Train derailments significantly reduced: UNP CEO

If you have to own a rail, Cramer picks UNP
If you have to own a rail, Cramer picks UNP   

Jim Cramer always reiterates to investors that the transports are the most important group in the market, because if goods are going to be sold, they must first be shipped.

Unfortunately, after a nice rally for the past few years, the Dow Jones Transportation average finally stalled out; it's down 8 percent since November.

Within this group, the railroads have been hit hard, including Union Pacific Corporation which is down more than 13 percent since the beginning of the year. Cramer suspects the blame lies with lower shipments of oil by rail and the coal industry being in rough shape.

When Union Pacific reported in April, it confirmed a 5 percent decline in intermodal shipping. Those are the big boxes that go on container ships, trains and trucks. Anyone in the transport industry knows that when intermodals are down, that's typically bad news for the economy.

"If you have to own a rail, I would pick Union Pacific, but we have to ask ourselves whether the recent down trend will continue, or does this pullback in the railroads represent a buying opportunity as it did once before?" the "Mad Money" host said.

To find out more about where the railroads could be headed and what this means for the U.S., Cramer sat down with Union Pacific CEO Lance Fritz.





Lance Fritz, CEO of Union Pacific.
Adam Jeffery | CNBC
Lance Fritz, CEO of Union Pacific.

The CEO confirmed that Union Pacific has had a difficult start to the year. Last year was a strong year for the company, as it had 7 percent growth. This year it was down 2 percent in the first quarter, and as of the second quarter to date is down 4 percent.

"But we know how to deal with that. We have done this before; we know how to right-size the business, and we are in the process of doing that," Fritz said.

The company did take a heavy hit due to the West Coast port strike, which was also devastating to domestic retailers. Fritz confirmed that currently the backlog from the strike has cleared, and they have resumed normal flow for business.

Contrary to popular belief, the CEO also confirmed that one of the biggest tailwinds for the rails is fuel. The reason why Union Pacific competes so well against trucking on highways is that rails are about four or five times more fuel efficient.

He expects that as the infrastructure of the nation's highways become more congested over time, and laws restricting the hours of service will retard capacity for trucking.

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"We are a natural opportunity for companies to put more on freight rail and less on the highway," the CEO added.

However, while railroads may be more fuel efficient than trucks, derailments have been making headlines lately. Fritz disputed the idea that there's been an increase in derailments though.

"They are definitely not happening more. Our experience is that we are 38 to 40 percent better over the last 10 years on derailments. Our safety record is getting better and better," Fritz said.

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