BNSF Sees Bakken-Area Rail Tie-Up Lasting Until Year-End

BNSF Railway Co., the carrier owned by Warren Buffett’s Berkshire Hathaway Inc., will need the rest of 2014 to untangle train tie-ups in the corridor that serves North Dakota’s Bakken shale region.

A system-wide traffic jam, caused by surging grain and crude-oil volumes coupled with harsh weather, is being resolved more quickly on the southern lines linking Chicago and Los Angeles, Chief Executive Officer Carl Ice said yesterday in an interview at the railroad’s headquarters in Fort Worth, Texas.

“Our southern region, we see that improving right now,” Ice said. “The central a little slower and the north taking through the year.”

Ice’s forecast underscored the scope of the recovery effort for U.S. railroads after winter storms and rising cargo shipments disrupted operations. BNSF sent 300 additional crew members to its northern region and plans to add 500 locomotives and 5,000 railcars this year to help ease the snarls, Ice said.

The Bakken shale formation is among the new crude-producing fields helping buoy U.S. oil output through advanced drilling techniques such as hydraulic fracturing, or fracking. North Dakota was among the U.S. Plains states swept by snow measured in feet and subzero temperatures that reduced the effectiveness of trains’ air brakes.

Slower Trains

Train speeds for Union Pacific Corp. (UNP), whose network is concentrated in the western U.S. like BNSF’s, fell 8.7 percent in the first four weeks of March from a year earlier, according to data compiled by Bloomberg. BNSF’s velocity dropped 16 percent in the same period.

According to a federal notice posted today, BNSF executives and their peers at Canadian Pacific Railway Ltd. were asked to participate in a U.S. Surface Transportation Board hearing on April 10 to discuss rail congestion and ways to improve service.

“The board has been closely monitoring the rail industry’s performance metrics, and is concerned about the service problems that have been occurring across significant portions of the nation’s rail network,” the STB said.

Part of BNSF’s $5 billion in capital spending this year will go to build infrastructure to ease congestion in the northern region, which is slowly improving, Ice said. At the same time, that construction can delay trains just as highway improvements can slow auto traffic, he said.

Upgrades Coming

The rebound for the northern region “will be slower as the capacity comes on line,” said Ice, 57, who moved into his current role on Jan. 1 when predecessor Matt Rose gave up his post as CEO to become executive chairman.

BNSF’s traffic rose by more than 400,000 units last year, topping 10 million, and accounted for about half of the 800,000-unit increase across the industry, Ice said.

Buffett highlighted BNSF’s capital spending in his annual letter to Berkshire shareholders released last month. The railroad has boosted those outlays as it distributed more than $12 billion to its Omaha, Nebraska-based parent since the 2010 takeover.

“Whatever you may have heard about our country’s crumbling infrastructure in no way applies to BNSF,” Buffett wrote. “Like Noah, who foresaw early on the need for dependable transportation, we know it’s our job to plan ahead.”

Ice said BNSF was progressing in efforts to boost tank-car safety as it reviews proposals from railcar manufacturers for new, sturdier models. BNSF requested bids for a potential purchase of 5,000 cars.

Tank Cars

“We’ve received preliminary information now” after most of the industry’s equipment suppliers responded to BNSF’s request, Ice said. “We’re going through that now, and then we’ll start some follow-up discussions.”

The U.S. Transportation Department’s Pipeline and Hazardous Materials Safety Administration is looking to set stricter tank-car regulations in response to accidents involving crude-by-rail shipments. A July derailment in Quebec killed 47 people.

Railroads are lobbying for upgrades that include a thicker steel hull, while the shippers and leasing companies that own the rolling stock have said modifying current tank cars to those specifications is prohibitively costly.

There are about 92,000 tank cars in service hauling oil and ethanol. Of those, only about 14,000 were made after the industry agreed to safety enhancements in 2011, according to the Washington-based Association of American Railroads trade group.

BNSF will be flexible while working with railcar makers on the design, Ice said. The railroad would like to see “an aggressive phase-out” of the older tank cars, he said.

“The right thing to happen is what we’ve called the next-generation tank car, at least for our railroad,” Ice said.

To contact the reporters on this story: Thomas Black in Monterrey at tblack@bloomberg.net; Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Ed Dufner at edufner@bloomberg.net Ed Dufner

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