Category: BNSF

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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.

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The U.S. railroad consolidation that is slowly chugging down the track with Canadian Pacific’s $28 billion bid to acquire Norfolk Southern will be derailed if two senior Democratic senators have their way.

Peter DeFazio (D-Ore.), the House Transportation and Infrastructure Committee’s ranking member, and Mike Capuano (D-Mass.), the ranking member of the Railroads, Pipelines, and Hazardous Materials Subcommittee, have written a letter to the Surface Transportation Board (STB) asking for the STB to nix any railroad mergers on the ground that it would reduce competition.

In their view, a Canadian Pacific merger with Norfolk Southern would upset the balance of power that currently exists between the seven Class 1 railroads, and would likely lead to another round of consolidations.

If Canadian Pacific and Norfolk Souther tie-up, another possible merger would be BNSF Railway with CSX to create a second railroad that stretches coast-to-coast.

BNSF Railway chairman Matt Rose recently indicated that BNSF is interested in either Norfolk Southern or CSX depending on the outcome of Norfolk Southern’s status.

“I’ve had general conversations with both of them and told them that we’re going to watch this with interest,” Rose recently told Bloomberg News.

However, in their letter to the STB, DeFazio and Capuano stated that they “have significant concerns with CP’s proven track record of boosting profits at the expense of its workforce” and “further consolidation of an already healthy industry is unwarranted.”

It’s an opinion that Norfolk Southern anticipated thanks to Norfolk Southern’s white paper by former Surface Transportation Board commissioners Francis Mulvey and Charles Nottingham, which concluded that, “As simple background, rail carriers cannot assume control of another carrier without prior STB approval. The STB’s approval process can last between 19 and 22 months. Current STB regulations, adopted in 2001, set a high bar for approval of a proposed major merger and related voting trust based on an untested public interest standard. In our expert opinions, the STB is not likely to approve CP’s proposed voting trust or the CP+NS merger.”

Now, as Congress starts to weigh in, it looks all the more doubtful that truly national railroads are in the offing.

© 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.

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The new climate change agreement signed in Paris may mark the long term death of coal as a primary energy source, but in the short term, coal shipments have stayed surprisingly strong.

BNSF Railway, which is one of the nation’s largest coal shippers, has seen its year-to-date coal shipping actually rise not drop.

The rise is surprising, as coal plants have been closing, as the need to meet costly tougher emissions standards makes them uncompetitive, especially with a flood of cheap natural gas, and the ever dropping price of solar and wind generation.

Millions of Car Loads

BNSF’s total car loads of coal through December 12, 2015, were at 2,127,879, as compared to 2,177,183 car loads for the same period in 2014. The 2015 number represents a solid 2.3% increase over 2014.

There’s no doubt that as more coal fired generating plants close around the world, coal will become a fuel of the past, but for now, it’s still a key part of BNSF’s freight hauling revenues, and there’s no lump of coal in BNSF’s Christmas stocking.

© 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.

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The fate of BNSF Railway’s proposed near-dock intermodal rail facility, known as the Southern California International Gateway Project (SCIG), is hanging in the balance until a California judge rules on civil rights and environmental issues.

The Natural Resources Defense Council filed a lawsuit in June in Los Angeles Superior Court on behalf of Harbor residents living near the proposed development that would be built on Port of Los Angeles property.

The Plaintiffs contend the proposed Southern California International Gateway rail yard project violates the California Environmental Quality Act and the state and federal Civil Rights Acts.

Specifically, they assert that the facility will increase cancer rates, chances of children developing asthma, and add to chronic air pollution plaguing the region.

Last week, Contra Costa County Superior Court Judge Barry Goode heard arguments and set Jan. 28, 2016 as the date to hear additional arguments involving CEQA’s fair-hearing provision.

He is expected to rule by February whether the project can move forward.

Gateway to the Nation

Some 40-percent of imported goods sold across the country are shipped through the ports of Los Angeles and Long Beach.

The intermodal rail facility would be near the ports of Los Angeles and Long Beach. The Ports are located approximately 25 miles south of downtown Los Angeles. The port complex is composed of approximately 80 miles of waterfront and 7,500 acres of land and water, with approximately 500 commercial berths. The Ports include: automobile, container, omni, lumber, and cruise ship terminals; liquid and dry bulk terminals; and extensive transportation infrastructure for cargo movement by truck and rail.

Environmental Hazard or Asset?

While environmental groups, the City of Long Beach, and the local school district decry the project, BNSF claims the project will actually bring environmental benefits, as it will be cleaning up an existing truck yard and investing over $100 million in green technology.

The Port of LA’s draft environmental review found that SCIG will have a positive impact on traffic, both locally and regionally, by eliminating millions of truck trips from the 710, reducing congestion near the ports and along the 710 corridor.

NRDC attorneys and scientists have suggested several solutions to reduce the anticipated pollution associated with the project:

1.) Utilization of cleaner Tier 3 and Tier 4 locomotives instead of older, more polluting locomotives;

2.) Expand on-dock rail to eliminate the need for thousands of additional short-haul truck trips;

3.) Use zero-emission container movement systems.

Whatever the case, it won’t be resolved until Judge Goode’s ruling, and even that may be just the first round of a protracted legal battle.

© 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.

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While low crude oil prices reduce demand for BNSF Railway’s mobile oil pipeline business that hauls crude from the Bakken formation to west coast refineries, corresponding low fuel prices have had a positive impact on the railroad’s earnings.

BNSF had a boost in third-quarter earnings from $1.04 billion in 2014 to $1.16 billion in third-quarter 2015.

Big Agricultural Boost

Crude oil shipments may be down, but BNSF has seen a 13.93 percent year-to-date boost in agricultural shipments as compared to 2014. The rise in grain shipments has offset the 9.03 percent year-to-date drop in petroleum shipments.

Combined U.S. rail grain shipments hit their highest levels in five years, and the number of days behind schedule has dropped dramatically.

At its low point in June of 2014, the average delay for grain shipping for BNSF was a whopping 32 days. It’s now running only three days behind.

The bottom line is that business is good. BNSF’s total year-to-date carload units, including intermodal units, are up just under one percent with a combined rise of 0.85%.

© 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.

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Speeds for BNSF Railway’s freight service moving through New Mexico will receive a boost thanks to a $21.3 million upgrade of 158-miles of track between Pierceville, Kansas, and Las Animas, New Mexico.

The upgrades are needed to provide speeds up to 79 miles-per-hour for Amtrak’s Southwest Chief service that runs daily between Chicago and Los Angeles. The Southwest Chief carried 352,000 passengers in fiscal year 2014.

Funding for the improvements come from a $12.5 million Transportation Investment Generating Economic Recovery grant, with an additional $9.3 million in state, local and private funds. BNSF is contributing $2 million of the private funds.

Passenger Service at Risk

Deteriorating track conditions had put Amtrak’s Southwest Chief in jeopardy, and the Colorado legislature in 2013 created the Southwest Chief Commission to negotiate with Kansas and New Mexico on saving the route.

Faster Passenger Service Means Faster Freight Too

Track improvements to speed up passenger service, and in some cases to save routes running on substandard track, brings significant benefits nation-wide to freight railroads such as BNSF.

The Southwest Chief’s route is not the only route being upgraded. High-Speed Intercity Passenger Rail funds currently being invested to bring higher speed passenger rail service in the Pacific Northwest will also bring benefits to BNSF’s freight hauling capacity.

Under the American Recovery and Reinvestment Act (ARRA), a 467-mile rail corridor between Eugene, Oregon and Vancouver, B.C., is being upgraded in order to bring improved passenger rail service for Amtrak’s Cascades service.

In the Pacific Northwest, the improvements include new bypass tracks to add capacity, upgrades to warning signal systems, safety-related improvements, and multiple upgrades to existing track. A new rail bridge will cross the Coweeman River near Kelso, Washington, and there will be upgrades to wayside signal systems components at all control points, sidings and turnouts between the U.S./Canada border and Vancouver, Washington.

© 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.

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The Obama Administration’s decision to reject the Keystone XL pipeline’s fourth phase will have a positive impact on BNSF Railway. BNSF, which since the oil boom in the Bakken Formation has become a mobile oil pipeline, is facing increased competition from a variety pipelines.

Keystone Was a Major Threat

Keystone XL, the fourth phase of the Keystone pipeline, would have moved crude oil from Alberta’s tar sands to refineries in Texas and Illinois, and most importantly in relation to BNSF, would have also carried about 100,000 barrels a day from the Bakken Formation in North Dakota and Montana.

Roughly twelve percent of Keystone XL’s capacity would have been used to carry Bakken crude through a lateral addition called the Bakken Marketlink.

While BNSF offers an advantage to crude of oil producers of being able to route shipments to different refineries depending on demand, it has about a $2 per barrel cost disadvantage versus pipeline transport.

Pipelines Keep Coming

BNSF will not be able to avoid pipeline competition forever, in fact, some of it has already started.

The Keystone XL’s Bakken Marketlink is not the only threat to BNSF’s mobile pipeline business. In August, Kinder Morgan’s 485-mile Double H pipeline began carrying crude from the Powder River Basin by way of a new connection in Douglas, Wyoming.

The Double H pipeline originates in the Bakken oil production areas near Dore, North Dakota and Sidney, Montana, and terminates near Guernsey, Wyoming. Double H interconnects with the Pony Express pipeline for further transportation to the Phillips 66 Refinery in Ponca City, Oklahoma, or the Deeprock Terminal in Cushing, Oklahoma.

The Double H pipeline has a capacity of 99,000 barrels per day and is expandable.

Kinder Morgan acquired the pipeline from Hiland Partners in January 2015.

© 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.

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For the past three years, BNSF Railway has been pilloried by grain producers for its extended shipping delays. The good news is that those delays are mostly behind them these days and grain shipments are running on time.

Back in June of 2014, the average delay for grain shipping was a whopping 32 days. In October 2014, the delay was running a solid two weeks. However, with some reduction in the number of oil trains running from the Bakken Formation, and improved track and signaling on the Great Northern Corridor, the shipments are now averaging only three days behind schedule.

As of October 17, 2015, BNSF’s grain shipments system-wide are up 22.69% for the 4th quarter to date, and are up 13.51% for the year to date; both over 2014 figures. Conversely, Petroleum shipments are down 7.97% for the year to date, as compared to 2014.

The improvements have grain producers and BNSF officials in a much happier mood.

“We have substantially better Ag shuttle turns per month as compared to last year,” a BNSF official said in May. “Last year we were below 2 turns per month, and now we are over 2.5 turns per month.”

2014’s Winter of Discontent

Back in the winter of 2014, grain shipments were running weeks late with the shipping time from the Midwest grain belt to the Pacific Northwest running a whopping 22 days. The delays added substantial costs to grain producers, as they paid ocean-going freighters some $30,000-$50,000 per day to sit in port waiting for the delayed grain.

Huge Rise in Traffic

With the boom in crude oil transport by rail, BNSF has seen a 69% increase since 2009 in traffic going out of the region, and the traffic running into the region has also increased by 31% over the same time period.

Key Improvements on the Great Northern Corridor

The Great Northern Corridor, which links Chicago with the Pacific Northwest, moves grain for export from the Midwest to ports in Washington and Oregon. BNSF has been working to increase the number of sidings and improve existing sidings, as most of the Corridor is single track, so the sidings are necessary to allow trains to pass each other. In total, BNSF has added 72 miles of double track in the Corridor, nine new sidings, and 9 siding extensions. The railroad also made improvements to its centralized traffic control (CTC) signaling.

Since 2013, BNSF has spent $1 billion on improvements in North Dakota alone.

© 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.

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When someone needs to move 33 million pounds all at one time, it’s nice to know they can call on BNSF. In this case, the someone was U.S. Silica Holdings, Inc., which needed to move a 16,500 ton (33 million pounds) load of U.S. Silica White® frac sand 1,272 miles from Ottawa, Illinois to Loving, New Mexico.

BNSF Railway’s recent a 150-car frac sand train, which made a delivery to Rangeland Energy’s RIO Hub, highlights the growth in locomotive power over the past two decades.

The load, which was delivered October 2, 2015, was one of the heaviest unit frac sand trains ever run in North America.

Demand for sand has boomed in recent years as hydraulic fracking needs thousands of tons of sand per well. The sand used is “frac sand,” a high-purity quartz sand with very durable round grains.

The RIO Hub is a 300-acre rail facility located near Loving, New Mexico, in the center of the Delaware Basin’s drilling and production activity. The terminal provides services for outbound crude oil and condensate and inbound frac sand as part of Rangeland’s RIO System, which serves oil and gas producers in the Delaware Basin in West Texas.

“Despite the current pricing environment, the Delaware Basin remains an economic play, and producers operating in the region continue to require increasingly large volumes of frac sand to drill and complete their wells,” notes Rangeland Executive Vice President and Chief Operating Officer Steve Broker. “Our goal is to serve the needs of our customers, and we are pleased to have the capacity and flexibility to receive this record-breaking unit train at RIO. Rangeland was able to accommodate the unit train’s arrival and unload it in a timely manner because we designed the RIO Hub to have the size and scale to meet the sand or oil market’s requirements in a way that increases efficiencies and reduces costs. We expect sand volumes to continue to increase as operators drill longer wells and complete larger fracs. We are well positioned to meet those needs at the RIO Hub.”

Increased Locomotive Power

The Association of American Railroads notes that the average tonnage of freight that a train can haul has been dramatically increasing, due in part to improvements in locomotive power and rail car design. One of the keys is the efficiency of modern hybrid diesel-electric locomotives that capture braking energy and store it in batteries. The average freight train hauled 3,606 tons of freight in 2014, which was up from just 2,222 tons in 1980.

© 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.