Union Pacific’s Coal Railcars Weighed on Total Units Again
North American Railroads as of March 26: Slipping off the Tracks
UNP’s railcar units
Union Pacific (UNP) competes with Berkshire Hathaway-owned BNSF Railway (BRK-B) in the Western United States. UNP again had a poor showing for the week ending March 26, 2016. The company’s total railcar units declined by 16.2% to 85,000 units from ~102,000 units in the week ending March 28, 2015. Given UNP’s scale of operations, the fall is noteworthy. Even the number of railcar units excluding coal and coke fell by nearly 8% in the week ending March 26, 2016.
Why coal carloads matter
Union Pacific’s combined coal and coke railcar units fell by a whopping 39% to 17,000 units in the week ending March 26, 2016, as compared to 28,000 units for the week ending March 28, 2015. UNP recorded a negative change of 22% in coal revenues for 2015. Importantly, coal’s share of the company’s revenues was almost 16% in 2015.
UNP’s coal revenues depend on coal production in the Southern Powder River Basin, or PRB. According to the US government, PRB production has declined 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. The major coal producers operating in that area, such as Alliance Resource Partners (ARLP), Peabody Energy (BTU), and CONSOL Energy (CNX), are facing significant coal demand headwinds in 2016.
Transportation sector investors can invest in the iShares US Industrials ETF (IYJ). Major US railroads make up 5.2% of IYJ’s holdings.
Leaders and laggards
The following commodities saw increased railcar units in the week ending March 26, 2016:
food and kindred products
lumber and wood products
stone, clay, and glass products
The major laggards were farm products except grain; metallic ores; crushed stone, gravel, and sand; nonmetallic minerals; petroleum products; iron and steel scrap; motor vehicles and equipment; waste and nonferrous scrap; grain mill products; and chemicals.
In the next part of this series, we’ll assess the position of UNP’s intermodal traffic in the week ending March 26, 2016.
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