Behind Union Pacific’s Intermodal Volumes

Union Pacific’s intermodal volumes

Why Union Pacific’s Carloads Jumped in the 5th Week of 2017 (year-over-year) basis. The company hauled over 74,000 containers and trailers that week, as compared to ~72,000 units in the same week of 2016.

Trailer traffic also grew 1.8% YoY. UNP’s percentage rise in intermodal volumes was almost on par with the rise reported by US railroads overall.

Behind Union Pacific’s Intermodal Volumes

Why is intermodal important to UNP?

For Class I railroads, including Union Pacific, intermodal growth assumed greater significance after the headwinds related to coal made its transportation unattractive. In 4Q16, UNP’s intermodal volumes accounted for 38.5% of its total volume, while intermodal revenues contributed nearly 20%.

The company’s intermodal volumes are particularly impacted by the pace of transpacific trade in the Chinese market. Other factors include retail stockpiles and retail demand. Higher stockpiles and lower demand impact all railroads’ intermodal traffic.

In addition, the collapse of Hanjin Shipping, a South Korean shipping company, has affected the intermodal businesses of major US Class I railroads, mainly due to the denial of services by major ports worldwide. These ports feared that if they allowed Hanjin ships, they wouldn’t get paid due to the financial condition of the South Korean shipping giant.

Remember, railroads’ intermodal segments usually compete with long-haul trucking companies such as J.B. Hunt Transport Services (JBHT), Swift Transportation (SWFT), Knight Transportation (KNX), and XPO Logistics (XPO).

Investing in ETFs

Transportation sector investors could consider the iShares US Industrials ETF (IYJ). Major US railroads make up 6% of the portfolio holdings of IYJ. Investors interested in comparing this week’s freight volume data with the previous week should check out Market Realist’s Your Freight Rail Traffic for the Week Ended January 28.

In the next part of this series, we’ll look at the rail traffic for UNP’s archrival, BNSF Railway (BRK-B).