Coal news and updates

UP Q2 coal volumes fall 7% on year on lower exports, flooding

Union Pacific coal volumes dropped 7% in the second quarter on the year on lower exports and flooding issues, railroad executives said Thursday in the Q2 earnings call.

"Coal and coal volume was down 7% driven by ongoing headwinds of contract changes and retirement," Kenny Rocker, executive VP of marketing and sales said. "Flooding in May and June also negatively impacted shipment. In addition, coal exports were lower due to softer market conditions."

Coal carloads were about 238,800 over Q2, and of those shipments, 52% were made up of Powder River Basin coal and 16% were from other coal basins.

Overall, energy freight revenues dropped the most from the year-ago quarter compared with the other segments, down 13% at $966 million in Q2. In the second quarter, energy accounted for 18.4% of the total freight revenues.

Through the first two quarters, energy freight revenue totaled over $1.9 billion, down 15% compared with the corresponding 2018 period, and producing 19% of total freight revenue.

Energy carloads were about 351,000 in Q2, down 9% from the year-ago quarter, while carloads totaled about 709,000 in the first six months of the year, down 12% year over year.

Petroleum, LPG and renewables had the strongest rise year over year, up 30% to 75,400 carloads in Q2.

In Q2, energy carloads accounted for 16.4% of the total traffic, and over the first six months, it accounted for 16.8% of the total UP traffic.

The average revenue per car in the energy segment was $2,753, down 4% from Q2 2018, compared with $2,450 across all segments. Over the first two quarters, the average was $2,746, down 3% on the year, and compared with $2,425 across the board.

On the coal environment for railroads, Lance Fritz, president and CEO, said "We've been living in this coal environment for some time so [the drop in volumes] is not a surprise or anything new to us. It doesn't change our approach to ensuring that we compete and win the business at the appropriate return for us."

"I will say that as you hear about some of these bankruptcies or closures, it doesn't take away from the fact that another producer or shipper up in that area might be able to move the volume," he continued.

"We're making the coal train specifically more efficient so that we can have a better return on the product that we're moving and that's what's it's all about," Rocker added.

Looking ahead, "we also expect coal to experience continued headwinds throughout 2019 and weather condition will always be a key factor for coal demand," Rocker said.

Operating revenue for the railroad totaled $5.6 billion, down 1% year over year, while Q2 net income was $1.6 billion, up 6.6% from the year-ago quarter.

Total volumes on the rail fell 4% from Q2 2018, with growth from industrial volumes offset by flat agricultural shipments and declines in energy and premium.

Train speed was 23.1 mph, down 6% from the year-ago quarter, while terminal dwell was 25.5 hours, down 14%.

In addition, UP had its best ever quarterly operating ratio at 59.6%, up 3.4 percentage points from Q2 2018, the company reported.

"While that's a remarkable achievement, it's magnified when you consider the challenges we faced from significant flooding that adversely impacted volumes and added incremental operating cost during the quarter," Fritz said.

Source: S&P Global Platts