Union Pacific’s intermodal traffic
In the week ending June 11, 2016, Union Pacific’s (UNP) overall intermodal traffic declined by 10.5% YoY (year-over-year), as compared with the corresponding week one year previously. While trailer traffic fell by 39.3%, container traffic decreased by only 8.8%.
Meanwhile, UNP’s container traffic contracted YoY, from ~77,000 containers to 70,000 containers. This contraction in intermodal traffic was double that of rival BNSF Railway the same week.
Why is intermodal important to UNP?
For all the Class I railways, intermodal growth has become more important in the wake of the headwinds related to energy and commodity prices. UNP’s intermodal volumes accounted for 38.4% of the company’s total volumes, while intermodal revenues contributed nearly 20% in fiscal 2015.
UNP’s intermodal volumes were specifically impacted by the pace of transpacific trade in the Chinese market. Other factors include retail stockpiles and retail demand. Higher stockpiles and lower demand negatively impact all railroad’s intermodal traffic. Usually, railroad intermodal segments 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).
Notably, UNP has a 26% stake in Ferrocarril Mexicano, or Ferromex. Ferromex is in charge of the railway that connects the US with the Mexican port in Manzanillo.
Transportation sector-specific investors can invest in the iShares US Industrials ETF (IYJ), which has 5% of its portfolio in major US railroads.
In the next part of this series, we’ll analyze BNSF Railway’s (BRK-B) rail traffic.