Union Pacific’s carloads
Union Pacific (UNP) competes with Berkshire Hathaway owned BNSF Railway (BRK-B) in the Western US. In the week ended July 2, UNP’s total railcars fell by just 0.7% compared to the corresponding week of 2015. However, railcars excluding coal and coke went up by 2.9% in the latest reported week of 2016. On a relative basis, UNP recorded a fall in total railcars against a 2.8% rise reported by rival BNSF Railway in the week ended July 2, 2016.
Why coal carloads matter
Union Pacific’s combined coal and coke carloads went down 10% in the latest reported week of 2016 on a year-over-year basis. UNP recorded a 22% drop in coal revenues for 2015. 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 coal output is expected to fall significantly in 2016. Competition from natural gas due to low natural gas prices have been one of the main factors affecting coal output recently.
The major coal producers operating in that area like Alliance Resource Partners (ARLP), Peabody Energy (BTU), and CONSOL Energy (CNX) are facing significant coal demand headwinds in 2016. In fact, BTU filed Chapter 11 bankruptcy in the US on April 13, 2016.
Commodities in the green zone in the week ended July 2, 2016, were:
- grain mill products
- motor vehicles and equipment
- waste and non-ferrous scrap
The declining commodity groups were farm products (except grain), primary forest products, metallic ores, petroleum products, and metals and products.
Investors who want exposure to the transportation space can invest in the Morningstar Wide Moat ETF (MOAT). All major US originated railroads are part of MOAT.
You can compare this week’s rail data with data from the previous week in Why the Week Ending June 25 Was a Mixed Bag for Rail Traffic. For more information on major US railroad stocks (IYT), visit Market Realist’s railroads page.
In the following part, we’ll assess the position of UNP’s intermodal traffic in the week ended July 2, 2016.