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Week Ended March 18: US Freight Rail Traffic Gains More Momentum

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Part 7
Week Ended March 18: US Freight Rail Traffic Gains More Momentum PART 7 OF 15

Understanding the Direction of UNP’s Week 11 Intermodal Volumes

Union Pacific’s intermodal volumes

In the week ended March 18, 2017, Union Pacific (UNP) hauled over 88,000 containers and trailers, compared to ~84,000 units in the corresponding week of 2016. This figure represents a rise of 5% 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.

UNP’s trailer traffic rose 18.3% YoY. UNP’s rise in intermodal volumes was higher than the overall rise reported by US railroad companies.

Understanding the Direction of UNP&#8217;s Week 11 Intermodal Volumes

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Why is intermodal traffic important to UNP?

For Class I railroad companies such as 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 volumes, while intermodal revenue contributed nearly 20%.

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

Hanjin Shipping

The collapse of Hanjin Shipping, a South Korean shipping company, has affected the intermodal businesses of major US class I railroad companies, mainly due to the denial of services by major ports worldwide. These ports feared that if they allowed Hanjin ships in, they wouldn’t get paid due to the financial condition of the shipping giant.

Railroad companies’ 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).

Investing in ETFs

Transportation sector investors may want to consider the iShares US Industrials ETF (IYJ). Major US railroad companies make up 6.2% of IYJ’s portfolio holdings.

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

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