Hub Group to Shift from BNSF to UP

Intermodal middleman firm Hub Group, one of the industry leaders, will shift the majority of its western-U.S. box loads to Union Pacific Railroad from BNSF Railway, says stock analyst Edward Wolfe of Wolfe Research.

In a special note to clients issued Tuesday evening, Wolfe said the shift could be worth $110 million in added annual revenue to UP. He estimates that over the next three months Hub will shift about 8,400 boxes but leave about 1,400 with BNSF to handle in strategic markets like the Pacific Northwest “where (BNSF) continues to provide superior service.”

Wolfe said “our sense from management is that the switch should drive increased cost savings from only having to manage one rail platform. However, this is contrary to HUB’s past strategy of flexing from rail to rail based on service levels and customer needs.”

He speculated that Hub “may gain some better all-in pricing” with UP by consolidating more volume there to reap incentives, but said Hub officials “vehemently denied that its existing economics with UP or UP’s rate discipline have changed.”

Meanwhile, another major intermodal provider, Pacer International, has a long-term contract with UP that expires in 2011. Industry observers have been waiting to see if they will negotiate a new contract that would have UP keeping Pacer’s volume, and whether Pacer must adjust to significantly higher pricing than it now enjoys.

Wolfe said the UP-Hub deal “could also be a strategic move by UP as it begins preparing for life without Pacer once its contract expires.”

For further analysis, see: Hub Group Shift Targets UP-NS Networks.

Contact John D. Boyd at jboyd@joc.com.