Higher Container Volumes Boost Union Pacific’s Intermodal Volumes
Union Pacific’s intermodal volumes
In the week ended December 17, 2016, Union Pacific’s (UNP) overall intermodal traffic rose 5.4% on a year-over-year basis. Trailer traffic fell 0.7% and container volumes rose 5.7%.
In that same week, the company moved over 73,000 containers, compared with ~70,000 in the week ended December 19, 2015. UNP’s percentage rise in intermodal volumes was two times the rise reported by US railroads.
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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 38.0% of its total volumes, while intermodal revenue contributed nearly 20.0%.
The company’s intermodal volumes are particularly impacted by the pace of transpacific trade in the Chinese market. Other factors include retail stockpiles and retail demand. Higher stockpiles and lower demand negatively impact all railroads’ intermodal traffic.
In addition, the collapse of Hanjin Shipping, a South Korean shipping company, has affected the intermodal businesses of major US Class I railroads. That’s mainly due to the denial of service by major ports worldwide. These ports feared that if they allowed Hanjin ships, they wouldn’t get paid due to the financial condition of the South Korean shipping giant.
Usually, railroads’ intermodal segments compete with long-haul trucking companies such as J.B. Hunt Transport Services (JBHT), Swift Transportation (SWFT), Knight Transportation (KNX), and XPO Logistics (XPO).
Investing in ETF
Transportation sector–specific investors can invest in the iShares US Industrials ETF (IYJ). All major US railroads make up 5.8% of the portfolio holdings of IYJ.
If you’re interested in comparing this week’s traffic data with the previous week’s, you can refer to Freight Rail Traffic for the Week Ended December 10. More information on major US railroad stocks, be sure to refer to Market Realist’s Railroads page. In the next part of this series, we’ll look at the rail traffic for UNP’s archrival, BNSF Railway (BRK-B).