Union Pacific (NYSE:UNP)
Historical Stock Chart
3 Months : From Jun 2019 to Sep 2019
By Paul Ziobro
Freight trains are carrying a shrinking amount of cargo as railroads feel the effects of trade tensions, a cooling global economy and changes to their own systems that are driving customers elsewhere.
The number of U.S. railroad carloads shipped fell 2.9% in the first half of the year, according to the Association of American Railroads. The slowdown was widespread among industries, with 16 of 20 categories of shipments including food, lumber, auto parts and metals, posting declines.
Railroad shipping data provides insight into a broad cross-section of the domestic economy, given that the industry moves raw materials, finished goods and e-commerce packages.
Executives at CSX Corp., Union Pacific Corp. and other railroads started the year confident that a strong economy would lead to more goods for them to move across their network. But since then, North America's freight railroads have dealt with severe weather and flooding, escalating trade disputes and cooling pockets of the U.S. economy.
The railroads, which begin to report second-quarter earnings this week, may not have enough time in the second half of the year to hit their earlier projected volume goals, according to analysts.
"You're going to have a pretty lackluster quarter," independent railroad industry analyst Anthony Hatch said. The railroads "will probably have to lower guidance, which will not be a surprise."
CSX, which reports earnings Tuesday, declined to comment. Union Pacific, which reports earnings on Thursday, didn't immediately respond to a request for comment. In an interview in June, Union Pacific Chief Executive Lance Fritz said the railroad's volumes were down about 4% because of bad weather and customer concerns over trade uncertainty.
The weak rail shipments are just one sign that the global movement of goods has been sputtering. FedEx Corp. has warned that trade disputes have dented demand for international freight shipments. Trucking companies are also confronting a softening environment after last year's freight boom. The Cass Freight Index of North American shipments by truck and rail declined 5.3% in June, the seventh straight monthly decline, which Cass Information Systems Inc., a processor of freight payments for companies, says signals an economic contraction.
On Monday J.B. Hunt Transport Services Inc., one of the largest carriers in North America, said volumes in its intermodal business moving freight long distances by truck and rail were down 8% in the second quarter compared with the same period in 2018.
The railroads may also be losing some traffic from self-imposed changes to their networks, Mr. Hatch said. Several companies, including Union Pacific, Norfolk Southern Corp. and Kansas City Southern, are in the midst of broad operational overhauls that involve running fewer, longer trains on tighter schedules, a strategy known as precision-scheduled railroading. Some shippers are moving their business away from the rails while the changes are implemented.
One benefit of the weaker volume is that it may be less challenging for some railroads to overhaul their operating schedules and procedures without the added pressure of having to handle more railcars.
"Clearly, the better time to implement such a fundamental change as a PSR-based operating plan is in a period that is absent volume pressure," Loop Capital analyst Rick Paterson said, referring to the precision-scheduled railroading strategy that railroads are adopting.
--Jennifer Smith contributed to this article.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
July 15, 2019 20:16 ET (00:16 GMT)
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