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Crude-by-Rail Boosts Union Pacific as CEO Sees 40% Gain

Union Pacific Corp. (UNP), the biggest U.S. railroad, may carry as much as 40 percent more crude oil in 2013 and is seeing evidence that the slump in coal shipments is over, Chief Executive Officer Jack Koraleski said.

The gains in crude-by-rail, driven by increasing output from hard-to-reach petroleum deposits in shale formations, can withstand the construction of pipelines including Keystone XL, Koraleski said in an interview today at Bloomberg headquarters in New York.

“We’ve proved we can move oil two to three times faster than a pipeline, and we’ve proved we can be consistent and reliable,” Koraleski said. “Customers have told me that, if and when they build a pipeline, they’re still going to carve out a piece of their business for rail.”

Crude volume grew more than threefold at Omaha, Nebraska-based Union Pacific last year, helping the Omaha, Nebraska-based company achieve record profit. That helped ease the effects of a decline in coal, the company’s largest cargo, as utilities switched to less expensive natural gas to generate electricity.

Coal shipments climbed 8.1 percent in the week ended May 18 from a year earlier, just the second gain of 2013 and the largest in more than 15 months, according to Association of American Railroads data analyzed by Bloomberg.

“We’re at the bottom,” Koraleski said. “We need a nice, normal summer and the coal business will be coming back. We’ve turned the corner.”

Economic Growth

Union Pacific fell 1.21 percent to $155.68 at 1:40 p.m. in New York trading. The stock previously climbed 25 percent this year, compared with a 16 percent gain for the Standard & Poor’s 500 Index.

The crude gains enhance growth in the company’s other businesses. Union Pacific’s revenue from automobile shipments climbed 13 percent to $487 million in the first quarter on 2 percent higher volume, the company said last month. Lumber volumes, which are tied to new home construction, grew 18 percent, helping push industrial-products sales up 6 percent to $916 million.

The advances show the U.S. economy is gaining strength, Koraleski said.

“We’re seeing a nice, slow and steady growth in the economy,” he said. “When we look at housing starts and we look at the automobile business, we think that’s a pretty good indication that consumer confidence is doing OK.”

The surge in domestic petroleum production that’s driving increases in Union Pacific’s crude volumes is also drawing foreign manufacturers to the U.S., Koraleski said.

“In the last 12 to 15 months, we’ve probably had six different companies that have made a decision, rather than build where they historically have, to build within the U.S.,” Koraleski said. “We have a lot more people lining up to talk to us about potential rail sites.”

To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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