In the week ended January 7, 2017, Union Pacific’s (UNP) overall intermodal traffic fell 14.6% on a YoY (year-over-year) basis. The company hauled 59,000 containers and trailers that week, as compared to ~69,000 units in the comparable week of 2016. In line with containers, trailer traffic fell 23.4%.
UNP’s percentage fall in intermodal volumes was almost equal with the rise reported by US railroads overall in the first week of 2017.
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For all Class I railroads including Union Pacific, intermodal growth assumed greater significance after the headwinds related to coal made its transportation unattractive. In 3Q16, UNP’s intermodal volumes accounted for 38% of its total volumes, while intermodal revenue contributed nearly 20%.
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.
Notably, railroads’ intermodal segments usually compete with long-haul trucking companies like J.B. Hunt Transport Services (JBHT), Swift Transportation (SWFT), Knight Transportation (KNX), and XPO Logistics (XPO).
Transportation sector investors can invest in the iShares US Industrials ETF (IYJ). All major US railroads make up 6% of the portfolio holdings of IYJ.
In the next part of this series, we’ll look at the rail traffic for UNP’s archrival, BNSF Railway (BRK-B).