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Expansion in Coal Volumes Lifts Union Pacific’s Carloads

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Union Pacific’s carloads

Union Pacific (UNP) competes with BNSF Railway, which is owned by Berkshire Hathaway (BRK-B), in the Western United States. In the week ended December 31, 2016, or in the 52nd week of the year, UNP’s overall railcar volumes rose 2.2% nearing 79,000 units, up from 77,000 units in the corresponding week in 2015. Railcar volumes, excluding coal and coke, rose 1.1% to more than 57,000 units YoY (year-over-year).

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Why coal carloads matter

In the 52nd week of 2016, UNP’s combined coal (ARLP) and coke carloads rose 5.3% on a YoY (year-over-year) basis. It’s worth noting that UNP’s coal revenue fell ~20.0% in 3Q16. Coal’s (CNX) share of the company’s revenue was almost 15.0% in the same quarter, which represents a fall of 17.2% from 3Q15. UNP’s coal revenue depend on coal shipments originating in the Southern PRB (Powder River Basin).

According to the EIA (US Energy Information Administration), PRB production has fallen over the past few years, mainly due to the 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

The commodities in the green zone in the week ended December 31, 2016, were as follows:

  • iron and steel scrap
  • farm products, except grain
  • waste and non-ferrous scrap
  • motor vehicles and equipment

Major commodity groups in negative territory were as follows:

  • metallic ores
  • petroleum products
  • food and kindred products
  • crushed stone, gravel, and sand

In the next part, we’ll assess the position of UNP’s intermodal traffic in the week ended December 31, 2016.

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