Buffett’s BNSF Leads Locomotive Surge to Ease Railroad Cargo Jam
BNSF Railway Co., owned by Warren Buffett’s Berkshire Hathaway Inc., is leading an effort by U.S. railroads to add hundreds of locomotives to ease a cargo jam spurred by bad weather and surging crude shipments.
BNSF increased engines by 250 in the last two months and will have another 125 new ones on the tracks in the next two months, the company said. Union Pacific Corp. (UNP), the largest U.S. railroad by total operating revenue, has deployed as many as 250 stored locomotives this year and Norfolk Southern Corp. has pulled more than 100 out of storage to help increase train speeds that have dropped about 9 percent in recent months.
“For now, we and other railroads are essentially flooding the network with power and that’s one of the things that you do to get back up on your feet,” said James Squires, president of Norfolk Southern, which operates in the eastern U.S. during a JPMorgan Chase conference yesterday.
Carloads of petroleum and related products surged 31 percent last year to an average of 13,623 per week as railroads have been tapped to transport crude from a shale drilling boom, according to the Association of American Railroads. The crude carloads continue to rise this year amid harsh winter weather that has snarled trains.
The rail jam is exacerbated by a record grain crop that spurred Canada’s transport minister to order the country’s two major railways to ship a minimum of 500,000 metric tons of grain each week to clear a mounting crop backlog. U.S. railroads hauled 13 percent more grain carloads in the first nine weeks of the year.
The congestion started with BNSF before the bad weather because of equipment shortages and increasing cargo, then worsened as the snowstorms swept in, said Jason Seidl, an analyst with Cowen & Co.
“A lot of business came their way and they sort of got behind the eight ball,” he said. “Then the weather hit and the rest is history as they say.”
It may take a couple of months for railroads to work out the traffic knot and return to normal speeds, Squires said. The jam in the Midwest, particularly around Chicago, is causing an imbalance in the system that impacts eastern rails even while terminals there are uncluttered, he said.
“The network is moving very slowly, not for lack of resources, but because it is out of equilibrium,” said Squires, whose railroad is based in Norfolk, Virginia.
As much as 8 inches of snow (20 centimeters) was forecast to fall in Chicago overnight as a late winter storm sweeps across the Northeast, according to the National Weather Service. Snowstorms have battered the U.S. this winter, grounding more than 100,000 flights and causing natural gas stockpiles to drop to their lowest level for this time of year since 2004.
The weather-related delays will hurt Union Pacific’s earnings by as much as 4 cents a share, said Chief Financial Officer Rob Knight at the JPMorgan conference yesterday. Omaha, Nebraska-based Union Pacific’s train velocity dropped by 9 percent in the first four weeks this year and the time loaded cars wait in the terminal rose 13 percent, he said.
“It will take us some time to clear that out,” Knight said. He estimated it would take “a month or two.”
BNSF is operating “around-the-clock command centers” on its network to speed trains, the Fort Worth, Texas-based railroad said in an e-mailed statement yesterday. The company hired 300 employees this year through February as part of a plan to add 5,000 workers across its network in 2014.
“As weather conditions continue to improve, we expect to see steady service performance improvement,” BNSF said in the statement.
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