The CEO of Union Pacific Railroad says uncertainty among rail customers about the economy’s direction makes it hard to predict, even as he expects a freight traffic pickup in the second half of the year.
“It’s difficult to see the economy going forward,” James R. Young told analysts in a Thursday conference call on second-quarter earnings. “There is more uncertainty in the economy today” than at the start of this year.
Young, also UP’s chairman and president, said the uncertainty is tied to concerns that policymakers in Washington could trigger an economic “meltdown” – a reference to the potential fallout in case Congress does not raise the federal debt ceiling to keep government operations funded.
He said in the earnings report that for the last six months of 2011 “we expect stronger performance despite some economic uncertainties and ongoing flood challenges. . . we're well-positioned to leverage volume growth and achieve pricing gains.”
Although UP’s profit rose 10 percent to $785 million and revenue grew 16 percent, overall freight volume increased just 3 percent and intermodal shrank 1 percent.
Jack Koraleski, UP’s chief marketing officer, said he looks for a shortened but strong intermodal peak season, noting that customers are delaying shipments and ocean traffic has weakened in recent months but retailers would need the cargo this fall. That position echoed earlier remarks by CSX Transportation and Hub Group.
UP has also battled severe Missouri River floods that have hurt efficiency, and earlier disruptions along parts of the Mississippi. Officials said the April-June quarter should mark the carrier’s low point for network efficiency, and depending on rainfalls the railroad could return to normal during August.
But analysts noted that freight traffic – both intermodal and carload – has remained slow in the first weeks of the third quarter. Young said UP is prepared to react in case volume does not pick up as expected, by trimming to protect profits.
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