(Bloomberg circulated the following story by Angela Greiling Keane on June 19.)
NEW YORK — Union Pacific Corp. and other North American railroads may take months to recover from the effects of severe flooding in the U.S. Midwest that’s hampering rail operations and eroding some carriers’ second-quarter profits.
Union Pacific, the biggest U.S. railroad, may haul less corn in the fourth quarter after the harvest because of high water this month in Iowa and other Midwestern states, Chief Executive Officer James Young said today at a Merrill Lynch & Co. Inc. transportation conference in New York.
“We’ve had a heck of a challenge, the whole rail industry,” Young said. “Every railroad that operates in Iowa was shut down or is shut down.”
Union Pacific and Burlington Northern Santa Fe Corp., the second-largest U.S. carrier, told shareholders this week that the effects of the flooding will crimp second-quarter earnings. Because the storms have damaged corn and other crops, the impact may last longer, UBS Financial Services Inc. analyst Rick Paterson said.
“The pain will extend into 2009,” Paterson said in a report to investors. “Agricultural products accounts for 17 percent and 18 percent of total sales for Union Pacific and Burlington Northern, respectively, with corn accounting for about half of that.”
Omaha, Nebraska-based Union Pacific, Burlington Northern and Canadian National Railway Co. are the three large railroads that serve Iowa.
Widespread Impact
Even carriers that don’t directly serve the inundated areas may not escape disruptions.
“The flooding took place north of us,” Kansas City Southern Chief Financial Officer Patrick Ottensmeyer said today at the Merrill Lynch conference. “We are not under water. Our northernmost point on our network is in Kansas City. However, it will affect us because we bring a lot of grain through Kansas City.”
The U.S. Department of Agriculture on June 10, before the worst of the flooding, projected a U.S. corn crop of 11.7 billion bushels, down 3.2 percent from its May estimate of 12.1 billion. The agency cited “slow planting progress, slow crop emergence and persistent heavy rainfall across the Corn Belt.” A crop of 11.7 billion bushels would be about 10 percent smaller than last year’s record harvest of 13.1 billion bushels.
`Millions of Dollars’
Canadian Pacific Railway Ltd., Canada’s second-biggest railroad, said today that the flooding will cost the Calgary- based company “millions of dollars” this quarter.
Union Pacific lifted service embargoes today on its east- west Iowa main line after the deluge delayed shipments, marketing chief Jack Koraleski told customers in a letter. “Operations remain limited,” he said.
Returning Union Pacific’s operations to normal will take several weeks, Young said. An embargo remains on traffic to and from Cedar Rapids, Iowa, where the railroad “was hardest hit,” Koraleski said in the letter.
Union Pacific rose $1.98, or 2.6 percent, to $77.80 at 4:02 p.m. in New York Stock Exchange composite trading. Burlington Northern, based in Fort Worth, Texas, added $2.37, or 2.3 percent, to $105.55. Canadian Pacific rose 80 cents to C$66.25 in Toronto Stock Exchange composite trading. Canadian National, based in Montreal, added 43 cents to C$51.