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Union Pacific: Trailer Traffic Wreaks Havoc on Intermodal Traffic

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Union Pacific’s intermodal traffic

In the week ending March 26, 2016, Union Pacific’s (UNP) intermodal traffic fell by a remarkable 21.3% compared with the corresponding week last year. While container traffic fell 20.4%, trailer traffic tumbled by a staggering 36% in the week ending March 26, 2016, on a year-over-year basis.

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Why is intermodal traffic important for UNP?

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

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

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

Transportation sector investors can invest in the iShares US Industrials ETF (IYJ). Major US railroads make up 5.2% of the ETF’s portfolio.

For a comparison of sequential weekly data, visit Market Realist’s weekly rail traffic report. In the next part of this series, we’ll take a look at the rail traffic of UNP’s archrival, BNSF Railway (BRK-B).

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