In the week ending September 17, 2016, Union Pacific’s (UNP) overall intermodal traffic fell 4.6% on a year-over-year basis. The company’s trailer traffic fell 33.1%. Even the container traffic fell 2.9% during the week. The company moved 72,000 containers—compared to more than 74,000 in the week ending September 19, 2015. Compared to its rival BNSF Railway (BRK-B), Union Pacific’s percentage fall in intermodal volumes was less in the week ending September 17, 2016.
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For all Class I railroads including Union Pacific, intermodal growth assumed significance after headwinds in coal transportation. Union Pacific’s intermodal volumes accounted for 38.4% of the total volumes, while intermodal revenues contributed nearly 20% last year.
The company’s intermodal volumes are specifically impacted by the pace of Trans-Pacific trade in the Chinese market. The other factors include retail stockpiles and retail demand. Higher stockpiles and lower demand have a negative impact on all railroads’ intermodal traffic. Usually, the intermodal segment competes with long-haul trucking companies such as J.B. Hunt (JBHT), Swift Transportation (SWFT), Knight Transportation (KNX), Hub Group (HUBG), and XPO Logistics (XPO).
Investors interested in the transportation sector can invest in the iShares US Industrials ETF (IYJ). All of the major US railroads account for 5.5% of IYJ’s portfolio holdings.
In the next part of this series, we’ll look at BNSF Railway’s rail traffic.