(The Dallas Morning News posted the following article by Suzanne Marta on its website on February 10.)
DALLAS –Business at Fort Worth-based Burlington Northern Santa Fe Corp. is bumping along with the economy.
In the last part of 2002, shipments of industrial products were flat, mirroring the sluggish economy. Coal and agricultural revenues declined. But also reflecting the economy, shipments of consumer products performed better growing 3 percent.
Burlington Northern chairman and chief executive Matt Rose said the railroad has faced a downturn for three years. But, he said, the company’s slow but steady growth will catch Wall Street’s attention.
Burlington Northern’s stock which closed at $25.66 a share Friday, down 27 cents is trading about as well as its nearest competitor, Union Pacific Corp.
“Long-term, I’m just extremely bullish on BNSF and the capability of the railroad,” Mr. Rose said.
The railroad is focusing on its intermodal business, the process of transporting goods through a combination of rail, truck and ship. It brings in higher prices by offering customers faster service for time-sensitive goods.
Mr. Rose said Burlington Northern’s shipping infrastructure can’t be duplicated. And as the nation’s need for freight explodes by 60 percent in the next two decades, rail will play an increasingly important role, he said.
The company also is looking for business overseas. Seven years ago, the railroad was doing about $500 million in business from Asia. Last year, that business grew to $1.2 billion of Burlington Northern’s $8.9 billion in revenue.
In a wide-ranging conversation with Dallas Morning News reporters and editors, Mr. Rose discussed the railroad’s future and how it fits into the changing U.S. economy. Here are some excerpts:
QUESTION: How is intermodal transportation changing the way you do business?
ANSWER: The trucking industry has, every year, been increasing its market share over the railroads. So our big opportunities are to partner with these trucking companies and be able to attain that lower lot size that our customers want.
Q: Has there been tension between intermodal-based business and your more traditional customers?
A: We have to be able to run different commodities. We have one main line between Fort Worth and … [Los Angeles], and we want to run three or four different types of business on it. We’ve really come to grips that at the end of the day, we’re going to be able to do all those things.
Q: What is the trend on the short lines?
A: It’s still very much a seller’s market. … We have fixed capacity. We’ve got tracks that don’t move. To build them back is very expensive.
So when we make a franchise decision [to sell tracks], you’re betting the ranch.
Q: Have there been very many times where you’ve built a spur to build competition?
A: That’s really the exception rather than the rule. Building a railroad today is not like it was in 1850. The environmental impact, noise mitigation and air mitigation. … It’s a challenge.
Q: What’s the next phase for railroad mergers? When do we see a coast-to-coast system?
A: I think the answer is when customers believe it will be in their best interest. My old boss … used to say it wouldn’t happen in his lifetime or his career but it would happen in mine. I think he’s right. Right now the environment for all … [mergers and acquisitions] activity is not real robust. We are very much a network business and … we have had this propensity to merge. I think we’ll get back to that.
Q: We’ve written about a lot of companies that are in a holding pattern. Are you finding you have projects on hold?
A: People are cautious. We’re going to spend $1.5 billion on our capital plan, and the vast majority of that will be in what we consider maintenance. There are probably several $100 million of capital we could spend if we thought the growth was really starting to ramp up.
Q: Describe the increasing role of technology in your business.
A: Ten years ago, customers would ship something on the railroad and they’d say, “Is my shipment on the train?” And we’d say, “Probably.” With the advent of the Internet, customers can get a page that their car is by Minot, N.D., if they want.
We have a much higher level of reliability, so our customers feel better about shortening down their supply chain. It’s been a great tool that’s helped us to locate a lot of costs out of our business.
We have 38,000 railroad employees today. At [Burlington Northern and Santa Fe] merger time, six years ago, we had 46,000, and we’re hauling 20 percent more ton-miles now. The technology in this business really is amazing.