By Eric Kulisch
The Union Pacific Railroad has taken several steps in the past year to increase capacity on its network for agricultural products, many of which are destined to ports for export to other countries, a member of the company’s marketing staff explained at a major transportation conference in Washington last month.
Agricultural products accounted for more than 16 percent of UP’s freight revenue in 2012. Last year, agriculture revenue dipped 1 percent from 2011 to $3.28 billion and full carloads declined 4 percent to 900,000. UP was able to offset some of the volume decline through pricing, with average revenue per car up 2 percent to $3,644, according to the company’s year-end financial results.
During the fourth quarter, agriculture volume declined 9 percent to 215,000 carloads from the same period the prior year. Revenue fell 8 percent to $785 million and unit revenue was flat at $3,647. Volume fell 22 percent for grain to 66,200 carloads, and 6 percent for grain products (76,100 carloads), while food and refrigerated products increased 8 percent (58,700 carloads).
In a Jan. 24 earnings call with analysts, Eric Butler, executive vice president for marketing and sales, blamed the slump in car-loadings on last summer’s drought, which had its greatest impact on UP-served territories. The tight supply of corn has reduced livestock counts and lowered domestic feed-grain shipments, with farmers in East Texas and Arkansas increasingly relying on local crops. Feed grain and wheat exports also declined due to improved global supply and higher U.S. prices, he said.
Butler attributed the decline in grain products to lower demand for gasoline and high corn prices, which curtailed ethanol production and led to a 17 percent decline in ethanol shipments. Food products benefitted from a 78 percent increase in sugar shipments on the spot market and large increases in malt and barley shipments.
Exports represent about a quarter of UP’s total agriculture book of business and a substantial portion of its intermodal revenue comes from empty international containers reloaded with agriculture and food products for export.
In 2012, UP ramped up its “110s Initiative” to increase the use of 110-car unit trains, Matt Bosch, senior marketing manager for agricultural products, said at the Transportation Research Board’s annual convention in Washington.
The effort is designed to help customers adapt and expand their facilities while the Omaha, Neb.-company adds longer sidings on key corridors to accommodate 110-car shuttle trains. As locomotive technology has improved over the years, Class I railroads like UP have gone from 75-car, to 80-, 100- and now 110-car unit trains carrying a single type of commodity to one destination.
In exchange for using 110-car trains, which are more efficient for UP to operate and reduce congestion on its entire network, shippers are given rebates and discounts from their contracted rate, Bosch said.
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About 70 percent of the agriculture shuttle facilities served by UP have been converted to 110-car capacity, he said after his presentation. The shuttle trains are primarily used to haul hopper cars of corn, beans and wheat.
The shuttle train system is predicated on quickly turning the trains within 17 hours at the origin and destination terminals. Customers typically commit to the program for a certain period, and receive trip incentives for efficiently loading and unloading the trains. The incentive is greater for every turn that is made with 110-car trains instead of 100-car trains.
UP plans to purchase a few thousand covered hopper cars this year, on top of about 1,500 purchased during the last three years, to augment its fleet, Bosch said.
The railroad is also helping growers, who are using genetically modified corn to expand corn production to new areas of Kansas, North Dakota and Nebraska, identify the best sites to locate grain elevators that can be served by rail, he added.
And, Bosch said, UP established a shuttle program for four barge-transload facilities on the Mississippi River near St. Louis. Shuttle trains traditionally move product to the Pacific Northwest, Texas or California, but the new program gives shippers the option to use unit trains to reach St. Louis and transfer the shipments to barge for delivery to vessels at the Port of New Orleans. UP had to approve the facilities for meeting its 110-car criteria.