Union Pacific’s carloads
Union Pacific Corporation (UNP) competes with Berkshire Hathaway–owned BNSF Railway (BRK-B) in the Western US. In the week ended April 30, UNP’s total railcars declined by 10%, at 87,000-plus units from 97,000 units in the corresponding week of 2015.
The railcars, excluding coal and coke railcars, fell by 5% in the latest reported week of 2016. Overall, UNP’s fall in total railcars in the week ended April 30, 2016, was less than the 14% fall in reporting US railroads’ railcars, as well as its competitor, BNSF Railway’s rail traffic.
Why coal carloads matter
Union Pacific’s combined coal and coke carloads fell by 26.2% in the latest reported week of 2016 on a year-over-year basis. The company moved ~17,000 coal and coke carloads in the week ended April 30, 2016, against 23,000 units. UNP recorded a 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 shipments originating 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’s coal output is expected to fall significantly in 2016 for the first time since 1998. Competition from natural gas (UNG) due to low natural gas prices has been one of the main factors affecting coal output recently.
The major coal producers operating in that area like Alliance Resource Partner (ARLP), Peabody Energy (BTU), and CONSOL Energy (CNX) are facing significant coal demand headwinds in 2016. BTU filed Chapter 11 bankruptcy in the US on April 13.
The header and footer commodity groups
Only one commodity group—primary forest products—was in the green zone in the week ended April 30, 2016. The prominent weekly backbencher commodity groups were:
- farm products, except grain
- motor vehicles and equipment
- crushed stone, gravel, and sand
- metallic ores
- petroleum products
For more information on the last week’s rail traffic, please visit Market Realist’s Week Ending April 23: North American Rail Traffic Fell.
In the following part, we will assess the position of UNP’s intermodal traffic in the week ended April 30, 2016.