Union Pacific Railroad Company, one of the world’s largest transportation companies, is no stranger to economic fluctuations and oscillations in demand for their transportation services.
During an economic downturn, less freight moves around, so where does Union Pacific store the locomotives no longer needed until demand returns?
It is not uncommon to spot hundreds of idle locomotives at a 3-mile stretch of track snaking through the Arizona desert outside Tuscon.
“It is a strategic reserve of locomotives for Union Pacific,” Jeff DeGraff, Director of Media Relations told a local news station in 2017 when the sight of 300 idle locomotives attracted interest.
This year, the economic slowdown as a result of the coronavirus has dented freight rail volumes, causing Union Pacific to once again store locomotives.
“Since the latter half of March as volumes declined more steeply we stored additional locomotives and railcars,” Jim Vena, Chief Operating Officer, said April 23 on the company’s first quarter earnings call.
“However, those locomotives remain in at-the-ready status and both assets are available to add back quickly as volumes return,” he said.
Locomotives are expensive pieces of equipment, valued at $1 million to $3 million per engine. Naturally, as a business, Union Pacific tries to optimize the operations of its enormous capital investment.
Overcapacity, or having locomotives sitting idle waiting for economic demand to recover, puts pressure on earnings.
Monitoring locations, like the one identified here in Benson, Arizona, can serve as a proxy for economic activity.
A decrease in idle reserves of industrial locomotives could serve as a precursor to broader economic recovery.
Ursa is monitoring Union Pacific’s strategic reserve of locomotives near Benson, Arizona using satellite radar imagery.
Specifically, we’re using synthetic aperture radar (SAR) technology to determine the amount of man-made objects in an area, e.g. number of railcars.
The presence of more “bright” or “white” areas means there is greater SAR energy, which means more idle locomotives are present.
Ursa’s radar imagery experts quantify the SAR energy in the images to develop an index to determine activity levels. Using these raw SAR energy outputs, we created SAR Activity Indices to visualize the trends.
Our team observed a rapid increase in SAR activity from mid-March 2020 through mid-June at the strip of track used by Union Pacific to store idle freight locomotives.
This signals industrial and manufacturing rail demand has weakened, part of the broader economic downturn caused by the coronavirus.
While the volume of idle locomotives remains above the average level from September 2018 to present, a recent decline in SAR activity may be an early sign of recovery.
Check back to see if this trend will continue or be alerted of inflection points that may provide a precursor for movement in economic activity.