Category: BNSF

Categories
BNSF

BNSF Solves Grain Issues

(BRK.A), (BRK.B)

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.

Categories
BNSF

BNSF’S 150-Car Sand Train Highlights Growth in Locomotive Power

(BRK.A), (BRK.B)

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.

Categories
BNSF Special Report

Special Report: Improvements to LA to Chicago Transcon Corridor Key to BNSF’s Future

(BRK.A), (BRK.B)

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.

Categories
BNSF Marmon Group Special Report UTLX

Special Report: Oil Volatility and the NTSB

(BRK.A), (BRK.B)

Shipments of Bakken Formation crude oil have brought billions in revenues to BNSF Railway, and new opportunities to Berkshire Hathaway’s tank car manufacturer UTLX. It has also put Berkshire and BNSF in the middle of disputes over the safety of these shipments and the source of various hazards.

On one side are environmentalists and communities along rail lines that have cited volatility concerns as to the flash point of Bakken Formation crude oil, claiming it is a special hazard as compared to the transportation of other crude oils. On the other side is the AFPM, a trade association representing 400 refining and petrochemical companies, which is suing over BNSF Railway’s $1,000 per tank car surcharge in a battle to keep costs low in producing crude oil from the Bakken Formation.

BNSF’s surcharge is designed to incentivize shippers to move to tank cars that meet new Department of Transportation standards. Technically, BNSF is not calling its $1,000 per tank car charge a surcharge, rather it says it has raised its rates and is discounting rates for shippers using new DOT 117/TC-117 tank cars. A court will decide whether that holds up and certainly key to that may be whether Bakken crude is more hazardous than other cargo.

The AFPM has disputed that Bakken crude oil is more hazardous a cargo than other crude oil, or other chemicals hauled by railroads. AFPM’s position is that the surcharge on tank cars ignores the root cause of derailments, which they assert is tied to poor track conditions and human error.

Will the Surcharge Stand Up?

In a letter to Transportation Secretary Anthony Foxx, AFPM stated that “Any effort to enhance rail safety must begin with addressing track integrity and human factors, which account for sixty percent of derailments. Investment in accident prevention would result in the greatest reduction in the risk of rail incidents.”

Now, the head of the National Transit Safety Board has weighed in on the issue.

NTSB’s Christopher Hart Dismisses Volatility Concerns

Concerns that the oil from the Bakken Formation are of higher volatility and create a greater risk in the case of accidents were downplayed in recent statements by the National Transportation and Safety Board (NTSB) chairman Christopher Hart.

Hart, in a radio appearance on radio station KFGO-AM in Fargo, North Dakota, stated that the NTSB’s accident investigations of rail accidents found that Bakken crude volatility isn’t a significant issue.

“The biggest contributor to a large explosion or fire is how much product is released, rather than the volatility of the product,” Hart said.

The Department of Transportation is working to reduce the amount of product of all types released in a rail accident by mandating new tank car standards that  require jacketed and thermally insulated shells of 9/16-inch steel, full-height half-inch-thick head shields, and re-closeable pressure relief valves and rollover protection for top fittings.

The Department of Energy Report

A U.S. Department of Energy (DOE) report in March 2015 looked at the volatility of light sweet crude from the Bakken Formation in comparison to other crude oils in the same category. The report was prepared by Sandia National Laboratories with the assistance of a technical team that included the University of North Dakota Energy & Environmental Research Center.

In its report, the DOE found no link between crude oil properties and the chance or severity of a fire caused by a derailment. Instead, the report found that the kinetic energy created by the derailment was a larger factor in the size of a fire than the volatility of the crude being transported, the researchers said.

Is Bakken Crude More Volatile?

As for the volatility of crude oil from the Bakken Formation, Turner, Mason & Company conducted a study in 2014 for the North Dakota Petroleum Council (NDPC) which found that Bakken crude “appears to be generally similar in vapor pressure and light ends content to most light crude oils, and there are certainly crudes, particularly those produced from tight oil formations, which are higher in those parameters.”

Congress Looks at Bakken Crude

The U.S. Congress took up the issue of the safety of transporting crude oil from the Bakken Formation last year.

In September 2014, the House Science, Space, and Technology Committee held an energy and oversight hearing with experts from the Pipeline and Hazardous Materials Safety Administration, the Department of Energy, ND Petroleum Council, Turner, Mason & Company, and the Syracuse Fire Department. The hearing examined the characteristics and behavior of crude oil from the Bakken region.

At the hearing, officials testified that the increased risk of an incident has to do with the increased volume of product being transported and not the volatility characteristics of Bakken crude.

BNSF’s Role as a Common Carrier

As a common carrier, BNSF Railway can’t refuse under most circumstances to carry cargo, despite the potential loss or damage presented by the cargo.

And, while BNSF’s growing role as a mobile crude oil pipeline has meant billions in new revenue, it also has presented new risks in regards to fire in the event of derailment, collision, or other accidents.

BNSF has responded by pushing for safer tank cars, and has boosted training for both its crews and emergency responders in communities along its routes.

New Tank Cars and Retrofitting Existing Fleets

Under Enhanced Standards for New and Existing Tank Cars for use in an HHFT—New tank cars constructed after October 1, 2015, are required to meet the new DOT Specification 117 design or performance criteria.

The standards will require replacing the entire fleet of DOT-111 tank cars for Packing Group I, which covers most crude shipped by rail, within three years and all non-jacketed CPC-1232s, in the same service, within approximately five years.
‘
An HHFT (high-hazard flammable trains) is defined as a train carrying 20 or more tank carloads of flammable liquids, including crude oil and ethanol.

The need for replacement and retrofitted tank cars impacts a wide-range of shippers that transport by rail. Those shippers include shippers of LPG, oil producers and refiners, and ethanol producers that own their own tank cars or lease them from leasing companies. It also impacts BNSF Railway’s own fleet of tank cars.

Retrofitting existing tank cars is an important bridge to safer shipping of flammable liquids, as the current backlog of new tank car orders sits at a record 52,000 units.

A Significant Portion of BNSF’s Revenue

One thing that’s not in dispute is how significant the transportation of volatile liquids is to BNSF. Petroleum, Ethanol and LPG make up roughly 7-percent of BNSF’s freight hauling. In 2014, BNSF moved enough petroleum to fill the gas tanks of 350 million vehicles.

Another thing that’s not in dispute is that the move for safer tank cars benefits Berkshire’s UTLX, a manufacturer and retrofitter of tank cars that has been hiring and opening new facilities due to the unprecedented demand.

Berkshire has also been expanding the number of tank cars that it owns.

Berkshire’s Marmon Holdings, Inc., the unit of Berkshire Hathaway that owns UTLX, acquired substantially all of GE Railcar Services’ owned fleet of railroad tank cars as of September 30, 2015. Roughly 25,000 full-service and net-leased tank cars are covered by the transaction.

Still One More Dispute in the Wings

With NTSB’s Christopher Hart dismissing the volatility issue of Bakken crude as an extraordinary hazard, BNSF’s dispute with the AFPM may mean it is now in a weaker position to justify its tank car surcharge, which is something that could potentially cost Berkshire and BNSF millions down the road.

© 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.

Categories
BNSF Commentary

Commentary: Accident Bad Timing for BNSF in Tribe’s Lawsuit

(BRK.A), (BRK.B)

Talk about bad timing, a BNSF 98-car ethanol train that derailed on September 19, in southeastern South Dakota, adds fuel to the fire for a key portion of the argument in a Native American tribe’s lawsuit against the railroad.

The Swinomish Indian Tribal Community in the state of Washington filed a lawsuit in April 2015 against BNSF alleging that the railroad had violated an Easement Agreement that allowed trains to cross a portion of the tribe’s land. The Easement Agreement enables BNSF to bring Bakken crude oil to the Tesoro refinery in Anacortes, Washington.

U.S. District Judge Robert Lasnik on Friday, September 11, 2015, ruled that BNSF’s request to have the lawsuit dismissed or stayed was denied. The ruling opened the way for the tribe to press its lawsuit, which expressed environmental concerns as a key part of its argument.

Under the terms of the 1991 Easement Agreement, BNSF is allowed to run one 25-car train per day in each direction. The tribe sued contending that BNSF was running as many as six 100-car “unit trains” per week.

A Deal is a Deal

“A deal is a deal,” said Swinomish Chairman Brian Cladoosby. “Our signatures were on the agreement with BNSF, so were theirs, and so was the United States. But despite all that, BNSF began running its Bakken oil trains across the Reservation without asking, and without even telling us. This was exactly what they did for decades starting in the 1800s.”

Under the terms of the Easement Agreement, the Tribe agreed not to “arbitrarily withhold permission” for BNSF’s request to increase the number of trains or cars, and the tribe’s environmental concerns are a key part of its argument that withholding approval would not be arbitrary.

Bridges Cross Fishing Grounds

The Tribe contends that its refusal to grant permission is not arbitrary and is “Based on the demonstrated hazards of shipping Bakken Crude by rail, paired with the proximity of the Right-of-Way to the Tribe’s critical economic and environmental resources and facilities — and the substantial numbers of people who use those resources and facilities on a daily basis — the Tribe is justifiably and gravely concerned with BNSF’s shipment of Bakken Crude across the Right-of-Way in a manner and in quantities at odds with the explicit terms of the Easement Agreement.”

The Swinomish, who call themselves “The People of the Salmon,” are concerned that trains carrying Bakken crude oil run over bridges spanning the Tribe’s fishing grounds in the Swinomish Channel and Padilla Bay. They also note that the track runs across the “heart of the Tribe’s economic development enterprises,” which includes the Tribe’s Swinomish Casino and Lodge, a Chevron station and convenience store, an RV Park, and the Tribal waste treatment plant.

The Tribe stated that these enterprises are the “primary financial source for funding of the Tribe’s essential governmental functions and programs.”

The 1991 Easement Agreement granted the Right-of-Way for an initial 40-year term, along with two 20-year option periods. The current agreement will expire no later than 2071.

The tribe is seeking a “permanent injunction prohibiting BNSF from (1) running more than one train of twenty-five cars or less in each direction over the Right-of-Way per day and (2) shipping Bakken Crude across the Reservation.”

The Swinomish are also seeking monetary damages for the prior trespasses and breach of contract in an amount to be determined at trial.

The South Dakota Accident

While the South Dakota accident was an ethanol train not an oil train, it was exactly the type of accident the Swinomish are concerned about. Seven tank cars derailed with three spilling their contents of ethanol, and one catching fire. The fire spread to a nearby pasture, which was put out by local firefighters, and BNSF hazardous materials teams aided in the clean up. NTSB investigators are currently interviewing the train’s engineer and conductor as they investigate the cause of the accident.

Fortunately, there were no deaths or injuries from the accident, which happened in a rural area that did not cross a body of water. However, the financial damages for BNSF may be far greater than three punctured tank cars if the Swinomish are able to show that their environmental concerns are grounded in reality, and that they have the proof to back it up.

© 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.

Categories
BNSF

Federal Judge Allows Tribe’s Lawsuit to Proceed Against BNSF

(BRK.A), (BRK.B)

BNSF Railway’s oil trains that service two refineries in the state of Washington could be in jeopardy now that a federal judge has upheld a Native American tribe’s right to sue the railroad for violating the terms of a Right-of-Way easement granted to allow the railroad to cross the reservation.

The Easement Agreement enables BNSF to bring Bakken crude oil to the Tesoro refinery in Anacortes, Washington by crossing a portion of the Swinomish Indian Reservation located on Fidalgo Island in Skagit County, Washington.

Under the terms of the 1991 Easement Agreement, BNSF is allowed to run one 25-car train per day in each direction. The tribe sued in April 2015 contending that BNSF was running as many as six 100-car “unit trains” per week.

U.S. District Judge Robert Lasnik on Friday, September 11, ruled that BNSF’s request to have the lawsuit dismissed or stayed was denied. The ruling opens the way for the tribe to press its lawsuit.

Contentious History of Rail

Train travel across the tribe’s land has a long contentious history, with the original track having been laid in the late 1800s without consent from the Swinomish or the U.S government. The tracks cross the northern edge of the reservation, and the Swinomish, as the present day political successor-in-interest to certain of the tribes and bands that signed the 1855 Treaty of Point Elliott, first sued the railroad in 1976, alleging a century of trespassing on tribal land. The resulting settlement led to the 1991 Easement Agreement that allowed only the 25-car train limit without the Tribe’s permission.

The Tribe contend in its lawsuit that “BNSF never notified the Tribe that it intended to exceed the limitation of one train of 25 cars or less, nor did it request permission from the Tribe before it began to do so.”

A Deal is a Deal

“A deal is a deal,” said Swinomish Chairman Brian Cladoosby. “Our signatures were on the agreement with BNSF, so were theirs, and so was the United States. But despite all that, BNSF began running its Bakken oil trains across the Reservation without asking, and without even telling us. This was exactly what they did for decades starting in the 1800s.”

“We told BNSF to stop, again and again,” said Cladoosby. “We also told BNSF: convince us why we should allow these oil trains to cross the Reservation. And we listened for two years, even while the trains kept rolling. But experiences across the country have now shown us all the dangers of Bakken Crude. It’s unacceptable for BNSF to put our people and our way of life at risk without regard to the agreement we established in good faith.”

Under the terms of the Easement Agreement, the Tribe agreed not to “arbitrarily withhold permission” for BNSF’s request to increase the number of trains or cars.

Arbitrary or Not?

The Tribe contends that its refusal to grant permission is not arbitrary and is “Based on the demonstrated hazards of shipping Bakken Crude by rail, paired with the proximity of the Right-of-Way to the Tribe’s critical economic and environmental resources and facilities — and the substantial numbers of people who use those resources and facilities on a daily basis — the Tribe is justifiably and gravely concerned with BNSF’s shipment of Bakken Crude across the Right-of-Way in a manner and in quantities at odds with the explicit terms of the Easement Agreement.”

The Swinomish are concerned that trains carrying Bakken crude oil run over bridges spanning the Tribe’s fishing grounds in the Swinomish Channel and Padilla Bay. They also noted that the track runs across the “heart of the Tribe’s economic development enterprises,” which includes the Tribe’s Swinomish Casino and Lodge, a Chevron station and convenience store, and an RV Park, as well as a Tribal waste treatment plant.

The Tribe noted that these enterprises are the “primary financial source for funding of the Tribe’s essential governmental functions and programs.”

The 1991 Easement Agreement granted the Right-of-Way for an initial 40-year term, along with two 20-year option periods. The current agreement will expire no later than 2071.

The tribe is seeking a “permanent injunction prohibiting BNSF from (1) running more than one train of twenty-five cars or less in each direction over the Right-of-Way per day and (2) shipping Bakken Crude across the Reservation.”

The Swinomish are also seeking monetary damages for the prior trespasses and breach of contract in an amount to be determined at trial.

© 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.

Categories
BNSF

BNSF Battles Congress Over Positive Train Control

(BRK.A), (BRK.B)

BNSF Railway knows they can do the hard jobs, they can even do very hard jobs, but they are contending that a looming safety deadline can’t be met because they can’t do the impossible.

With the deadline for installing Positive Train Control (PTC) less than four months away, BNSF Railway and other Class 1 railroads are pressing the U.S. Congress to push back the December 31, 2015 deadline.

Warren Buffett has stated that the cost of installing Positive Train Control will run BNSF $200-$300 million a year.

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

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 laid out its case for pushing back the deadline.

“BNSF has invested over $1.5 billion in the testing, development, purchase, and installation of PTC components out of an estimated total exceeding $2 billion. PTC will be deployed on roughly half of our system; these lines host 80 percent of BNSF’s freight density. We expect to have a significant portion of the necessary PTC system implemented on the network by the current December 31, 2015, deadline, but after that date we still require ongoing installation and extensive testing, as discussed below.

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. Despite our strong commitment to this technology, BNSF has faced significant technical, regulatory and operational obstacles to meeting the PTC implementation deadline imposed by the RSIA and will not meet the RSIA deadline for deployment. As a result, BNSF believes that Congress must move the PTC deadline in order to achieve successful PTC implementation and to avoid potential significant and unnecessary congestion and shipper service impacts.”

The Threat of Suspending Service

BNSF also laid out the consequences of not pushing back the deadline.

“BNSF has serious questions whether it should operate on subdivisions that have not been equipped with PTC in knowing violation of the federal law that mandated PTC as of January 1, 2016. Enormous congestion could result from efforts to re-route traffic that moves on the PTC lines, which are maintained to handle the most density, to lines on which PTC is not required. These are generally low-density territories where we do not have crews and maintenance resources positioned for those volumes. We have analyzed what train operations could continue if operations are halted on mandated subdivisions without PTC installed and believe that operations across our entire network will likely be compromised by congestion and effectively shut down. BNSF would do whatever is reasonably possible to mitigate this impact, but the consequences for the economy and for our company would be substantial.

Furthermore, if we knowingly operate in violation of the law on mandated portions of the network without PTC and FRA engaged in enforcement against BNSF, it’s unclear what kind of operational choices, and related network impacts, BNSF would face in order to minimize its exposure to enforcement and liability risk.

If Congress does not act to move the deadline and BNSF operations are out of compliance with the PTC statute and regulations, BNSF could be left with few acceptable options. You may be assured that we have, and will continue, to update Congress and our customers on whatever actions we believe we are compelled to take in that circumstance. We are developing potential communications to our customers and passenger rail tenants in the event that no extension is enacted by the end of October, as these stakeholders may need to make preparations or alternative plans well before the current December 31, 2015, deadline.”

The Coming of Positive Train Control

Over the last several years, the Federal Railroad Administration has been reviewing PTC plans from 41 railroads, covering both passenger and freight railroads. The FRA approved 24 plans without conditions. Additional plans were approved provisionally, and two were denied without prejudice.

The Rail Safety Improvement Act of 2008 (RSIA) mandated that Positive Train Control (PTC) be implemented by the Nation’s railroads by December 31, 2015. Railroads requiring PTC are the Class I railroad main lines, which are the rail lines that transport 5 million or more gross tons annually.

As detailed by the Federal Railroad Administration, “PTC refers to communication-based/processor-based train control technology that provides a system capable of reliably and functionally preventing train-to-train collisions, overspeed derailments, incursions into established work zone limits, and the movement of a train through a main line switch in the improper position. PTC systems are required, as applicable, to perform other additional specified functions. PTC systems vary widely in complexity and sophistication based on the level of automation and functionality they implement, the system architecture used, the wayside system upon which they are based (e.g., non-signaled, block signal, cab signal, etc.), and the degree of train control they are capable of assuming.”

BNSF’s approved PTC systems include ETMS (Electronic Train Management System), which is a GPS- and communications-based system.

(This article has been updated since it was first published.)

© 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.

Categories
BNSF

BNSF’s Crude Oil Shipments Stay Strong, Defy Predictions

(BRK.A), (BRK.B)

Despite dire predictions that falling oil prices would dry up oil drilling in the Bakken Formation, and drastically cut the number of 100-car oil trains hauled by BNSF, petroleum carloads are holding fairly steady.

Carloads of petroleum as of August 15, 2015 are 321,855 as compared to 339,981 for the same period of 2014. The change is only down 5.33% from last year.

The change in carloads has had minimal impact on BNSF, as carloads of coal and grain are both up, giving the railroad a total increase in carloads of 1.14% over this time last year.

Why the High Number of Carloads?

Carloads of crude oil have held strong because predictions that new wells in the Bakken Formation would be uneconomical below $60 a barrel have been way off base.

The marginal cost to produce a barrel of oil has dropped in recent years, and while the breakeven price varies county by county, with it being as high $77 in McLean County, North Dakota, the North Dakota Department of Mineral Resources notes that it is as low as $30 in McKenzie County, North Dakota, and only $29 a barrel in Dunn County, North Dakota.

You Can Cut Even That in Half

The volume also stays high because the cost to pump oil for existing wells is even cheaper. The Bakken Magazine notes that, “The price at which production from existing wells would be shut-in occurs when the oil prices drop to $15 per barrel.”

The per barrel price of oil from the Bakken Formation sells at a discount as compared to oil from some other areas due to additional shipping costs.

© 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.

Categories
Acquisitions BNSF

BNSFL Acquires Transportation Technology Services

(BRK.A), (BRK.B)




BNSF Railways, through its wholly owned BNSF Logistics (BNSFL), has acquired engineering and logistics company Transportation Technology Services (TTS). The move expands BNSFL’s capability in wind turbine shipping, which has been growing rapidly with the explosive growth of wind-generated power throughout the Midwest and Texas.

About TTS

Founded in 2001, TTS provides engineering design, distribution and wind and project cargo logistics services to railcar builders, manufacturers, shippers, railroads, and energy companies, among others.

TTS manages a fleet of more than 2,000 leased railcars and is responsible for over 9,000 dimensional shipments per year. 1,200 of the railcars are equipped with patented fixtures designed to handle wind turbine components including blades, tower sections and nacelles, TTS is a significant addition to the more than 9,700 rail shipments BNSF Logistics currently manages.

TTS will become the U.S. Rail, Project Cargo and Engineering Services division for BNSFL. The combined unit will have extensive capacity, hundreds of years of combined practical experience and strong relationships and credibility with the major players in Wind Energy, Power Generation, Oil & Gas, Heavy Machinery and the EPC and Manufacturing communities.

“TTS’s engineering and design capabilities, extensive wind fixtures, and rail transload locations coupled with their talent, and market expertise in industrial products are a perfect fit for our broader expansion into the industrial products sector that handles freight of all sizes. When combined with our existing multi-modal and transload capabilities, BNSFL becomes a leader in North America in multi-modal capacity and ability for the Industrial Products sector,” commented Ray Greer, BNSFL’s President. “The innovation and value we will be able to bring to our customers just increased significantly,” he added.

The company is based in Southlake, Texas, which is between Fort Worth and Dallas.

About BNSFL

BNSFL operates over 40 offices throughout North America, with over 120 FCPA certified Global Service Providers (GSPs) for import and export of general and project cargoes throughout the world.

© 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.

Categories
BNSF

New Vs. Old Oil Tank Cars, Surcharge or Discount?

(BRK.A), (BRK.B)



Union Pacific Corp has followed BNSF’s Railway in having a higher price for hauling older DOT-111 tank cars. Union Pacific is charging $1,200 per DOT-111 tank car, and BNSF began adding $1,000 per tank car in January.

BNSF’s price change brought an immediate lawsuit from the American Fuel & Petrochemical Manufacturers (AFPM), the trade group of the U.S.’s petroleum refiners.

Surcharge or Discount?

BNSF is disputing that they are adding a surcharge. They are calling the price change a new rate for older tank cars with a discount for tank cars that meet the new DOT-117 standards.

As common carriers, Union Pacific and BNSF can’t refuse to haul DOT-111 tank cars. The big question is whether they can have different rates for different tank cars.

Replacing the Entire Fleet

The pricing difference will go away in a few years as DOT-111s are phased out. Under the Enhanced Standards for New and Existing Tank Cars for use in an HHFT—New tank cars constructed after October 1, 2015, are required to meet the new DOT Specification 117 design or performance criteria. The standards will require replacing the entire fleet of DOT-111 tank cars for Packing Group I, which covers most crude shipped by rail, within three years and all non-jacketed CPC-1232s, in the same service, within approximately five years.

The total new DOT 117/TC-117 tank cars that will ultimately be hitting the rails will be around 160,000 units.

Millions of Dollars a Day

Currently, both Union Pacific and BNSF are collecting over $100,000 additional per oil train, and with the number of trains they run, it amounts to millions of dollars a day. The cost to the refiners is roughly an additional $1.20 per barrel of oil, and eventually a court will decide whether the railroads have to give it back.

© 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.