It's been a solid year for railroad operator CSX (CSX - Get Report); in the last 12 months, shares have rallied approximately 37%. While rail travel may not be commonplace for most Americans, it's still an exceptionally popular mode for freight, particularly commodities. For CSX, the cash crop is coal; the firm generated almost a third of its revenue shipping coal products last year.
Scale matters in the rail business, where shipping abilities are predicated on network size. CSX weighs in as one of the largest railroad operators in the world, with more than 21,000 miles of track concentrated in the eastern U.S. That means that the firm has a big economic moat, with a network that's effectively impossible to replicate today. In the last five years, CSX has improved its efficiency by leaps and bounds, wringing bigger margins out of every train car that it pulls across its tracks. In a world with prolonged high oil prices, rail travel should continue to be a winning bet.After all, while trucking (the biggest alternative to rail freight) is generally a more simple solution for a distribution chain, it's also more expensive -- generally four times more expensive than train shipping per ton. As cost inflation starts to work its way into this recovery, expect to see an uptick in shipment volumes at CSX.
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