One of the key risks to Union Pacific (UNP) identified in our recent research report GreenLock was the rerouting of cargo to East Coast ports through the newly enlarged sections of the Panama Canal.

The day of reckoning has come with the official opening of the new sections, as reported in this Washington Post story. Among the interesting tidbits provided in this article was the following quote, which put the enormity of this project in perspective:

The contractors dredged enough material to fill the Egyptian Great Pyramid at Giza…25 times over. The amount of steel used could have erected 29 new Eiffel Towers. The Empire State Building could lie down and fit into just one of the three chambers in each of the new channel’s locks.

While not quite as vivid in terms of imagery, this article also talks about preparations being made to East Coast ports to accommodate the New Panamax class freighters and about the concomitant lowering of volume into West Coast ones. It is the lowered volumes of West Coast ports that stands to hurt one of Union Pacific’s main business lines – “Intermodal” transport (see the above-linked report for our rationale for making this claim).

Interestingly, about the time this article was published, a Bloomberg article entitled Why Warren Buffett’s Favorite Indicator Isn’t Giving an Accurate Read of the U.S. Economy caught my eye. Buffett once said that if stranded on a desert island and with only one economic number available, he would want to look at figures showing “freight car loadings and…truck tonnage moved” to be able to understand the state of the US economy.

The article provides a screenshot of a Bloomberg terminal’s graph of the four-week moving average of intermodal freight traffic.


A few interesting things to note are that this article conflates intermodal traffic with freight car loadings overall and maintains that railroads suffer from lower volumes when oil prices fall. The first point is certainly mistaken – intermodal traffic is just one segment of western railroads’ businesses – and the second point may be overstated.

An interesting possibility not even addressed in the Bloomberg article is that perhaps some container ships have already begun bypassing the West Coast via the Panama Canal, hereby dropping intermodal traffic. The Canal opened its locks just last weekend, so it is probably too early to see the effect of rerouting on rail traffic, but we will keep an eye out for this drop as we follow Union Pacific.