Cost of Positive Train Control Still Looms Over BNSF Even as Accident Proves Need

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A head-on collision between two BNSF freight trains on Tuesday in the Texas Panhandle highlights the need for Positive Train Control technology. The collision, which killed three crew members and left one injured, also left box cars blazing and torrents of heavy smoke that could be seen for miles.

Each train had two crew members, and one crew member jumped to safety just before the trains collided.

According to BNSF, the remains of two BNSF employees have been recovered, while the third missing employee is still unaccounted for. The fourth employee remains in stable condition at a local hospital.

The investigation is now being overseen by the National Transportation Safety Board (NTSB).

Bad Timing

Coal shipments are down, oil shipments are down, metal ore shipments are down, in fact, BNSF Railway’s total carloads including intermodal freight are down a dramatic 8.45-percent year-to-date as compared to 2015.

The one thing that is up is the cost of installing Positive Train Control (PTC), the federally mandated safety system that was supposed to be on all Class 1 railroad trains by December 31, 2015.

When the railroads couldn’t meet Congress’s deadline, it was pushed back to 2018, giving the railroads a breather.

What BNSF didn’t get a breather from is the $200-$300 million annual cost of installing the system. The cost is huge, and Warren Buffett reiterated that figure at the 2016 Berkshire Hathaway annual meeting.

What is Positive Train Control?

PTC is a communication-based/processor-based train control technology designed to automatically stop a train in order to prevent accidents.

Calls for improved safety systems, including PTC have only gotten louder since high profile accidents such as Amtrak’s May 12, 2015 derailment in Philadelphia, Pennsylvania. That accident, which was caused by a passenger train going 102 mph in a 50 mph zone, and had 8 fatalities and over 200 injured, was thought to have been avoidable if the train had PTC.

The High Cost of Safety

In a September 9, 2015, letter from Carl R. Ice, BNSF’s President & CEO, to U.S. Senator John Thule, the Chairman of the Committee on Commerce, Science and Transportation, BNSF noted that the total cost for deploying PTC would exceed $2 billion.

“PTC deployment is an unprecedented technical and operational challenge that requires the entire U.S. railroad network to develop, test and implement this new safety system, and avoid impacts to network capacity and fluidity as we do,” Ice explained.

A Tough Time for BNSF

Just a year ago, BNSF’s business was booming with its mobile pipeline oil trains carrying records amounts of crude oil from the Bakken Formation. Now, the cost of PTC comes as BNSF is slashing expenses. The railroad has mothballed hundreds of locomotives, initiated selective employee buyouts, and laid off 4,600 employees, which represent a full 10% of its workforce.

Those layoffs include 62 management positions that come as a result of a realignment that has the Class 1 freight railroad consolidating its operations organization from three regions down to two.

The new era of Positive Train Control is coming. It is necessary to bring a much needed new level of safety to America’s rail system, but for America’s Class 1 railroads (several of which are already pushing to extend the deadline to 2020) it’s also bringing lots of pain at a time when they can least afford it.

© 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.