How Union Pacific’s Intermodal Volumes Fared against US Railroads
Union Pacific’s intermodal volumes
In the week ended November 5, 2016, Union Pacific’s (UNP) overall intermodal traffic fell 1.9% on a year-over-year basis. The trailer traffic fell 16.4%, and the container volumes fell 1.1% in the reported week of 2016.
In the week ended November 5, 2016, UNP moved 70,000-plus containers compared with more than 71,000 in the week ended November 7, 2015. UNP’s fall in intermodal volumes by percentage contrasted with the rise reported by US railroads. Investors interested in UNP’s 3Q16 results can read Union Pacific’s 3Q16 Earnings Show a Topsy-Turvy Ride Ahead.
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Why is intermodal important to UNP?
For all Class I railroads, including Union Pacific, intermodal growth assumed significance after the headwinds related to coal made its transportation unattractive. In 3Q16, UNP’s intermodal volumes accounted for 38% of total volumes, while intermodal revenues contributed nearly 20%.
The company’s intermodal volumes are specifically impacted by the pace of transpacific trade in the Chinese market. The other factors include retail stockpiles and retail demand. Higher stockpiles and lower demand negatively impacts all railroads’ intermodal traffic.
In addition, the collapse of South Korea shipping company Hanjin has affected the intermodal business of major US Class I railroads. This is mainly due to the denial of service by major ports worldwide. These ports feared that if they accepted the Hanjin ships, they wouldn’t be paid due to the financial condition of this South Korean shipping giant.
Usually, railroads’ intermodal segments would compete 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 major US railroads make up 5.6% of the portfolio holdings of this ETF.
For a comparison with the previous week’s freight volume data, please read Market Realist’s Gauging the Economy via Freight Traffic: Week Ended October 29. More information on the US’s major railroad stocks can be obtained on Market Realist’s Railroads page.
In the next part of this series, we’ll look at UNP’s rival BNSF Railway’s (BRK-B) rail traffic.