Union Pacific Shows Huge Gains, Even as Rail Freight Remains Relatively Flat

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Overall, the economy was relatively flat during the first two quarters of 2013, with an estimated GDP growth of just 1.5 percent. Rail profits in all rose just .8 percent, yet Union Pacific managed to secure a strong growth of 10.4 percent, nearly beating their record profits in year over year gains. Overall load volumes for all rail carriers was down 1 percent. Earnings reports for trucks, including truckload and less than truckload volumes, should be released shortly.

One of the biggest changes in the rail carrier industry is in the lower volumes of coal shipped due to stricter government regulations on the use of coal for power generation. The increase in oil shipments is up, yet not nearly enough to compensate for the reduced shipments of coal. Coal accounts for 39.4 percent of all rail shipments. Though oil shipments are up 47.9 percent, oil still only accounts for 11 percent of what coal shipments mean to the rail shipping industry.

As Union Pacific returned near record profit growth, CSX profits were up 4.5 percent for quarter two. Norfolk Southern saw a decrease in profits of 11.3 percent. Kansas City Southern (KCS) saw profits drop an unbelievable 87 percent, but this was largely due to non operational issues, such as its recent refinancing of $1.2 billion in debts.

KCS has improved their operating ratio (the costs of operations vs the revenue from operations) to an impressive 69 percent. Union Pacific has reached 65.9 percent, and has restated their commitment to get this ratio below 65 percent by the year 2017. In comparison, most truckload carriers are doing well to get the operating ration below the mid-80 percentile, and less than truckload carriers usually see no better ratio than 95 percent (with the exception of Old Dominion).

As oil extraction efforts ramp up across the U.S., oil transportation should hopefully give rail carriers a needed boost to compensate for the reduced transport of coal.

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