(Bloomberg News circulated the following article on October 21.)
OMAHA, Neb. — Union Pacific Corp. will report today that higher fuel costs contributed to lower third- quarter profit, as the biggest U.S. railroad trailed rivals in purchase contracts and other hedges against rising diesel prices.
Union Pacific hedged 8 percent of its diesel fuel in the quarter, compared with 71 percent for Norfolk Southern Corp., 57 percent for Burlington Northern Santa Fe Corp. and 25 percent, through July, for CSX Corp., according to the companies. Retail diesel prices rose 25 percent in the quarter.
“Over the past few years, most railroads have hedged one-third to one-half of forward fuel prices to protect against oil spikes,” said Morgan Stanley analyst James Valentine in Chicago. “Union Pacific has chosen not to take that conservative route and now they are feeling the volatility of oil prices.”
Railroads, like other transportation companies, are seeking to cope with rising prices for fuel, which according to the U.S. Energy Department reached a record $2.18 a gallon for diesel last week.
Fuel prices also are contributing to third-quarter losses at major U.S. airlines. The nation’s U.S. truckers have paid $7.3 billion more for diesel this year, the American Trucking Associations trade group said.
“As prices went up, we felt that getting more involved in hedging at that point was not a good decision,” Union Pacific spokeswoman Kathryn Blackwell said in a interview. “We didn’t expect fuel prices to keep creeping up as they have.”