In the week ended January 14, 2017, Union Pacific’s (UNP) overall intermodal traffic dropped marginally, by 2%, on a YoY (year-over-year) basis. The company hauled 71,000 containers and trailers that week, compared with over 72,000 units in the comparable week of 2016. Trailer traffic rose 11.3%. UNP’s percentage fall in intermodal volumes was in tune with the slight fall reported by US railroads overall.
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For 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 volume, 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 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, 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.
Railroads’ intermodal segments usually compete with long-haul trucking companies such as J.B. Hunt Transport Services (JBHT), Swift Transportation (SWFT), Knight Transportation (KNX), and XPO Logistics (XPO).
Transportation sector investors could consider the iShares US Industrials ETF (IYJ). 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).