ Soo Line Railroad Company 2006 Report R-1, page 16
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