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Will Surge in US Freight Rail Traffic Continue?

PART:
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Part 7
Will Surge in US Freight Rail Traffic Continue? PART 7 OF 17

How Did Union Pacific’s Intermodal Volumes Fare?

Union Pacific’s intermodal volumes

In the week ended March 11, 2017, Union Pacific (UNP) hauled over 68,000 containers and trailers as compared to ~64,000 plus units in the corresponding week of 2016. This figure represents a rise of 6.9% on a YoY (year-over-year) basis. It appears that UNP’s overall freight rail traffic trend is somewhat lagging behind the overall industry trend.

In contrast with the rise in container traffic, UNP’s trailer traffic fell 6.3% YoY. UNP’s percentage rise in intermodal volumes was higher than the increase reported by US railroads overall. It’s noteworthy that UNP’s intermodal traffic on a year-over-year basis was down 2% in the first ten weeks of 2017. If you want to compare this week’s freight volume data with the previous week’s, check out Market Realist’s Week Ended March 4: Was US Rail Traffic on the Right Track?

How Did Union Pacific’s Intermodal Volumes Fare?

How Did Union Pacific’s Intermodal Volumes Fare?

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Why is intermodal important to UNP?

For Class I railroads including Union Pacific, intermodal growth assumed greater significance after the headwinds related to coal made its transportation unattractive. In 4Q16, UNP’s intermodal volumes accounted for 38.5% of its total volume, while intermodal revenue contributed nearly 20%.

The pace of transpacific trade in the Chinese market particularly affects the company’s intermodal volumes. Other factors that affect volumes include retail stockpiles and retail demand. Higher stockpiles and lower demand impact all railroads’ intermodal traffic.

Hanjin Shipping

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 services 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 like J.B. Hunt Transport Services (JBHT), Swift Transportation (SWFT), Knight Transportation (KNX), and XPO Logistics (XPO).

Investing in ETFs

Transportation sector investors could consider the iShares US Industrials ETF (IYJ). Major US railroads make up 6.2% of the portfolio holdings of IYJ.

In the next part of this series, we’ll look at rail traffic for UNP archrival BNSF Railway (BRK-B).

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