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Busier Seaports in U.S. Benefit Union Pacific: Freight Markets

U.S. West Coast ports are poised for two consecutive years of increased traffic for the first time since 2005-2006, a product of stronger global demand that will benefit America’s railroads and truckers.

Los Angeles, the busiest port, forecasts shipments to rise as much as 6 percent following a 16 percent jump in 2010 that reflected a rebound from the global recession, said spokeswoman Rachel Campbell. The Port of Long Beach, California, second behind Los Angeles, expects volume to grow further after last year’s 24 percent gain, executive director Richard Steinke said in an interview.

“The growth last year at the ports of L.A. and Long Beach was extraordinary,” said John Husing, founder of consulting firm Economics & Politics Inc. in Redlands, California, who has studied the state’s southern region since 1964. An improving U.S. economy “augurs very well for records at the two ports in the next two or three years, pretty much guaranteed.”

Port volumes are rising in response to stronger consumer demand, aided by rising incomes and stock prices. As goods are moved from ships to trucks and railways, companies like Union Pacific Corp., Burlington Northern Santa Fe LLC and J.B. Hunt Transport Services Inc. stand to benefit, said senior transportation analyst Donald Broughton of Avondale Partners LLC in Nashville, who has covered the industry for 16 years.

“It’s going to be a pretty good year for the railroads,” said Anthony Hatch, an independent New York-based transportation analyst. International container traffic will rise as much as 7 percent this year, he said.

‘Increasingly Confident’

“Railroads are feeling increasingly confident in their volumes and the economic outlook,” said Hatch, a transportation analyst on Wall Street for more than 20 years, including a stint at Salomon Brothers.

Container volumes surged last year as the economy recovered from the worst recession since the Great Depression and companies including Target Corp. and Wal-Mart Stores Inc. rebuilt depleted inventories. Traffic moving through all six major West Coast ports rose 18 percent last year, according to data compiled by Bloomberg News.

Transportation stocks are reflecting the gains in trade. Since a 2009 low on March 9, the Dow Jones U.S. Transportation Exchange-Traded Fund surged 139 percent through 2010, outpacing an 86 percent gain in the Standard & Poor’s 500 Index.

Union Pacific, the largest U.S. railroad by sales in 2009, reported fourth-quarter profit that rose 41 percent to $775 million. Net income increased to $1.56 a share from $1.08 a year earlier, the Omaha, Nebraska-based company said in a Jan. 20 statement. The average estimate of 28 analysts surveyed by Bloomberg was for profit of $1.48 a share.

Export Markets

“Right now, our international business is actually stronger than we thought it would be,” Jack Koraleski, executive vice president of marketing and sales at Union Pacific, said on a teleconference with analysts.

Truckers Con-way Inc., Schneider National Inc. and YRC Worldwide Inc. are among those that stand to gain from higher cargo volumes in Los Angeles and Long Beach. They are “going to benefit as the economy picks up speed and goods move through the ports,” said Husing, who has studied such logistics for a decade. “If the supply chain is moving, they’re handling it.”

West Coast ports are the leading commercial gateways between the U.S. and Asia, accounting for about 70 percent of all containerized trade to and from the region. Long Beach is investing $3 billion in projects over the coming decade to modernize its infrastructure, create jobs and stay competitive.

Obama and Trade

President Barack Obama last year announced plans to double U.S. exports by 2015, a goal that he said would support 2 million new American jobs. Since then companies such as General Electric Co. and Boeing Co. have announced sales agreements with China, the second-biggest trading partner of the U.S.

Growing global demand is helping to boost overseas sales of everything from aircraft to cotton, helping the U.S. trade deficit shrink in November as exports climbed to the highest level in more than two years, Commerce Department data showed Jan. 13. The 18 percent rise in containers through the six West Coast ports -- which also include Oakland, California, Portland, Oregon, Seattle and Tacoma, Washington -- last year followed a 16 percent slump in 2009.

“Transportation is an early cycle, canary in the coal mine for economic growth,” said Jeffrey Kauffman, managing director of transportation research at Sterne Agee & Leach Inc. in New York, who recommends shares of Hub Group Inc., the freight- transportation manager based in Downers Grove, Illinois. He has buy ratings on 16 of the 19 companies he follows and said neither he nor Sterne Agee own Hub shares.

‘Spectacular’ 2010

“I don’t see anything that is going to derail continued economic growth at this point, based on our discussions with companies that are raising their capital budgets and beginning to expand employment,” he said. “Even though the rate of growth is going to slow this year, it’s only because 2010 was spectacular coming off of nothing.”

The U.S. economy is forecast to grow 3.1 percent this year, according to the median estimate of 71 economists surveyed by Bloomberg this month. That’s up from a projected 2.9 percent in 2010.

West Coast imports have “a greater multiplier effect” on the economy than goods arriving through East Coast ports, said Chris Christopher, senior principal economist at IHS Global Insight in Lexington, Massachusetts. That’s because they travel across the country by rail and truck before reaching the densely populated Northeast, whereas items shipped into East Coast ports typically don’t go more than 500 miles, Christopher said.

The volume of 20-foot containers carrying goods through Los Angeles and Long Beach peaked in 2006 and 2007, before the most recent recession got under way.

Long Beach

Long Beach container shipments plummeted by 11 percent in 2008 and 22 percent in 2009. They rebounded by 1.2 million units last year, the most of any U.S. port. One item that’s increasingly moving through Long Beach is furniture, which is finding its way to retailers such as Home Depot Inc., Target, and Wal-Mart, said Steinke of Long Beach, which reported the largest percentage increase in traffic last year since record- keeping began in 1971.

“You’re going to start to see single-digit increases, and I think that’ll be a good thing” because last year's gains weren't sustainable, said Steinke, who has been with the port since 1990.

To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net; Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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