(The following article by Dan Pillar was posted on the Fort Worth Star-Telegram website on March 27.)
PANHANDLE, Texas — From the rear of the “Glacier View” observation car that he uses to inspect the Burlington Northern Santa Fe Railway system, Chairman Matt Rose can see the new welded rail that enables BNSF’s trains to speed freight from southern California to Texas and the Midwest at speeds better than 60 mph.
Rose also can look back on a record profit of $1.5 billion for BNSF last year, not to mention a stock price that has climbed from the mid-$40 range last summer to more than $80.
In the past two years BNSF has increased its traffic volumes by 1.5 million carloads, which, he said, is the equivalent of a brand-new Class I Railroad.
Even as Rose spoke last week on the inspection trip from Kansas City to Albuquerque, BNSF was being designated as one of the top performers last year on the Standard & Poor’s 500 stock index.
But Rose knows that success can be just as treacherous as adversity. And now the railroad is having to deal with its success.
“Frankly, our service isn’t what we want it to be,” he said to a group of financial reporters who accompanied him on an inspection of BNSF’s main line that extends from Los Angeles to Chicago.
He noted that the railroad’s on-time average had fallen in recent months from above 90 percent to around 80 percent. Systemwide average train speeds had dipped below 20 mph, indicating that traffic on BNSF’s 32,000 mile system that extends from Florida to the Pacific Ocean has slowed.
In the old days, such cost-generating slowdowns were the product of deferred maintenance by cash-starved railroads.
BNSF’s problem today is different. For the first time in the memory of even the oldest railroaders, the nation’s carriers have too much business.
Imports from Asia into California ports that have to be moved inland, a surge in coal traffic as utilities shift away from expensive natural gas back to the low-sulphur coal that BNSF moves from mines in Wyoming and Montana and a string of good grain harvests and strong export markets have created more traffic.
Another big factor is the rise in diesel fuel prices. While BNSF is a major fuel consumer and its diesel bill has almost tripled in the past six years, high diesel costs hit truckers even harder.
A train can carry the cargo equivalent of 250 or more trucks, creating an efficiency that throws more and more freight off highways and onto railroads.
Fort Worth can see the effect of this phenomenon with the seemingly endless processing of so-called “stacked” container trains flowing into the Alliance intermodal terminal north of town.
There, giant lifts remove the containers from rail cars and place them on truck trailers to be hauled to their destinations.
“This is a world-class problem to have, but one that we must deal with,” Rose said.
“That big intermodal business is the key to BNSF,” says Darius Gaskins, the former chairman of the old Interstate Commerce Commission who was president of the old Burlington Northern before BN merged with Santa Fe Railway in 1995. “BNSF has taken advantage of a terrific franchise. They don’t have to depend on coal and grain as they did in the past.”
Rose has told BNSF’s 40,000 employees — a number that has increased by about 11,000 in the past three years and is expected to go up 3,500 this year, including 560 hires in Texas — that “velocity” will be the watchword for BNSF this year.
“This is a volume business,” Rose said as the train sped over newly laid concrete rail ties. “The better the system is moving, the more volume we can handle. It’s as simple as that.”
Actions BNSF is taking this year include:
Spending $400 million of its $2.4 billion capital budget on expansion, including 300 new locomotives and more double track on the all-important main line.
Beginning a second trial of the Electronic Train Management System, which uses global positioning satellite transmissions, fed into computers, to replace the traditional signaling system to manage traffic on the railroad and which can, in emergencies, take over control of a locomotive from a disabled or distracted crew.
Stepping up maintenance and reconstruction on BNSF’s lines out of the Powder River Basin coal fields in Wyoming. Track problems last year delayed coal shipments at a time when utilities, weary of ever-rising natural gas prices, were shipping more coal.
Continuing to hire more workers, particularly maintenance of way employees. The expansion of the railroad industry work force in this decade has begun to reverse an industrywide decline of railroad workers by almost half since the industry was deregulated in 1980.
Spending $2.5 million to expand the Alliance intermodal terminal and similar sums at other intermodal facilities around the BNSF system, acknowledging that the intermodal stack car traffic now constitutes half of the railroad’s traffic.
Basing most of BNSF’s incentive bonuses, including those to locomotive engineers, on improvements in train and system velocity.
Continuing to impose price increases, averaging about 5 percent, on customers to cover increased fuel costs and capital expenses. For two decades from deregulation in 1980, Rose said, inflation-adjusted railroad rates fell by 50 percent.
“Our biggest problem has been understanding market growth, which has been greater than anticipated,” Rose said. “You couldn’t get anybody to believe that traffic could rise by 10 [percent to] 15 percent annually, but that’s what happened beginning in 2003.”
Rose is the first to admit that customers are less than thrilled with slowdowns in service, combined with higher prices.
Historically, disgruntled customers have made their feelings known to politicians and, predictably, the Congressional Budget Office has been asked to report on the condition of the railroad industry. Its report is due this summer.
The most influential shipper group, the National Industrial Transportation League, said in a report that “many of the changes [since deregulation] have resulted in greater market power for the railroad industry and decreased competitive options for shippers.”
Rose says “in a typical year, more than 200 businesses make a conscious decision to locate on our lines and use our shipping.”
“I’m not going to apologize for what the industry has done,” he says. “Unlike the highways and the airports, our track and yard systems are privately owned. We pay for all of our improvements.”
RAIL GOODS
Intermodal: Influx of goods from Asia spurs surge in BNSF’s intermodal traffic.
Coal: Coal shipments rise as utilities shift from expensive natural gas.
Ethanol: BNSF sends 77 tankers weekly from the Midwest to California and plans Texas service.
Agricultural: Bumper crops and good export demand in Asia fuel shipments from the Midwest and Texas.