West Coast Disruptions To Temper Union Pacific’s Intermodal Volumes

+2.05%
Upside
246
Market
251
Trefis
UNP: Union Pacific logo
UNP
Union Pacific

Union Pacific’s (NYSE:UNP) intermodal volumes may decline in the first quarter because of the ongoing labor disputes at the west coast ports. The Pacific Maritime Association, which represents shipping companies, recently shut down operations at 29 U.S. West Coast ports from Thursday through Monday, excluding Friday. Such shutdowns have begun to impact Union Pacific’s intermodal volumes and are likely to temper them further.

See our complete analysis of Union Pacific here

In 2014, Union Pacific’s intermodal volume benefitted from the high container traffic at west coast ports as shippers increased their imports in anticipation of negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) for the renewal of their union contract, which expired on July 1, 2014. In order to avoid any risk arising out of the ongoing negotiations, retailers increased their holiday season imports, leading to five–year high container volumes at U.S. ports. [1]

Relevant Articles
  1. Should You Pick Union Pacific Stock At $250 After 20% Gains Last Year And Q4 Beat?
  2. Up Over 2x In 2023 Is AMD A Better Pick Over Union Pacific Stock?
  3. Should You Pick Union Pacific Stock After An 18% Fall In Q3 Earnings?
  4. What To Expect From Union Pacific’s Q3 After Stock Up Only 2% This Year?
  5. Should You Pick Union Pacific Stock Over McDonald’s?
  6. Earnings Beat Ahead For Union Pacific Stock?

However, negotiations stretched into 2015, with severe repercussions on container traffic as productivity at the west coast ports declined, also impacting railroads’ intermodal traffic. This is evident from Union Pacific’s intermodal traffic during the first quarter through February 7, which declined 3%. Its intermodal traffic for the week that ended February 7 declined 8%. [2] Burlington North Santa Fe (BNSF) reported a decline of 12% during the same period. [3]

The PMA decided to suspend operations on February 12, February 16 and the weekend in between, following another shutdown in the prior week. The PMA did not want to pay workers premium wages for working on Holidays and weekends at a time when productivity was severely diminished. Backlogs at the west coast ports increased as the duration of crane operating shifts went down drastically, which also led to many ships waiting for weeks to enter ports. The ILWU believed that the suspension of operations was a strategy to exert economic pressure on members of the union.

In response to the west coast disruptions, Union Pacific announced that it will embargo traffic to West Coast port terminal or near dock facilities if there is any work stoppage. [4] BNSF has reduced its service to the west coast. In fear of further disruptions, many shippers have either moved their merchandise to the East Coast or are having them flown in to the U.S. This will likely have an impact on West Coast container traffic for the next few months. Experts believe that the backlog on the west coast will take a long time to clear out, and until then the traffic should be slow. This should temper Union Pacific’s intermodal traffic in the first quarter and subsequent quarters as well.

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Retailers Step Up Holiday Imports In Case Of A West Coast Port Strike, June 9 2014, www.forbes.com []
  2. Union Pacific’s 2015 Week 5 Carloads, www.up.com []
  3. BNSF’s 2015 Week 5 Carloads, www.bnsf.com []
  4. Contingency Plans for Potential West Coast Port Work Stoppage, February 6, 2015, www.up.com []