Train stocks are getting crunched by a one-two commodities punch

Train stocks are tanking.
Train stocks are tanking.
Image: AP Photo/Gene J. Puskar
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Falling oil prices have taken their toll on many things, including inflation, junk bonds, petrocurrencies, and the budgets of entire nations. Another victim? Train traffic. As the Financial Times notes (paywall), oil shipments by rail have been decreasing as the commodity’s glut keeps building.

But it’s not just oil. Coal usage has been declining for years, and sinking demand for both has shrunk train traffic by the most since 2009.

Alan Shaw, Norfolk Southern’s chief marketing officer, recently told a Credit Suisse conference that half his company’s revenue is tied to commodity prices. With both oil and coal in the dumps, the rail transportation company’s stock has been hammered, along with those of its competitors.

That’s led to some unwanted attention. Norfolk Southern recently rejected a merger offer from Canadian Pacific, telling investors that the “proposed transaction is opportunistically timed to take advantage of a Norfolk Southern market valuation that has been adversely impacted by the challenging commodity price environment.”

Slowing rail traffic has also been a thorn in Warren Buffett’s side, as Berkshire Hathaway-owned BNSF was hit by the slowdown. The rail company’s performance contributed to the investment guru’s worst year since the financial crisis. Coal’s long goodbye is likely to continue apace in light of last year’s historic COP21 climate agreement. And if OPEC continues its fight with US shale producers, it’s hard to tell how low oil might go.