By July 21, 2016 Read More →

Union Pacific CEO say 2016 freight volumes could fall

Union Pacific

Union Pacific freight volumes could fall between six to eight per cent in 2016. Getty Images photo.

Weak shale business, declining coal volumes blamed for Union Pacific woes

By Nick Carey

CHICAGO, July 21 (Reuters) – Full-year 2016 freight volumes at Union Pacific Corp could fall between 6 percent and 8 percent from 2015, driven by declining coal volumes, weak shale oilbusiness and the strong U.S. dollar, the company’s top executive said on Thursday.

Chief Executive Lance Fritz told Reuters a “not very robust” showing by U.S. consumers would also hurt freight. Previously the company has said it expected freight volumes for the year to be down in the “mid-single digits.”

Fritz spoke to Reuters after the Omaha, Nebraska-based railroad reported a lower second-quarter profit that met analyst expectations.

Like the other major U.S. railroads, Union Pacific has been struggling to manage a major decline in coal freight volumes as utilities have switched to burning cheaper natural gas and the strong U.S. dollar has weighed on coal exports.

Fritz said the decline in coal has been partially offset recently by rising natural gas prices and a hot summer, where demand for electricity spikes with the use of power-hungry air conditioning units.

“There are probably opportunities for coal to grow in (power) generation,” he said. “We just to don’t see it growing back to where it used to be.”

Fritz said as a result the company is looking for new markets and is growing its business outside of coal. As an example, he said Union Pacific has been focusing on growing its cross-border business hauling finished vehicles and auto parts between the United States and Mexico.

He said U.S. consumers may not be spending more for a number of reasons.

“There’s plenty for consumers to be concerned about,” he said, “whether it’s the global economy, terrorism, some of the acts of violence that they see randomly occurring.”

“Even the Great Recession is not too distant in a lot of people’s memories,” he added. “So I think all of that could be creating cautious behavior.”

Some U.S. business leaders say the best opportunity for Congress to pass the Trans-Pacific Partnership, one of the world’s biggest multinational trade deals, will be during the lame-duck session after the U.S. presidential election on Nov. 8.

But Fritz said he was not so sure.

“It’s a really hard call,” he said. “It’s very difficult to move anything in a lame duck session… but we’d like to see that and we’d really encourage that.”

(Reporting By Nick Carey; Editing by David Gregorio)

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