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How Coal Volumes Impacted Union Pacific’s Carloads

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Union Pacific’s carloads

In the western United States, Union Pacific (UNP) competes with BNSF Railway, which is owned by Berkshire Hathaway (BRK-B), In the week ended January 14, 2017, or the second week of the new year, UNP’s overall railcar volumes fell 6% to ~88,000 units, compared with over 93,000 units in the corresponding week of 2016. Railcar volumes, excluding coal and coke, fell 5.8% YoY (year-over-year), reaching over 64,000 units in the first week of 2017.

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Why coal carloads matter

In the second week of 2017, UNP’s combined coal (ARLP) and coke carloads fell 6.3% on a YoY (year-over-year) basis. UNP’s coal revenue fell ~20.0% in 3Q16. Coal’s (CNX) share of the company’s revenue was almost 15% in the same quarter, which represents a fall of 17.2% from 3Q15. UNP’s coal revenue depends on coal shipments originating in the Southern PRB (Powder River Basin).

According to the EIA (U.S. 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 was 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

Advancing commodities in the week ended January 14, 2017, included:

  • grain
  • iron and steel scrap
  • metals and products
  • pulp, paper, and allied products

Major commodity groups in the negative territory were as follows:

  • metallic ores
  • petroleum products
  • motor vehicles
  • primary forest products

In the next part, we’ll assess the position of UNP’s intermodal traffic in the week ended January 14, 2017.

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