Union Pacific's intermodal revenue jumps 27% as diesel pushes freight toward rail

Union Pacific reported third-quarter results on Oct. 22, and the numbers show how much freight is moving from highway to rail while diesel stays expensive. For truckload carriers and the shippers who buy from them, it is a read on where the competition for freight is heading.

According to the company's earnings release, intermodal revenue carloads rose 11% to 956,000, and intermodal freight revenue climbed 27% to $1.517 billion. Total operating revenue rose 15% to $7.197 billion. On the earnings call, as recorded in a Motley Fool transcript, Kenny Rocker, the railroad's head of marketing and sales, said domestic intermodal volume grew 13%, the fifth straight record quarter.

Diesel is part of the pitch

Union Pacific's own fuel bill shows the size of the move. The release puts its average fuel price at $4.21 a gallon in the quarter, up from $2.56 a year earlier, and fuel expense rose 69% to $1.04 billion. Chief financial officer Jennifer Hamann said rail's fuel efficiency compared with trucks is helping the railroad win business, and that higher fuel prices added about 900 basis points to freight revenue through fuel surcharges.

Rocker was careful on timing. He said the growth began before the diesel spike, driven by service and network investment, and that higher fuel prices added to it. Hamann said the company expects its fuel price to average about $4.85 a gallon in the fourth quarter.

What it means for carriers

Truck capacity is tight, and some of the freight that cannot find a truck at a workable rate is going to rail. Rocker said truck rates and capacity shifted between spring and summer, after much of the bid season was already set. He told analysts he expects a better pricing environment at year-end and into early 2027 as contracts reset.

That cuts two ways for carriers. Rail conversion takes volume from the longer, lower-margin lanes where intermodal competes best. But a railroad that expects to raise prices as contracts reset is also signaling that the gap between truck and rail pricing may narrow, which would make it easier for truckload carriers to defend those lanes.

What shippers and brokers should watch

- Bid-season terms: Railroads are pointing to year-end and early 2027 for stronger pricing. Shippers moving freight to intermodal on summer economics should ask what the rail rate looks like after reset.
- Fuel surcharges on both modes: Union Pacific says fuel surcharges added meaningfully to its revenue. Compare how truck and rail surcharges are indexed before judging a lane's savings.
- Service risk: Record volume leaves less slack. Keep truck backup for time-sensitive lanes.
- Diesel direction: The railroad's fourth-quarter fuel assumption sits well above its third-quarter average, so the fuel cost pressure on both modes is not over.

For the weekly U.S. average, see PDI's diesel prices page.