UNP’s railcar units
Union Pacific (UNP) competes with Berkshire Hathaway owned BNSF Railway (BRK-B) in the Western US. UNP’s total railcars fell by nearly 16% to 83,000 units in the week ended April 2, 2016, from ~98,000 units in the corresponding week of 2015. Given UNP’s scale of operations, the fall is noteworthy. The railcars excluding coal and coke fell by nearly 8% last week. Overall, UNP’s fall in total railcars in the week ended April 2, 2016, was slightly above the average 14.3% fall in railcars that all US railroads saw.
Why coal carloads matter
Union Pacific’s combined coal and coke carloads went down by a whopping 41% to ~15,000 units last week. Coal and coke carloads were approximately 25,000 units for the week ended April 4, 2015. UNP recorded a negative change of 22% in coal revenues for 2015. Importantly, coal’s share of the company’s revenues was almost 16% in 2015.
UNP’s coal revenues depend on coal production in the Southern Powder River Basin (or PRB). According to the US government, PRB production has declined over the past few years, mainly due to recession and competition from natural gas. PRB coal output is expected to fall significantly in 2016 for the first time since 1998. The major coal producers operating in that area like Alliance Resource Partners (ARLP), Peabody Energy (BTU), and CONSOL Energy (CNX) are facing significant coal demand headwinds in 2016. All the major US railroads make up 21% of the iShares Transportation Average ETF (IYT).
Advancing and declining commodities
The commodities that saw incremental increases in railcar units in the week ended April 2, 2016, were:
- non-metallic minerals
- primary forest products
- metallic ores
The major laggards were Farm Products (except grain), motor vehicles and equipment, crushed stone, gravel and sand, iron and steel scrap, and petroleum products. In the next part, we’ll assess the position of UNP’s intermodal traffic in the week ended April 2, 2016.