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US Freight Traffic Takes the High Rail: Week Ended February 25

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Part 7
US Freight Traffic Takes the High Rail: Week Ended February 25 PART 7 OF 15

Unpacking Union Pacific’s Intermodal Volumes

Union Pacific’s intermodal volumes

In the week ended February 25, 2017, Union Pacific (UNP) hauled ~68,000 containers and trailers, as compared to 76,000 units in the same week of 2016. This represents a fall of 11% on a YoY (year-over-year) basis. Market Realist has been observing for the past couple of weeks, and it appears that UNP’s overall freight rail traffic trend is lagging behind that of the industry.

In terms of container traffic, UNP’s trailer traffic shrank 13% YoY. UNP’s percentage fall in intermodal volumes was more than three times the fall reported by US railroads overall.

Unpacking Union Pacific&#8217;s Intermodal Volumes

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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 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.

Hanjin shipping

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 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.

Remember, 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 6.1% of the portfolio holdings of IYJ. Investors interested in comparing this week’s freight volume data with the previous week’s should check out Market Realist’s Tracking Rail Traffic for the Week Ended February 18.

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

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