Category: BNSF

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BNSF

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

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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.

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BNSF

BNSF Grain Shipments Improve from 2014 Levels

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With Bakken crude oil shipments putting carload pressures on BNSF the past few years, grain producers were left griping about shipping delays and premium per car prices.

“We had a lot of grain on the ground about 18 months ago,” Tom Tunnell, the president and CEO of the Kansas Grain and Feed Association, noted in Midwest Producer. “The cost to get rail cars was extremely high, way above normal. The premiums were in the thousands of dollars per car range, but all that’s gone away. We’re back down into a more normal range.”

A 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 freight ships between $30,000-$50,000 per day to sit in port waiting for the delayed grain.

So far for 2015 BNSF grain shipments are up a solid 10.7% year-to-date over the same period in 2014. Shipments increased from 219,747 carloads in 2014 to 243,268 carloads in 2015.

“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.”

The increase comes despite crude oil shipments only having minor 1.41% decrease in carloads. Despite the collapse in worldwide oil prices, oil train shipping still moved 245,356 tank cars of petroleum, as compared to 248,868 tank cars for the same period in 2014.

Adding Capacity

BNSF is working hard to eliminate grain shipping bottlenecks, including adding 900 new cover-hopper grain cars as part of the 7,800 rail cars it is purchasing in 2015. BNSF’s $6 billion in capital improvements in 2015 is a record for any railroad, and also includes 300 new locomotives.

The most critical time for grain shipments is August through October, and hopefully BNSF will be ready to meet the demand with increased capacity and fewer 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.

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BNSF UTLX

New DOT Standards Push Up Tank Car Prices

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With a backlog of tank car orders at a record 52,000 units through March 31, 2015, prices for tanks that meet the new DOT 117/TC-117 standards could rise over 23-percent.

Tank car prices are expected to increase from $130,000 to $160,000.

Benefiting from the demand will be Berkshire Hathaway’s UTLX, which is a subsidiary of Berkshire’s Marmon Group, as well as other tank car makers, including Trinity Industries Inc. and Greenbrier Co.

UTLX builds tank cars at its Sheldon manufacturing plant in Houston, Texas, and at its UTLX manufacturing plant in Alexandria, Louisiana.

Communities Demand Safety

In July of 2014, in Lynchburg, Virginia, a derailment of 16 oil tanker cars caught America’s attention, as the fiery tank cars spilled into the James River. In the wake of this and several other high profile accidents, communities along oil train routes all over the country are demanding safer oil trains.

The good news is progress is being made, and according to BNSF internal data through December 31, 2014, as crude oil and ethanol shipments have increased, the number of derailments have decreased by 78% from 2011-2014.

As a common carrier, BNSF can’t refuse to carry petroleum, and the new tank cars will reduce the risk of carrying highly flammable cargo.

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.

Replacing the Entire Fleet

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.

William A. Furman, Chairman and CEO, Greenbrier Co. said in a statement in May, “Railroads are the safest way to haul large volumes of freight long distances in America, but when it comes to oil, ethanol and other hazardous liquids, more robust tank cars are needed to ensure the safety of our communities. The health, property and general well-being of our citizens shouldn’t be at risk in the event of an accident and the design for the newly designated DOT-117/TC-117 tank car will help substantially mitigate risk.”

The prescribed car has a 9/16 inch tank shell, 11 gauge jacket, 1/2 inch full-height head shield, thermal protection, and improved pressure relief valves and bottom outlet valves.

A Big Market

While older DOT-111 tank cars, which first debuted in 1964, can be temporarily refurbished to bring them up to the new standards, they must be replaced by 2018. This puts the total market for the new DOT 117/TC-117 tank cars at around 160,000 units.

UTLX will certainly be busy the next few years.

© 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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BNSF

BNSF Railway Unites With Oil Refineries in Washington State for Accident Response Mutual Aid Pact

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BNSF Railway and Washington State-based oil refineries have inked a Mutual Aid Agreement to respond to accidents. The agreement between BNSF and the Western States Petroleum Association (WSPA), which includes Phillips 66, BP Cherry Point, Shell Oil Products US, Tesoro Companies, and U.S. Oil Refining Company, covers both rail accidents and refinery accidents.

“We are extremely pleased to enter into this agreement to further advance rail safety. Working hand-in-hand with community first responders and emergency managers has long been ingrained in the BNSF culture,” said John Lovenburg, BNSF’s vice president, Environmental. “This agreement is an extension of our long-standing practice to provide aid to communities no matter if an incident involves rail or not. Nothing is more important than safely operating through the communities we serve and we are absolutely committed to ensuring local first responders have access to training, information and access to BNSF’s safety experts and response equipment.”

Pressure Builds for Safer Oil Trains

Growing pressure over railroad oil train accidents has BNSF taking a number of measures to increase safety. The measures include lower speeds in high-population density areas, new tank car safety standards that include increasing the thickness of tank car walls, and increased training for emergency responders along BNSF routes.

© 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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BNSF

Missouri Basin Power Project Settles Dispute with BNSF

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A decade long dispute between the Missouri Basin Power Project and BNSF Railway over coal transportation rates has finally been settled. The dispute predated Berkshire’s Hathaway’s ownership of BNSF.

The lawsuit was originally filed in 2004 by coal suppliers Basin Electric and Western Fuels Association Inc., complaining that BNSF (at that time still known as Burlington Northern Santa Fe) had doubled the shipping rates for coal transported to the Laramie River Station located near Wheatland, Wyoming.

BNSF hauls 8 million tons of coal each year from mines in Wyoming’s Powder River Basin.

The members of the Missouri Basin Power Project are Basin Electric, Lincoln Electric System, Tri-State Generation & Transmission Association Inc., Western Minnesota Municipal Power Agency, Heartland Consumers Power District, and the Wyoming Municipal Power Agency.

In 2009, the Surface Transportation Board (STB) concluded that BNSF’s coal transportation rates were “unlawfully high” at roughly six times the cost of providing the transportation. The STB ordered $345 million in reparations and rate reductions from the railroad. Under the ruling, BNSF was obligated to reimburse the Utilities for roughly $100 million in overcharges from 2004 through 2008 based on the volume of coal transported from the various PRB mines between 2004 and 2008.

The award was the single largest award to a captive shipper (a shipper with no alternative carrier) ever made by the STB.

The STB noted that “customers have been bearing the burden of these unreasonably high transportation rates in their monthly electric bills, a burden they should no longer be forced to bear.” The award was the single largest award to a captive shipper (a shipper with no alternative carrier) ever made by the STB.

BNSF appealed the ruling, spending the next six years in the appeals process, and the negotiated settlement came as a result of the STB’s order for both parties to “confer and resolve the precise amount of damages due the Utilities.”

The exact terms of the settlement between BNSF and the Missouri Basin Power Project have not been released, but BNSF spokeswoman Roxanne Butler said that “both parties are satisfied with the outcome.”

© 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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BNSF

BNSF Nixes Building 5,000 Tank Cars

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Just 14 months after announcing ambitious plans to build 5,000 Next Generation tank cars, BNSF Railway has dropped its plan to both build and lease tank cars. The plan for the railroad to build tank cars was unusual, as tank cars are usually owned either by leasing companies, or directly by the crude oil or chemicals suppliers.

The move comes just as the U.S. Department of Transportation (DOT) released its new tank car rule. Among the things the new rule will do is require “a new, enhanced tank car standard and an aggressive, risk-based retrofitting schedule for older tank cars carrying crude oil and ethanol.”

Increased Safety Standards for Tank Cars New and Old

“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 prescribed car has a 9/16 inch tank shell, 11 gauge jacket, 1/2 inch full-height head shield, thermal protection, and improved pressure relief valves and bottom outlet valves. Existing tank cars must be retrofitted with the same key components based on a prescriptive, risk-based retrofit schedule. As a result of the aggressive, risk-based approach, the final rule 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.”

Why the Change of Heart for BNSF?

BNSF cited customer concerns as its primary reason for dropping its move into the leasing business.

“BNSF owning or leasing tank cars was not viewed as useful,” the railroad detailed in a letter to customers.

But Not So Quick

BNSF may have dropped its plan to build tank cars, but that doesn’t mean Berkshire Hathaway will not be in the tank car business. Berkshire already builds and leases tank cars through its UTLX Union Tank Car, a subsidiary of Berkshire’s Marmon Group, and the new rule will bring lots of new business for UTLX, as the company not only builds 6,000 new tank cars per year, but retrofits thousands of old ones as well.

© 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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Warren Buffett’s Scolding of BNSF Brings Results

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“Praise by name and criticize by category,” Warren Buffett is famed for saying, and it was the rare exception when Buffett called out BNSF Railway for its delivery delays over the past year.

“BNSF disappointed many of its customers,” Buffett wrote in his annual letter to shareholders.

BNSF didn’t just disappoint customers, in some cases it lost them to rivals such as Union Pacific, as record crop numbers put the agricultural needs of Midwest farmers on a collision course with crude producers in the Bakken formation.

It’s no small matter, as last year BNSF moved nearly 1 million carloads of grain and other agricultural products.

With the latest over all year-to-date carload numbers showing a very positive 4.39-percent increase, BNSF has clearly taken Buffett’s marching orders seriously. The railroad’s $5.5 billion in infrastructure investments that it made in 2014 has started to pay off. The improvements included $400 million of track improvements in North Dakota alone.

Improvements By the Numbers

It’s in the grain carloads where there is particularly good news. Year-to-date carloads rose 14.8-percent to 191,060 from 166,425 in the 2nd quarter of 2014.

Last week, the news continues to improve, and there were only 144 outstanding grain carloads from May 9-12 in North Dakota versus 7,200 outstanding grain cars during the same period last year.

“We have substantially better AG shuttle turns per month as compared to last year,” a BNSF official told me at the Berkshire Hathaway annual meeting. “Last year we were below 2 turns per month, and now we are over 2.5 turns per month.”

BNSF is continuing to improve its operations, committing a record $6 billion to its Capital Plan for 2015. The amount is the most ever spent by a railroad in a given year.

© 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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BNSF Charlie Munger Dairy Queen Marmon Group Nebraska Furniture Mart

5 Things You Probably Didn’t Hear at the Berkshire Hathaway Annual Meeting, Even if You Were There

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Here are five things gleaned from the Berkshire Hathaway Annual meeting in Omaha, Nebraska, that you might not have learned, even if you were there.

1. That new DOT tank car standards will lower tank car capacity from 31,800 gallons to 30,300 gallons, but BNSF can maintain capacity by adding three extra cars per train.

2. That Berkshire’s HomeServices Lending is now originating $250 million in mortgages a month.

3. That Nebraska Furniture Mart currently has no plans to follow-up its new mega-store in The Colony, Texas; with new stores in other markets.

4. That Dairy Queen’s overseas growth is bypassing Western Europe to focus on Eastern Europe and other emerging markets.

5. That even with new federal tank car standards coming, Union Tank Car is not making the manufacture of new oil tank cars its biggest priority, because they recognize that new pipelines will get built.

And One Thing You Probably Did Hear

“If other people weren’t so often wrong, we wouldn’t be so rich!”—Charlie Munger.

© 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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BNSF

BNSF Adds Ethanol Trains to Parade of Oil Trains

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BNSF Railway’s oil trains have been in the news almost every day these past few years, as they move oil from the Bakken formation to refineries both east and west. Now, BNSF is adding ethanol trains to the mix.

Aventine Renewable Energy Inc., a leading producer, marketer and supplier of ethanol, has started using BNSF’s100-car unit trains to ship ethanol to its facilities.

Dedicated unit trains move single-bulk commodities such as coal, grain, minerals, liquids, special project cargo and oversized commodities non-stop between a single origin and destination.

Aventine announced its first BNSF unit-train shipment of ethanol produced at its two ethanol facilities in Aurora, Nebraska, pulled out of Aurora on April 19, heading to Birmingham, Alabama. The ethanol will be blended in gasoline to enhance octane, and will also help reduce America’s dependence on foreign oil.

“It’s a major milestone in executing unit trains out of Aurora, eliminating obsolete single-car switching and moving Aventine assets into the highly efficient unit-train supply chain mode,” said Mark Beemer, Aventine’s president and CEO.

“Through a solid partnership with the BNSF, Aventine now has direct access from the BNSF mainline to our inner-loop unit-train track, using a newly installed mainline switch, track and a rail crossover built on Aventine’s land,” Beemer stated. “With our ability to produce 155-million gallons of ethanol, additional economics will be driven by quicker and more efficient moves of ethanol trains into large unit-train consumptive end markets.”

Two years ago, Beemer and the Aventine management team devised a strategic plan to logistically derisk the facility from adverse local conditions. Tactics deployed beyond the rail upgrades include installing four new truck scales, two new grain-grading labs and additional corn storage.

With unit-train capacity, Beemer noted, “Aventine is excited about opening new 100-car unit train markets.” In addition to Birmingham these include Watson, California; Chicago and East St. Louis, Illinois; and Dallas, Houston, Deer Park, Fort Worth, Beaumont and Texas City, Texas.

In Aurora Aventine operates the Aurora West 110-million-gallon Delta T facility and the Nebraska Energy LLC Vogelbusch 45-million-gallon dry mill plant. “By restarting both plants and making $20 million in efficiency upgrades, Aventine has been able to create local jobs in Aurora and contribute to the Nebraska economy while also providing local Aurora farmers with higher values for their corn and supplying local cattle feeders with competitively priced dried and wet distillers grain,” Beemer added. The company has hired 83 employees to date for an annualized payroll of $5.4 million.

In Pekin, Illinois, the company’s headquarters, Aventine operates two plants: a 60-million-gallon dry mill and a 100-million-gallon wet mill.

For more on BNSF, read a Special Report on BNSF’s little-known passenger service.

© 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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BNSF Special Report

Special Report: Passenger Service Little Known Part of BNSF

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With the founding of Amtrak in 1971, most people have assumed that the major class 1 railroads, which include Berkshire Hathaway’s wholly-owned BNSF, got out of the passenger rail business.

The exodus was logical, as post WWII passenger service had become a tremendous money drain with the advent of jet air travel and the building of the interstate highway system. That one-two punch sent ridership plunging.

But Not So Fast

While it is true that long distance passenger rail service is now the purview of Amtrak, BNSF still moves over 27 million passengers a year in regional passenger rail service that includes Chicago, Seattle, and Minneapolis. Chicago alone has more than 25 million passengers annually served by 106 BNSF trains.

BNSF’s role in each region is different. For example, in Minneapolis, BNSF provides the locomotives, and the Metropolitan Council, the regional governmental agency, owns the rolling stock and provides train crews.

In Chicago, BNSF operates the trains and leases the equipment under a purchase of service agreement to METRA, the commuter rail division of the Regional Transportation Authority of the Chicago metropolitan area.

In Seattle, Sounder commuter rail is operated by BNSF on behalf of Sound Transit.

In all these cities, commuter rail helps reduce congestion on local highways. A single bi-level commuter rail car can carry as many passengers as 120 automobiles, and a train produces less emissions than an equivalent number of automobiles.

Ensuring a Profitable Business Model

What all the commuter lines have in common is they are all profitable for BNSF. Commuter rail is still just a small part of BNSF’s overall business, but BNSF has laid out a list of Commuter Rail Principles that keep it profitably in the commuter rail business:

• Any commuter operation cannot degrade BNSF’s freight service, or negatively affect BNSF’s freight customers or BNSF’s ability to provide them with service.

• BNSF must be compensated for any and all costs incurred in providing commuter service and must make a reasonable return for providing the service.

• Capital investments necessary for commuter service are the responsibility of the public, including investments for future capacity.

• BNSF will not incur any liability for commuter operations that it would not have but for those operations. These operations are provided by BNSF primarily as a public service.

• Studies of how commuter service might be provided must take into account not only the current freight traffic levels, but also projected freight traffic growth.

•Investments made for commuter projects must not result in BNSF incurring a higher tax burden.

• BNSF must retain operating control of rail facilities used for commuter service. All dispatching, maintenance and construction must be done under the control of BNSF.

• Studies must reflect BNSF’s actual operating conditions and cost structures.

• BNSF will limit commuter operations to the commuter schedules initially agreed upon. Future expansions will have to undergo the same analysis and provide any required capital improvements.

•Improvements must include grade-crossing protection and intertrack fencing as required to minimize the risk of accidents.

Commuter rail is not BNSF’s only connection to passenger service. In addition to the passenger service provided directly by BNSF, some 64 Amtrak trains operate daily on over 6,500 miles of BNSF host track.

© 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.