Flooding Hurts Railroads

Crews repair flood damage at a rail crossing in Plattsmouth, Neb., on March 22, 2019. Photo courtesy of BNSF Railway

By Michael Hooper

Damaging floods hurt railroads in the first quarter of 2019, contributing to a decline in traffic at Union Pacific and BNSF Railway.

Carload traffic at Union Pacific (UNP) was down 5% in first quarter 2019 compared to first quarter 2018 but saw a gain of 4% in intermodal traffic. Overall traffic in the first quarter was down 1% through week 13 at Union Pacific, according to weekly carload reports published on the company's web site.

Overall traffic at BNSF Railway was down 5% in the first quarter, with declines in coal, grain, and food but nice gains in the movement of petroleum, according to BNSF Railway's weekly carload reports.

BNSF Railway, owned by Berkshire Hathaway (BRKB, BRKA), moved 2.48 million car loads and intermodal units in the first quarter, down from 2.62 million in the first quarter 2018.

And Union Pacific moved 2.10 million car loads and intermodal units in the first quarter, down 1% from 2.13 million in the year-ago quarter.

Both UNP and BNSF suffered millions of dollars in losses due to flooding in the Midwest. There are places where rails  alongside rivers were wiped out, the ballast completely washed away. The railroads responded with a high degree of professionalism, helping people get to safety and rerouting traffic around the damaged rail lines.

BNSF and Union Pacific used technology like drones to inspect flooded railyards and bridges. 

The Association of American Railroads says that waters rose to historic levels in more than 40 locations in the Midwest, due to melting snow and ice and rain.

"BNSF and Union Pacific continue to work day and night to restore service as quickly and safely as possible," AAR said. "Collaborating with local and government agencies, the railroads are rerouting shipments, communicating with customers, assessing and repairing damage, and supporting local communities. For example BNSF recently used drones to keep employees safe while inspecting bridges and UNP used high rail vehicles to move evacuees out of the Missouri River Valley to a local shelter."

Meanwhile traffic at East Coast railroads and Canadian National Railway were less affected by floods. Canadian National Railway actually saw an increase in rail traffic of 13,400 car loads/intermodal traffic or an increase of 0.9% in the first quarter.

Norfolk Southern saw a small increase of 7808 carloadings/intermodal units in the first quarter to a total of 1.31 million.

CSX saw no growth in the first quarter, moving 1.5 million carloadings in the first quarter, the same as first quarter 2018.

It is likely the damage to Union Pacific and BNSF Railway will hurt earnings in the first quarter. Another factor that may affect them this year is the flood damage to farms.

Many farms in the river valleys saw destruction of grain from the floods. Some of that grain was stored on the ground and will be a total loss. Livestock also suffered from the floods. This may affect the amount of grain and food products that railroads move from the Midwest in 2019.

Railway Age reported significant damage to UNP and BNSF Railway. Here is what the rail media company said,

"Union Pacific has suffered widespread service disruptions from flooding and track washouts in the Iowa-Kansas-Missouri-Nebraska four-state area. Five subdivisons (Omaha, Blair, Columbus, Lincoln, Falls City) suffered substantial damage in the flooding. Service is expected to be restored soon on the Blair Subdivision. But in other areas, including Falls City, where water remains over portions of the rail, it’s just too soon to estimate when service might be restored.

"Meanwhile, BNSF Railway reported track closures in the same area, along with additional closures in North and South Dakota, and Illinois near the Mississippi River. “We are now confronting major flooding issues in the region, particularly in eastern Nebraska and western Iowa, as multiple subdivisions are currently out of service due to track washouts,” the railroad said. More significantly, much of the BNSF main line in South Dakota and from Alliance to Omaha, Neb., was out of service," Railway Age reported.

I have been buying stock in Canadian National Railway (CNI) lately, picking up shares at $86, $87 and $90 per share. CNI is the only transcontinental railway in North America with connections to the Pacific, Atlantic and Gulf of Mexico. Canadian National's net profit margin is an outstanding 30%. And management has been getting 15% return on invested capital.

Disclosure: The author of this article owns stock in Union Pacific (UNP), Canadian National Railway (CNI) and Berkshire Hathaway (BRKB, BRKA).