FreightWaves SONAR: UP Eyes Intermodal, Grain Opportunities

Written by Joanna Marsh, FreightWaves
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Jim Allen/FreightWaves

Carloads for grain and motor vehicles have risen in recent weeks, a sign that the rail volumes could potentially be past their bottoming out, according to Union Pacific (NYSE: UNP) CEO Lance Fritz.

Phase one of the trade deal between the U.S. and China has helped China get back into the export market, resulting in higher grain volumes for wheat and soybeans in particular, Fritz said at a May 27 virtual investor conference hosted by investment firm Bernstein.

Fritz’s observations come as the Association of American Railroads (AAR) reported this week that U.S. grain volumes totaled 21,977 carloads for the week that ended May 23, which is a 2.3% decrease compared with the same period in 2019 but 5.7% higher than 20,790 carloads for the week ending May 16. 

Meanwhile, weekly carloads for motor vehicles and parts were up 70.1% on a sequential basis to 4,874 carloads (but down 71.4% year-over-year), while weekly intermodal volumes rose 2.8% to 238,076 intermodal units (down 11.2% year-over-year).

Total weekly U.S. carloads rose 3.4% sequentially, although they’re 27.5% lower year-over-year.

U.S. carloads for grain, motor vehicles and parts and forest products (SONAR: RTOMV.USA, RTOGM.USA, RTOPF.USA)

Fritz described how to look at economic growth and opportunities to increase rail volumes during the next year or two by focusing on three segments: trade, industrial production and consumer activity. The trade segment shows promise if the trade deal so far between the U.S. and China is allowed to mature even as a global recession remains a potential headwind. Meanwhile, U.S. and North American industrial production is “well positioned” to take advantage of global demand even as some customers consider onshoring or nearshoring opportunities in the long-term, Fritz said.

But consumer confidence and activity are harder to pinpoint because of the wide range in consumers’ responses to reopening businesses during and after the coronavirus pandemic, Fritz said. However, the housing market “hasn’t completely cratered” and automobile plants are starting to open up, which could bode well for rail volumes.

“It’s a pretty balanced mix in terms of what I see with headwinds and tailwinds,” Fritz said. 

How Union Pacific (UP) benefits from onshoring or nearshoring will depend on where companies build their facilities, Fritz said. If the facilities fall on UP’s franchise, then UP can compete for inbound or outbound business. If facilities land in Mexico or Canada, “it gets a little more tenuous but it depends on the books” or customers’ supply chain needs, he said. But facilities near ports might prove more challenging because UP will have to compete with alternative rail carriers, other coastal ports and transloaders, Fritz said.

Nonetheless, in the near term, improved, truck-like service as a result of PSR (Precision Scheduled Railroading) is helping UP see new opportunities for intermodal, such as in e-commerce and through partnerships to put domestic intermodal ramps in new locations, Fritz said.

To counter an anticipated 25% drop in rail volumes for the second quarter, UP has taken measures such as furloughing employees in the engineering, mechanical, and train and engine divisions, asking managing staff to go unpaid for one week on a monthly basis and reducing executive pay by 25%, Fritz said. UP has also temporarily closed its Jenks facility in Arkansas, its DeSoto facility in Missouri and an engineering shop in Denver.

On a year-to-date basis, U.S. rail traffic totaled 9.5 million carloads and intermodal units, down 12.8% from the same period in 2019, while North American rail volumes totaled 13.1 million carloads and intermodal units, which is 11.4% lower than the same period a year ago, according to AAR.

U.S. carloads and intermodal units over the past year. (SONAR: RTOTC.USA, RTOIT.CLASSI, RTOIC.CLASSI)

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Categories: Class I, Freight, Freight Forecasting, Intermodal, News Tags: , , , ,