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UNP’s Intermodal Traffic Doubles US Intermodal Traffic’s Fall

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Union Pacific’s intermodal traffic

In the week ended April 16, 2016, Union Pacific’s (UNP) overall intermodal traffic fell by 17% compared to the corresponding period in 2015. While trailers fell by ~33%, container traffic came tumbling after. Containers fell by 16% in the reported week of 2016 compared to the same period last year.

In the latest reported week, UNP’s fall in intermodal volume was more than double the 7.4% fall in total US railroads’ intermodal volumes.

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Why is intermodal traffic important to UNP?

Intermodal traffic has to some extent offset the fall in coal volumes and revenues in recent quarters for all Class I railroads. Its growth assumed significance following the 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 its total volumes, while intermodal volumes contributed nearly 20% in 2015.

UNP’s intermodal volumes are specifically impacted by the pace of transpacific trade in the Chinese market. Other factors affecting volumes include retail stockpiles and retail demand. Higher stockpiles and lower demand negatively impact all railroads’ intermodal traffic.

Usually, the intermodal segments of all railroads compete 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 (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.

Investors interested in the transportation sector can invest in the iShares US Industrials ETF (IYJ). All major US railroads make up 5% of the portfolio holdings of this ETF.

For more information on last week’s rail traffic, visit Market Realist’s Week Ended April 9: North American Rail Traffic, Intermodal Slump. In the next part of this series, we’ll go through UNP’s archrival BNSF Railway’s (BRK-B) rail traffic.

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