uploads///UNP Intermodal

Trailer Slump Heavily Impacted UNP’s Intermodal Traffic

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Apr. 11 2016, Updated 4:07 p.m. ET

UNP’s intermodal traffic

In the week ended April 2, 2016, Union Pacific’s (UNP) overall intermodal units fell by 16.1% compared with the corresponding period in 2015. While container traffic slumped by 14.6%, trailers tumbled even worse. Trailers fell by a staggering 40.6% in the week ended April 2, 2016, on a year-over-year basis. Last week, UNP’s fall in intermodal volume was much more than the 6.4% average fall in the intermodal volume of all reporting US railroads.

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Why is intermodal important to UNP?

Intermodal traffic has offset the fall in coal volumes and revenues to some extent in recent quarters for all Class I railroads. Its growth assumed significance after headwinds related to energy commodity prices, which took a toll on other merchandise hauled by these railroads. Union Pacific’s intermodal volumes accounted for 38.4% of total volumes while intermodal revenues contributed nearly 20% in 2015.

The company’s intermodal volumes are specifically impacted by the pace of transpacific trade in the Chinese market. The other factors include retail stockpiles and retail demand. Higher stockpiles and lower demand negatively impact all railroad’s intermodal traffic. Usually, the intermodal segment of railroads competes with long-haul trucking companies such as J.B. Hunt (JBHT), Swift Transportation (SWFT), Knight Transportation (KNX), Hub Group (HUBG), and XPO Logistics (XPO).

UNP has a 26% stake in Ferrocarril Mexicano, or Ferromex, which operates railway that connects with Manzanillo. Thus, UNP has an asset in Mexico in the form of access to the port of Manzanillo.

Investors who want exposure to railroads can invest in the iShares US Industrials ETF (IYJ). Major US railroads make up 4.9% of the portfolio holdings of this ETF.

For more information on the previous week’s rail traffic, visit Market Realist’s North American Railroads as of March 26: Slipping off the Tracks. In the next part of this series, we will take stock of the rail traffic of UNP’s arch rival, BNSF Railway (BRK-B).

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