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Why Union Pacific’s Carloads Rose in the 12th Week

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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 March 25, 2017, UNP’s overall railcar volumes rose 10.2% YoY (year-over-year) to nearly ~94,000 units. Its railcar volumes, excluding coal and coke, rose 7.3% YoY to almost 73,000 units, compared to ~68,000 units in the same week of 2016.

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Why coal carloads matter

In the 12th week, UNP’s combined coal (ARLP) and coke carloads rose an impressive 21.4% YoY. Although its coal revenue fell 6.0% in 4Q16, 2017 has brought some hope to the company, given the upward momentum in coal prices.

Coal’s (CNX) share of the company’s total revenue was 14.4% in 4Q16, compared to 15.3% in the same period a year ago. 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. In 2016, PRB coal output fell significantly for the first time since 1998.

Competition from natural gas (UGAZ), primarily from reduced natural gas prices, has been one of the main factors affecting coal output recently.

Rising and falling commodity groups

Rising commodities in the week ended March 25, 2017, included the following:

  • grain
  • iron and steel scrap
  • metals and products
  • crushed stone, gravel, and sand
  • primary forest products
  • stone, clay, and glass products

The major falling commodity groups were as follows:

  • metallic ore
  • petroleum products
  • motor vehicles and equipment
  • non-metallic minerals

In the next part of this series, we’ll assess the position of UNP’s intermodal traffic in the week ended March 25, 2017.

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