Union Pacific says high diesel prices shifting freight from trucks to rail

Sept. 16 (Reuters) - Union Pacific on Wednesday said soaring diesel prices were prompting some shippers to move freight from trucks to rail, boosting demand for the railroad as customers seek lower transportation costs.

Speaking at the Morgan Stanley Laguna Conference, Chief Financial Officer Jennifer Hamann said the railroad was beginning to see customers make the shift because of the fuel-efficiency advantage, providing an additional boost beyond broader cyclical improvements in freight demand.

• Union Pacific expects diesel fuel costs to average about $4.25 a gallon in the third quarter, but is currently paying about $5.25 to $5.30 a gallon, creating pressure on its operating ratio, Hamann said.
• Despite higher fuel costs, Union Pacific said its underlying business remained robust, with broad-based strength in industrial shipments and intermodal traffic continuing to drive volume growth during the quarter.
• The company is yet to see significant demand destruction from higher energy costs, with customers still "pretty bullish," Hamann said, citing healthy order books and inventory trends that point to continued freight demand.
• CEO Jim Vena said elevated fuel prices were not ideal for the broader economy, but noted the railroad has not seen a slowdown in shipments so far.