It’s early, but BNSF Railway is off to a weak start in 2016 with total shipping slipping 3.2% from the same period in 2015.
The weak start is industry-wide, as combined railroad freight volumes for all U.S. railroads are down 2.5 percent from 2014.
BNSF is not waiting for further poor results to trim its costs, and has already announced a 26% cutback in capital spending.
As of the week ending January 16, 2016, BNSF’s coal shipments were down a whopping 28.19%, petroleum shipments were down 22.21%, and the shipment of metal ore was down 32.29%.
Also down 11.66% was the shipment of sand and gravel, which are used in fracking.
On the positive side, shipments of containers were up a solid 13.34 %, and shipments of grain and chemicals were up 8.6% and 8%, respectively.
Last year’s record $6 billion in capital spending will be cut 26% to $4.3 billion for 2016, which represents the first reduction in spending in six years.
Heavy spending in 2015 helped resolve shipping bottlenecks that outraged grain producers when their shipments experienced extensive delays in 2014. The investment included 82 miles of new double track on the northern tier.
“Each year, our capital plan works to balance our near term need to regularly maintain a vast network that is always in motion with the longer term demand outlook of our customers,”said Carl Ice, BNSF president and chief executive officer. “While our customers’ demand outlook has softened in a number of sectors, regular maintenance of our network continues to drive the majority of our annual investments and helps ensure we continuously operate a safe and reliable network.”
On the national level, BNSF’s numbers are a barometer that confirms that U.S. economic growth is slowing. The Federal Reserve’s letter on January 27 noted that “net exports have been soft and inventory investment slowed.”
With weakness in coal and oil shipments, BNSF has been laying off railroad workers in Minnesota and North Dakota. Roughly 100 employees have been affected.
© 2016 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.