Union Pacific is seeking to bolster its intermodal offerings through capital investments and the implementation of programs meant to encourage loaded outbound international containers, according to comments made by company executives during UP’s fourth-quarter 2021 earnings call Thursday.
UP’s (NYSE: UNP) targeted support of its intermodal franchise comes as the company announced this week that it will be the intermodal carrier for Schneider National’s (NASDAQ: SNDR) western U.S. intermodal business, starting in January 2023. UP also has an agreement with Knight-Swift (NYSE: KNX) to move intermodal containers starting this year.
While company leaders said they are optimistic about UP’s domestic intermodal franchise, the international intermodal segment is experiencing slow marginal growth.
To support its intermodal franchise, UP is investing in intermodal ramps in 2022, as well as expanding its Twin Cities terminal from a pop-up terminal to a full terminal, adding more capacity to the Inland Empire pop-up intermodal terminal and wrapping up a multiyear project to install wide-span gantry cranes at the G4 intermodal terminal in Chicago.
These investments are part of UP’s $3.3 billion capital expenditures plan for 2022. The capex plan also calls for freight car acquisitions, investments in capital projects to bring more carloads to the network, the completion of approximately 20 sidings and upgrades to the locomotive fleet, according to Eric Gehringer, UP executive vice president for operations.
UP expects its bulk and industrial volumes to support the first half of 2022, while the second half of the year will be driven more by premium volumes as supply chain conditions and chip shortages improve. UP’s premium segment includes intermodal and automotive volumes.
The signs that UP will be looking for that point to better supply chain flows include improved street times for chassis and boxes, as well as international intermodal customers that have boxes go inland to turn back outbound “preferably with an export,” said UP President and CEO Lance Fritz.
Meanwhile, the partnerships with Knight-Swift and Schneider will provide more options for customers, said Kenny Rocker, UP executive vice president for marketing and sales.
The partnerships will give UP “an opportunity to densify a lot of the network and really execute on a lot of intermodal excellence initiatives,” Rocker said. “As we look at our own IMC that we have out there in our own equipment … we feel like we have a great mixture to offer the private asset players that are on our network and also the ones that will be utilizing our equipment.”
Union Pacific’s fourth-quarter 2021 financial results
UP’s net profit rose 24% year-over-year as a 12% gain in operating revenues offset a 5% increase in operating expenses and a 4% drop in volumes.
Net income for the fourth quarter of 2021 was $1.7 billion, or $2.66 per diluted share, compared to an adjusted net income of $1.6 billion, or $2.36 per diluted share, in the fourth quarter of 2020. The fourth-quarter 2020 adjusted net income accounts for a $278 million pretax, noncash impairment charge related to UP’s change in plans for its Brazos yard in Texas.
Operating revenue rose 12% to $5.7 billion, with freight revenue increasing 10% to nearly $5.3 billion. Operating expenses rose 5% to nearly $3.3 billion on higher fuel expenses.
Although overall business volumes slipped 4% in the fourth quarter, the drop wasn’t across the board among UP’s segments. Bulk volumes rose 5% and industrial volumes increased 8%, while premium volumes slipped 4% on lower volumes for automotive products and intermodal.
While 2021 was marked by events such as wildfires and supply chain congestion affecting operations and network fluidity, UP “exited the year in a more fluid state,” Gehringer said.
Crew availability improved in the fourth quarter, and U.S. Southeast operations became more fluid, although fluidity for bulk volumes has yet to reach a level that meets UP’s expectations, Gehringer said.
“The Union Pacific team concluded its most profitable year ever in 2021. We produced double-digit fourth-quarter revenue growth by leveraging our great rail franchise to generate positive business mix and core pricing gains, despite ongoing global supply chain challenges that impacted volumes,” Fritz said in a release. “For the third consecutive year we improved our fuel consumption rate, taking steps to reduce our carbon footprint and meet the goals of our 2021 Climate Action Plan.
“While our safety and operational performance in 2021 did not meet expectations, we look to convert recent progress into sustained improvement in 2022. Although uncertainty remains around COVID variants and supply chain disruptions, we see a positive demand environment in 2022 and continued traction from business development efforts driving growth as we deliver value to all our stakeholders.”