(BRK.A), (BRK.B)
In 2014, BNSF Railway made a record $5 billion in capital expenditures, coupled with another $500 million in other network expansion initiatives. The massive $5.5 billion in spending was part of an effort to keep up with record demand coming from all sectors, including from oil producers in the Bakken formation, utilities demanding coal deliveries, grain producers, and a wide-range of intermodal shippers.
The record shipping demand generated a tsunami of complaints about delays, and left BNSF facing questions from both government regulators and customers. In March of 2014 the backlog for grain shipments alone hit 8,000 cars, before being trimmed to 1,000 cars by October.
Among the regulators concerned with the impact of delays, the U.S. Surface Transportation Board (STB) instructed BNSF to provide a detailed description of its contingency plans to prevent potential coal shortages for electric utility shippers.
The $5 billion in single-year capital expenditures represented record spending not only for BNSF, but according to the company, for any railroad ever. And, in order to continue to tackle its demand issues and delay backlogs, BNSF will again set a record in 2015 with an announced capital plan that totals $6 billion of investment in everything from rails, ties and ballast, to a slew of new locomotives.
Roughly $500 million of the record capital expenditure will be spent in the North Dakota region, with 55 miles of new double track running between Minot, North Dakota, and Glasgow, Montana, to be a top priority.
2014 Progress
In a letter to customers, BNSF’s Group Vice President, Consumer Products, Katie Farmer, laid out the impact of some of the 2014 expenditures.
“Projects in 2014 which positively impacted service while providing additional capacity for our intermodal network include: completion of the Tower 55 project. Located near downtown Fort Worth, Texas, Tower 55 is one of the busiest and most congested railroad intersections in the U.S. As many as 100 freight and passenger trains move through the area every day. With the completion of this project, network fluidity has benefitted traffic moving through this key area.
We have kicked off double track, line-capacity expansion projects to address the remaining Transcon bottlenecks. In all, we have invested more than 3 billion dollars over the last 10 years double tracking nearly all of this route and making this the fastest intermodal route connecting Southern California to the Midwest. When complete in 2015, nearly all of the Transcon will be double tracked and even triple tracked in some areas. In addition, we have completed several terminal expansions in the Chicago area and added 800 new container and trailer parking spots at three Chicago hub facilities. We also expanded our Houston Intermodal Hub facility in Pearland, TX to allow us to handle growing business in and out of this market.
In our Auto network, we moved into our new Big Lift automotive facility, serving Denver and the state of Colorado. This 57-acre facility has more than three times the acreage of our previous facility and offers more capacity and greater highway access. We also increased track capacity for loading operations at our San Diego, Albuquerque and Pearland Hubs and we increased automotive parking capacity at our Portland, Logistics Park Chicago (LPC) and Albuquerque facilities.
We were able to double our auto facility capacity in Kansas City, as a result of transition of all intermodal business to Logistics Park Kansas (LPKC), which opened in late 2013. LPKC is another example of our growth initiatives with current capacity of 550,000 annual lifts and future growth capacity that can scale to 1.5 million lifts. The more than 440 acres of developable property at LPKC offers opportunities for current and future customers to grow.
BNSF Railway, in joint service with Ferromex (FXE), initiated a new 6th morning intermodal service between Chicago, Illinois and Silao, Guanajuato, Mexico. The new service offering is the first and only direct Intermodal service to connect the Midwest to the Heart of the Bajio Region.”
2015 Capital Expenditure Plans
In a separate release on November 20, 2014, BNSF detailed its priorities for 2015:
“The largest component of the 2015 capital plan will be for the renewal of assets and maintenance, which is expected to cost $2.9 billion. These projects will go toward replacing and upgrading rails, ties and ballast that are due for updating. Track replacement projects typically make up the largest percentage of BNSF’s annual capital projects and are important for ensuring BNSF can optimize its rail network for ideal speeds for trains that carry a wide range of commodities.
BNSF also plans to spend almost $1.5 billion on expansion projects. Nearly $500 million of that expansion work will occur in the Northern Region, which is where BNSF is experiencing the fastest growth. That region primarily serves agriculture, coal, crude oil and materials related crude oil exploration and production.
BNSF will also increase the size of its locomotive fleet through the addition of new, energy and fuel efficient locomotives. BNSF will acquire 330 new locomotives to add to its fleet of 7,500 and replace others that will soon reach the end of their useful life.”
Carl Ice, BNSF’s president and chief executive officer, framed the capital expenditures as a vote for the continued strong growth of the U.S. economy.
“BNSF’s capital investment program since the beginning of 2013 through the end of 2015 is unprecedented and is clear evidence of our confidence in a growing economy and our intention to meet the demand for service that comes from all our customers,” Ice said.
Upping the Ante
In 2009, Warren Buffett described the acquisition of BNSF as “an all-in wager on the economic future of the United States.” Clearly, Berkshire Hathaway and BNSF continue to make that wager year after 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.