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During last Friday's "Mad Money," Jim Cramer gave a quick assessment of

Norfolk Southern

(NSC) - Get Report


The verdict? A thumbs-down because of its exposure to "bad traffic." Specifically, the railroader's traffic in coal has Cramer raising doubts.

Instead of the Norfolk, Va.-based concern, Cramer dialed up

Union Pacific

(UNP) - Get Report

as the better railroad play. He said its ability to cut costs and grow revenue and income make it a more attractive bid.

Still, any discussion of railroad companies begins and ends with freight volumes -- and a quick read of those shows an industry ailing with sharp declines in carloads, a result of fewer industrial shipments. This drop in volume has sent most railroad companies scrambling to post a profit -- using cost-cutting, slashes in capital-spending and higher pricing as the tools to get there.

When Norfolk Southern reported its first-quarter earnings a few months ago, it announced that revenue from railways had fallen off by 22%. Coal transportation made up a $602 million share of rail sales, representing a 9% drop from the year-ago.

Union Pacific, the largest U.S. railroad company based on revenue, reported lower freight revenues across the board from the prior year as well. Its sales drop was marked by a steep 55% plunge in automotive transportation.

But the crisis of declining shipments doesn't stop with those two. According to data from the Association of American Railroads in May, coal carloads fell 15.8% for U.S. railroaders during that month. Total U.S. carload traffic during the month plummeted 24.7% compared to the same time last year.

"May marked the second straight month in which U.S. rail coal carloadings had double-digit declines, a consequence of lower electricity demand and higher coal stockpiles," AAR Senior Vice President John Gray said in a release at the time. "Industrial production is still down sharply across the board. That means lower demand for rail service for everything from chemicals and scrap metal to cement and ores. Basically, railroads are in a waiting game -- waiting for the economy to turn."

Most recently, the AAR reported last week that total volume for the week ending June 13th improved slightly compared to the prior week, but was still off 19% from levels reached at the same time last year. Of all the commodities tracked by the AAR, only farm products saw a slight uptick for the week, rising 4.8%. The business of transporting metals, on the other hand, fell hard by 61.4% compared to the year-ago period.

Whether or not the bottom has been reached is anyone's guess.

Shares of Union Pacific were down 4.4%, while Norfolk Southern joined Union Pacific in the red as well, down 4.8% by early afternoon. But both both companies are on a larger upswing for the past three months, with Union Pacific up nearly 30%, while Norfolk Southern has gained 21%.

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