Transportation stocks and related exchange traded funds are gaining speed as shippers keep costs down through intermodal transport options.
“When you look at the market analysis, the industry analysis, one thing that we do know is that intermodal connectivity is the growth for freight,” Michael Collins, chief executive of the Port Authority of Kansas City, said in a CNBC article.
Intermodal transportation methods refer to freight being transported by more than one form of carrier during a single journey. The majority of intermodal traffic is moved in standardized containers that are easily transfered, stacked on top of one one another, or carried on the back of a tractor trailer, without the contents ever leaving the container.
Transportation ETFs, including the iShares Transportation Average ETF (NYSEArca: IYT) and the SPDR S&P Transportation ETF (NYSEArca: XTN), include heavy tilts in companies that implement these types of services. For instance, IYT includes a 48.0% sub-sector allocation toward road & rail companies, and XTN includes 35.1% trucking and 12.4% railroad positions.
Last year, the intermodal industry grew 5%, the fourth straight year it outpaced U.S. growth, according to the Intermodal Association of North America (IANA).
“We’ve seen a shift from intermodal being more of a substitute service during peak shipping times to an actual mode of transportation—a viable, selected mode,” Joni Casey, chief executive of IANA, said in the article. “It’s more economical because you can ship two trailer equivalencies on one rail car versus one over the highway.”
For instance, Erik Hansen, vice president of intermodal for Kansas City Southern (NYSE: KSU), has stated that it is an area of strategic focus for the company. KSU makes up 7.8% of IYT and 2.4% of XTN.
“We have just about gotten back to where we were in 2007 before the recession,” Edward Hamberger, chief executive of the Association of American Railroads, said in the article, referring to the railroad industry’s return to peak volumes. “The fastest-growing piece of the business is intermodal.”
iShares Transportation Average ETF
For more information on the transportation sector, visit our transportation category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of IYT.