With BNSF Railway’s coal and crude oil transport business sure to decline, where does BNSF look for future growth?
The answer is the long-distance freight hauling currently provided by the trucking industry.
BNSF is about to complete a new 2,200-mile parallel line to its Transcon Corridor along the Los Angeles to Chicago route that will allow it to greatly increase the amount of intermodal freight it can carry.
The challenge in competing with the trucking industry is improving shipping times, which often suffer from delays as trains sit on sidings in order to allow other trains to pass.
The new second line will eliminate those bottlenecks, and reduce the LA to Chicago run by a total of three hours down to 61 hours from the current 64 hours.
Building for the Future
System-wide, BNSF is working to increase capacity. In 2015 alone, BNSF is spending $1.5 billion on terminal, line and intermodal expansion and efficiency projects, which also includes the completion of more than 65 miles of new second main track on the busiest segments of their Northern Corridor.
Rails Efficiency Over Trucks
According to the Association of American Railroads, trains are four times more fuel efficient than trucks. And that efficiency has been growing over the past three dacades, with railroads now able to move a ton of freight an average of 479 miles per gallon of fuel. This is up more than double from the 235 miles per gallon of fuel in 1980. One of the keys is the efficiency of modern hybrid diesel-electric locomotives that capture braking energy and store it in batteries.
The Association of American Railroads also notes that the average tonnage of freight that a train can haul has been dramatically increasing, due in part to improvements in rail car design. In creased double-stacking of cargo containers has helped the average freight train hauled 3,606 tons of freight in 2014, which was up from just 2,222 tons in 1980.
The Window of Opportunity
While the window of opportunity may be closing for coal and oil, freight hauling of consumer goods offers plenty of opportunities for growth. Of the 71 million trailer loads that travel 550 miles or more, currently only 19-percent are moving by rail. Increased track capacity offers massive growth potential in regards to intermodal shipments.
The total amount of business that railroads could convert to rail from trucking is estimated to be as much as $100 billion.
Rising Intermodal Freight Volumes
Total intermodal shipments were up 2 percent over last year’s first quarter volumes, according to the Intermodal Association of North America, the industry trade association
representing the combined interests of the intermodal freight industry. This was despite port congestion issues that impacted international container traffic. Even stronger were domestic intermodal loads, which grew 4.5 percent, led by domestic containers, which rose 6.5 percent in a quarter-over-quarter comparison.
Corridors of Commerce
BNSF has three “Corridors of Commerce” — TransCon, Great Northern, and Mid Continent (MidCon) — that cover more than 11,000 miles of the nation’s rail network.
The TransCon, which includes the portion that runs from Los Angeles to Chicago, has 4,647 route miles running through 13 states. Much of the international freight that is heading east on TransCon comes in the Port of Long Beach in Long Beach, California, and the Port of Los Angeles in San Pedro, California.
In September, the Port of Long Beach announced its overall cargo volume had jumped 22.8-percent in August 2015, which broke an all-time record for cargo volume in its 104-year history.
The Port of Los Angeles, the number one port in the U.S., saw its imports rise 6.3-percent from a year ago to 407,804 TEUs. A twenty-foot equivalent unit (TEU) is a standard measure of a ship’s or shipping terminal’s cargo handling capacity.
Of benefit to BNSF and other railroads has been larger cargo ships that delivering higher container volumes per call.
Strong Environmental Benefits
With environmental concerns increasingly in the forefront, rail transport has another appeal, as moving freight by trains instead of by trucks lowers greenhouse gas emissions by 75 percent.
A conversion of 50-percent of truck transport to rail would save 8 billion gallons of fuel per year, and greenhouse gas emissions would be reduced approximately 90 million tons. The reduction is the equivalent of taking 18 million cars off the road. It also lowers damage to roadways, which costs billions a year in road repairs, and reduces highway congestion due to construction delays.
© 2015 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.