BNSF Railway (BRK-B) operates in the Western US in direct competition with Union Pacific (UNP). BNSF Railway’s total railcars for the week ended June 25, 2016, rose by 1.4% to ~94,000 units compared with 92,000 plus units on a year-over-year basis. However, excluding coal and coke, BNSF’s other carloads also went up 9.6% to nearly 59,000 railcars in the week ended June 25, 2016, from ~54,000 railcars in the corresponding week of 2015.
Why coal matters for BNSF
BNSF Railway’s coal and coke railcars fell by 10% in the week ended June 25, 2016, on a year-over-year basis. The company transported ~35,000 units of coal and coke in the reported week of 2016 against 38,000 plus units in the corresponding period of 2015. The coal transportation contributed nearly 22% of freight revenues for fiscal 2015.
90% of all BNSF’s coal tons originate from the Powder River Basin (or PRB) of Wyoming and Montana. The major coal producers operating in that area include Alpha Natural Resources (ANR) and Peabody Energy (BTU). Peabody has filed for Chapter 11 bankruptcy protection in the US on April 13. Overall, environmental concerns and competition from natural gas (UNG) have hampered incremental coal shipment prospects for the coal producers in 2016. It seems the trend in coal is not going to reverse soon.
The main front runner commodities for the week ended June 25, 2016, were:
- motor vehicles
- stone, clay, and glass
- waste and scrap
Commodities that saw backward movement include metallic ores, petroleum, iron and steel scrap, and non-metallic minerals.
Investors who want exposure to the transportation sector can invest in the iShares US Industrials ETF (IYJ). Major US railroads make up 5% of the portfolio holdings of this ETF. Read North American Rail Traffic Saw a Single-Digit Slump Last Week to see how this week’s data compares to data from the previous week.
For more information on major US railroad stocks, visit Market Realist’s railroads page. In the next part, we’ll go through the details of BNSF Railway’s intermodal traffic.