(The following article by Dan Piller was posted on the Fort Worth Star-Telegram website on April 10.)
FORT WORTH, Tex. — Ask Chief Executive Matt Rose how high energy prices affect a railroad like Burlington Northern Santa Fe Corp., and he likens the effect to “a knife fight.”
“We benefit some from higher oil and gas prices, but those higher prices hurt our customers too,” said Rose, now in his third year steering the Fort Worth-based rail giant.
Rose will obviously be careful not to chortle about the positives that high energy prices bring to a railroad. But history — distant and recent — clearly indicate that BNSF will be a winner as long as energy prices stay high.
o Higher diesel prices cause more shipments to move from trucks to more efficient railroads. BNSF, already with a 20 percent increase in truck container shipments last year, stands to increase such loads by as much as 25 percent this year.
o BNSF’s mainstay coal business, stagnant in recent years as many utilities switched to natural gas, is on the upswing as natural gas prices hit record highs.
o With a ban on the emission-controlling additive MTBE, California depends on corn-based ethanol to clean the gasoline burned there. BNSF is transporting 95 tanker cars a week filled with ethanol from the Midwest to California, adding $200 million to revenues.
Rose says the carrier plans to hire 1,600 employees, primarily train crew members, this year. BNSF reported 36,500 employees at the end of 2003. The railroad will also buy 350 locomotives, the second-largest annual purchase in company history.
BNSF increased its earnings per share last year, to $2.10 a share from $2.01 in 2002, and Standard & Poor’s analyst Andrew West is looking for $2.38 this year.
“We believe the company will benefit from above-average revenue growth, driven by its outsized exposure to intermodal transport, coal and grain,” West wrote in a recent report.
West and other observers note that BNSF has emphasized so-called intermodal shipments — truck trailer on rail flatcar — in recent years. The carrier’s route from Los Angeles to Chicago has become the major highway for Asian goods imported through the Los Angeles port.
BNSF has entered into several strategic ventures with trucking companies to combine the financial efficiencies of the railroad on long hauls with the door-to-door flexibility of trucking.
BNSF’s vice president for marketing, John Lanigan, a former trucking executive at Schneider Transport, said the two industries have learned to work together.
“We have a new generation of executives in both rail and trucking. The days of open warfare are over,” he said.
BNSF has even taken out advertisements in transportation trade journals proclaiming, with a red heart, that it “Loves Trucks.”
“Those advertisements have caught a lot of people’s attention,” says Thomas White, director of communications for the Association of American Railroads, who, like most in the industry, is well-versed in the long-standing antagonisms between highway and rail transport.
Before World War II, railroads accounted for at least two-thirds of intercity freight shipments. In the last half-century — particularly after the advent of the interstate highway system — that ratio was reversed.
But in the last decade, railroads have seen their share of intercity ton-miles of freight shipments climb from 37 percent to 42 percent. Rose and Lanigan both think that rail can continue to gain.
“The U.S. is now ready for a transportation system where railroads and trucks work together, rather than fight each other all the time,” Rose said.
BNSF and other carriers have been working hard in recent years to advance business with the trucking industry.
The 1995 merger of the Burlington Northern Railroad with the Santa Fe Railway was predicated on folding Santa Fe’s burgeoning intermodal business into BN’s longtime powerhouse coal and grain franchises.
After dipping in recent years, BNSF appears to be benefiting from a comeback by coal, seemingly consigned to the energy dustbin a decade ago when utilities rushed to build natural gas-fired generators. Coal’s share of the electricity generating business dropped from 57 percent in 1991 to 51 percent in 2003.
But policy-makers in Washington, increasingly concerned about tight supplies and high prices for natural gas, are taking a second look at coal. The Environmental Protection Agency has relaxed some of its clean-air standards, and the coal industry has asked Congress to give new emission control technology a chance.
That would greatly aid BNSF, the nation’s largest coal shipper. Rose says, however, that what he called “environmental scare tactics” must be countered.
“The environmentalists have totally controlled the debate over clean air,” he says. “The result has been to de-emphasize coal and bring about high prices for natural gas.”
The high prices for natural gas already have caused several utilities to change fuels, driving up coal shipments almost 3 percent this year for BNSF after several years of stagnant or declining volumes.
Another promising area is agriculture. Strong demand in China for American corn has caused a healthy increase in shipments from the Midwest to Pacific Coast ports.
But the real payoff to BNSF in the Far East is the cornucopia of Asian goods shipped across the Pacific to California ports. Rose says shipments in and out of China now account for as much as 25 percent of BNSF’s revenues.
“We plan to open an office in Shanghai later this year,” said Rose, who visits China at least once a year to drum up business.