Union Pacific’s carloads
Union Pacific (UNP) competes with Berkshire Hathaway–owned BNSF Railway (BRK-B) in the Western US. In the week ended December 3, Union Pacific’s overall railcars fell 2.6% to 95,000-plus units from ~98,000 units in the corresponding week of 2015.
The railcars excluding coal and coke were down 0.1% at ~71,000 units in the latest reported week of 2016. The decline in UNP’s carloads in the week ended December 3, 2016, was in contrast with the slight rise reported by US railroads. Investors can explore UNP’s 3Q16 results by referring to Union Pacific’s 3Q16 Earnings Show a Topsy-Turvy Ride Ahead.
Why coal carloads matter
In the reported week, UNP’s combined coal (ARLP) and coke carloads fell 9.3% on a year-over-year basis. UNP’s coal revenues fell ~20% in 3Q16. Importantly, coal’s (CNX) share of the company’s revenues was almost 15% in the same quarter, down from 17.2% in 3Q15.
UNP’s coal revenues depend on coal shipments originating in the Southern Powder River Basin (or PRB). According to the EIA, 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—for the first time since 1998. Competition from natural gas (UGAZ) resulting from reduced natural gas prices has been one of the main factors affecting coal output recently.
Advancing and declining commodity groups
Commodities in the green zone in the week ended December 3, 2016, were:
- metals and products
- iron and steel scrap
- crushed stone, gravel, and sand
The major commodity groups in negative territory were:
- metallic ores
- petroleum products
- grain mill products
- motor vehicles and equipment
- waste and non-ferrous scrap
Investors interested in railroad stocks can get more information on US Class I railroads on Market Realist’s Railroads page.
In the next part, we’ll assess the position of UNP’s intermodal traffic in the week ended December 3, 2016.