Union Pacific Says Uncertainty, Harsh Weather Driving Down Rail Shipments

Date: Thursday, June 20, 2019
Source: The Wall Street Journal

CEO Lance Fritz says railroad’s second-quarter volumes are off about 4% but that the U.S. economy remains fundamentally healthy

Freight rail giant Union Pacific Corp. says its volumes are declining this quarter amid poor weather and customer concern over trade uncertainty.

“We’re down about 4%,” tracking with declines across the broader industry, Union Pacific Chief Executive Lance Fritz said in an interview Wednesday.

Mr. Fritz said he views the economy as fundamentally healthy but that recent flooding in the Midwest and increased caution among industrial shippers are weighing on Union Pacific’s top line.

“We can see that when it comes to restocking and inventories, we can see it when it comes to dialogues I have with customers about their capital investment plans,” he said. “And I think that’s in part driven by the uncertainties surrounding trade.”

Shipping volumes across the railroad sector have been falling this year. Carloads fell 2.1% in May compared with the prior year, and then declined 9.1% and 4.6% in the first two weeks of June, according to the American Association of Railroads, an industry trade group. Volumes of key commodities including coal, forest products and metals used in manufacturing have been tumbling at a steep rate, and a decline in intermodal truck-rail loads has accelerated this month.

The falloff in rail business comes as the U.S. freight transport sector shows signs of weaker demand.

The Cass Freight Index of North American shipments by truck and rail declined 6% in May, the sixth straight month in negative territory.Cass Information Systems Inc., which handles freight payments for companies and produces the monthly index, says the downturn is “signaling an economic contraction” and “strengthens our concerns about the economy and the risk of ongoing trade policy disputes.”

Coal shipments, the single biggest commodity on U.S. freight rail networks, have declined 5.3% so far this year from a year ago, according to the AAR, and the business has fallen at a steeper rate this month.

“We believe coal is not going to grow back to what it was historically,” Mr. Fritz said. Union Pacific’s “franchise is so broad and diverse,” he said, “that there’s always something percolating, there’s almost always something that’s doing well. Right now, it’s the Gulf Coast chemical franchise.”

Carloads of petroleum and petroleum products rose 25.9% last month compared with May 2018, according to the AAR, one of the few bright spots in a declining market for commodities.

 

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