Posts Tagged ‘BNSF’

Supply Chain Congestion Seen as Lasting 6 Months

September 17, 2021

Industry observers expect that the tangled global supply chain will take at least six months to untangle, reported Trains magazine this week on  its website.

The magazine quoted intermodal consultant Larry Gross as saying the strain on the intermodal operations is unprecedented, the worst he has seen in his 41 years in the business.

Gross spoke during a panel discussion at the Intermodal Association of North America’s annual Intermodal Expo event.

Analysts say that a flood of imports driven by an explosion in consumer spending has hindered the supply chain between Asian ports, to U.S. ports to railroad networks and their intermodal terminals.

Also driving the congestion has been the fact that retailers are struggling to keep up with consumer demand because their product inventories dipped during the early stages of the COVID-19 pandemic.

A record 59 container ships recently were reported to be anchored off the ports of Los Angeles and Long Beach awaiting berth space.

Lars Jensen of Copenhagen-based Vespucci Maritime told the panel that some of those vessels have been in San Pedro Bay for more than two weeks, delaying the unloading of more than 400,000 twenty-foot equivalent units, or TEUs, the standard measure of international containers.

Much of that cargo will eventually travel to the Midwest and Texas via BNSF or Union Pacific intermodal trains.

Rail intermodal volume has fallen by 10 percent from its May levels and is down 7 percent compared to where it was a year ago at this time.

 “What we really have here is a system starting to bog down from all the operational constraints, congestion, and lower velocity, shortage of equipment, you name it,” Gross said.

He said all links in the supply chain share some of the blame for that congestion.

One panelist, Evan Armstrong of Armstrong & Associates, said railroads are missing an opportunity to pick up business that is instead going to trucking companies.

Yet railroads say shippers have been slow to pick up their containers at intermodal terminals, particularly in Chicago, and that has had a cascading effect.

 Shippers also have been holding containers at their warehouses, which has created a shortage of chassis used to tote containers.

Tim Denoyer, vice president and senior analyst at ACT Research, said the chassis shortage is unlikely to be resolved for another six to 12 months.

Officials at Union Pacific, Norfolk Southern, and Canadian Pacific all said during the panel discussion that intermodal systems were in “disarray” around the globe.

They said their intermodal networks have capacity to handle current volumes, but only if all links in the supply chain are working relatively smoothly.

“Everything depends on speed,” said Leggett Kitchin, NS vice president of domestic intermodal. “At the current speeds, the box supply is probably tight.To the extent that we can speed up, and the street can speed up, then we’ll have capacity to grow into.”

STB Finds 5 Class 1s were Revenue Adequate in 2020

September 10, 2021

The U.S. Surface Transportation Board has determined that five Class 1 railroads had adequate revenue during 2020.

The carriers were BNSF, CSX, Kansas City Southern, Soo Line (Canadian Pacific) and Union Pacific.

A railroad is considered to be revenue adequate if it achieves a rate of return on net investment equal to at least the current cost of capital for the railroad industry.

During 2020 the STB determined that to be 7.89 percent.

The five carriers cited by regulators achieved a rate of return on net investment equal to or greater than the agency’s calculation of the cost of capital for the railroad industry.

J.B. Hunt Can’t Meet Customer Demand for Intermodal Service Due to Congestion

July 21, 2021

Intermodal shipper J.B. Hunt said this week that it cannot meet the demand for its service because of reduced velocity in the North American railroad network.

During a quarterly earnings call on Monday, Hunt managers said the demand for its services exceeds its capacity.

Managers said another factor behind that was slow customer turn times.

In recent weeks some Class 1 railroads have begun limiting acceptance of intermodal shipments because of congested terminals.

BNSF, for example, is limiting the flow of international containers from the ports of Los Angeles and Long Beach to its Logistics Park Chicago intermodal terminal for two weeks to work off a backlog of containers in Chicago.

Union Pacific has temporarily suspended inbound moves of international containers from West Coast ports to its Global IV terminal in Chicago.

Chicago is the largest single destination for cargo arriving at the ports of Los Angeles and Long Beach, the two busiest ports in North America.

Los Angeles handled record container volume in June, while Long Beach saw record volumes in May.

CSX has been restricting the flow of containers from the Port of New York and New Jersey to terminals in Chicago, Cleveland and Indianapolis.

In Canada, backlogs have been reported at the Port of Vancouver due to fire-related line closures and operational restrictions affecting Canadian Pacific and Canadian National.

Darren Field, president of Hunt’s intermodal division, said labor shortages at intermodal terminals and at customer warehouses is the major reason behind slow turnaround times for Hunt’s containers.

Hunt has imposed accessorial charges and in some cases is restricting capacity to some customer locations in an effort to encourage shippers to increase their turnaround times.

 “We are working very closely with our rail providers and customers to improve our capacity across the network by focusing on reducing the detention of equipment and helping our rail providers reduce congestion across their terminal infrastructure,” Field said.

J.B. Hunt primarily uses Norfolk Southern also routes some containers via CSX.

Field said he does not expect railroads to melt down despite reduced velocity and capacity limits at some intermodal terminals.

He said at some locations employment levels are 5 percent below where they need to be to handle current volume.

“All of the railroads are very focused on these challenges and they are out addressing them,” Field said.

Creel Warns CP Could be Merger Target

May 21, 2021

Canadian Pacific CEO Keith Creel repeated this week his assertion that if his company fails to buy Kansas City Southern that will make CP a target for acquisition by another North American Class I railroad.

Speaking on Thursday to investors on a webcast, Creel said the bid by Canadian National to buy KCS “is a direct threat to the North American rail network. And, more specifically, the U.S. rail network.”

Creel said U.S. regulators will take note of that.

CN has proposed to buy KCS in a $33.6 billion stock and cash transaction. It has asked the U.S. Surface Transportation Board to allow it to place KCS into a voting trust while the review process of the merger plays out.

CP earlier sought to buy KCS for $29 billion, an offer the KCS board had accepted at one point. Then CN made a counteroffer and last week the KCS board deemed the CN bid to be “superior” to the CP offer.

Creel has expressed concern that if KCS and CN merge that would leave CP as the smallest Class 1 system in North America and it would lack the scale and reach of the other systems.

 “CP is a strong franchise, with or without the KCS transaction. Our story of lowest cost, safest, best service, best volume growth in the industry in three years . . . to me truly defines what best is,” Creel said.

Creel contended CP would be an attractive merger partner because of its size and performance record.

 “If you’re looking for a partner, what would you want to partner with? And we will explore our strategic opportunities.”

Some railroad industry analysts have speculated that if CN and KCS merge as proposed, that could set off the long expected final round of Class 1 railroad mergers in North America.

Other analysts, though, have said the CN-KCS merger would not necessarily upset the balance of Class 1 systems in North America of two systems in Canada, two in the U.S. West and two in the U.S. East.

CP is seen as unlikely to seek to buy another Class 1 system and is more likely to become the target of an acquisition.

When the late E. Hunter Harrison was CEO of CP, he unsuccessfully sought to merge with Norfolk Southern in 2015 and had talks about merging with CSX.

Creel said this week a merger involving CP and another Class I would have to be based on growth.

“The CSX and the NS, they’re doing a great job creating efficiencies and service offerings and capacity with their networks,” Creel said. “So it’s not an operating play. It would have to be a revenue, pro-service, pro-competition play.”

Industry analyst Anthony B. Hatch told Trains magazine it is unlikely CSX, NS, Union Pacific or BNSF would initiate merger talks with CP or any other Class I because they are more interested in stability than growing in size.

However, Hatch says, one of the U.S. Class 1 systems might be interested in having Creel as a potential successor to one of its chief executives.

Hatch sees Creel’s merger talk as a political game designed to scare shippers, members of Congress, and federal regulators into fearing a final round of rail mergers.

Wabtec Shares Data From Battery Locomotive Testing

May 18, 2021

Pittsburgh-based Wabtec released findings on Monday showing that its battery-powered locomotive cut fuel consumption and carbon emissions by 11 percent during testing.

Wabtec’s FLXdrive locomotive tested over 13,000 miles on BNSF in California earlier this year.

The next step in the development of a battery-electric locomotive, Wabtec said, will be creating battery capacity of more than 6 megawatt hours, which could reduce the fuel consumption and carbon emissions of a locomotive consist by up to 30 percent.

Such a locomotive could begin revenue service “in the next few years,” Wabtec said in a news release.

Wabtec said its efforts to develop zero-emission locomotives using batteries, hydrogen fuel cells, and hydrogen internal combustion engines has “a clear path” to power new locomotives and re-power existing engines — with those forms of power.

The locomotives used in the BNSF test had 18,000 lithium-ion battery cells with 2.4 megawatts of power that were charged at rail yards and through regenerative braking.

A grant of $22.6 million from the California Air Resources Board to Wabtec, BNSF, and the San Joaquin Valley Air Pollution Control District paid for the testing.

CP Wants CN-KCS Reviewed Under Stricter Rules

May 4, 2021

It’s another week and another round of dueling statements from Canadian Pacific and Canadian National as they vye to buy Kansas City Southern.

In the latest development, CP has told the U.S. Surface Transportation Board that a CN-KCS combination should be reviewed under the board’s current merger rules pertaining to Class 1 railroad mergers.

However, CP had earlier urged regulators to consider its bid to buy KCS under the less stringent pre-2001 rules.

CP justified the contradiction by saying its acquisition of CP would be a true end-to-end merger whereas CN taking over KCS would have significant overlap that could led to less competition in certain areas.

For its part, CN wrote an open letter to “Kansas City Southern community” that explained while its offer is superior to that of CP.

In turn CP cited what it termed “mounting opposition” to the CN-KCS combination, saying the STB has received more than 110 letters in opposition to a CN takeover of KCS.

Also weighing in on the fight for KCS was Warren Buffett chairman of Berkshire-Hathaway, which owns BNSF.

Buffett suggested CP and CN may be overpaying to control KCS and that the merger would not gain either system much traffic growth.

“There’s no magic to the Kansas City Southern,” he said.

However, Buffet said he understood why the Canadian Class 1 systems are dueling for KCS. “I’m sure from the standpoint of both CP and CN, there’s only one K.C. Southern,” he said.

“They’re not going to get a chance to expand. They’re not going to buy us. They’re not going to buy the UP (Union Pacific). The juices flow, and the prices go up.”

“People are not going to remember what you paid, but they’re going to remember whether you built a larger system,” Buffett said.

BNSF will watch closely how the fight over KCS plays out, Buffet said.

Wabtec Touts Battery Operated Locomotive

May 3, 2021

The Wabtec’s FLXdrive battery-electric locomotive has been sent back to the company’s locomotive assembly plant in Erie, Pennsylvania, after completing tests on BNSF.

Wabtec officials said the testing, conducted largely in Southern California, had the prototype work for more than 13,000 miles.

They said test results were encouraging. Wabtec CEO Rafael Santana said the locomotive “was able to reduce both fuel consumption and emissions by more than 11 percent.”

Calling that a “game-changer in decarbonizing rail,” Santana said his company continues to see growing interest in next generation motive power and that battery-electric will be part of his company’s long-term growth.

Wabtec officials said they are having “some strong discussions with customers.”

A number of railroads, including Class 1 systems Canadian Pacific and Canadian National, have begun studying motive power that does not use diesel fuel.

CP is developing a hydrogen fuel-cell locomotive and CN has been examining various options.

BNSF spokeswoman Amy Casas said the Wabtec battery prototype met expectations for efficiency performance and confirmed the potential of this technology.

More detailed reports on the locomotive’s performance are expected to be released in the coming months.

Class 1 Systems Saw Traffic Gains in 1st Quarter

April 9, 2021

Impressive gains in intermodal traffic helped North America’s Class 1 railroads systems post volume gains during the first quarter of 2021.

Industry observers say a surge in retailers seeking to restock shelves has boosted interemodal volume.

That was welcome news for railroads because the first quarter saw them see suffer slight declines in carload volume.

Among the seven Class 1 systems, Canadian National came out on top with an 8.2 percent increase in overall volume compared with the same period in 2020.

However a mitigating factor in CN’s case is that it looks good compared with last year because this year it didn’t have to deal with illegal blockades of its tracks that lasted for weeks.

Norfolk Southern posted a 5 percent volume gain fueled largely by 8 percent intermodal growth and a nearly 5 percent rise in coal traffic.

At CSX traffic was up nearly 3 percent, led by a 12.3 percent boost in intermodal business.

CSX and NS alike enjoyed increased traffic from East Coast ports as well as parcel traffic related to e-commerce.

Traffic gains for other Class 1 railroads included BNSF, 7.3 percent and Union Pacific, 1 percent. Canadian Pacific’s first quarter traffic traffic was flat compared with last year’s first quarter, when it had a 10 percent gain partly due to picking up some traffic that could not move on CN during the blockades.

 “When much of the economy shut down around this time last year, rail volumes plummeted too. We have to take that into account when comparing rail traffic this year to last year,” said Association of American Railroads Senior Vice President John T. Gray.

“That said, rail traffic has clearly rebounded from last year’s depths. Looking ahead, rail volumes are highly correlated with manufacturing output, so recent signs of strength in manufacturing are good signs for railroads too.”

Class 1s Say Review CP-KCS Merger Under New Rules

April 5, 2021

Four Class 1 railroads have asked the U.S. Surface Transportation Board to evaluate the proposed acquisition of Kansas City Southern by Canadian Pacific under more stringent rules.

BNSF, Canadian National, Union Pacific and Norfolk Southern have urged the STB to use its 2001 merger review rules in the case.

KCS had earlier received a waiver from the current merger review rules. KCS nd CP have sought to have the transaction reviewed under the pre-2001 standards.

That idea received support from CSX, the only Class I railroad to support the KCS waiver.

In their filings with federal regulators, the other Class 1 systems said CP and KCS should be required to submit service assurance plans, demonstrate that the deal would provide public benefits and enhance competition, and explain how existing gateways would be preserved.

In their filings, the Class 1 systems said the KCS of 2021 is a vastly different railroad than the KCS of 2001, with significantly more revenue, traffic, and mileage due to its having gained a full interest in the Texas Mexican Railway and KCS de Mexico.

“Any justification for the potential KCS exception has evaporated,” CN wrote in its filing. “KCS’s expansion of its Mexican operations post-2000 make it a transnational carrier and a very different railroad from the one it was in 2000. Indeed, KCS’s revenues now exceed the $1 billion threshold that it claimed in 2000 would be an appropriate trigger for full review under the new rules.”

UP said the STB never should have adopted a waiver for KCS while BNSF said all Class I railroad mergers should be judged by the same standards.

NS said in its filing that the old rules are out of step with the industry today.

“The prior rules are antiquated, adopted over 40 years ago. The railroad industry has transformed itself since then, and the STB modernized its major merger guidelines in sync with those changes,” NS said.

No Class 1 merger has been reviewed under the current STB merger rules.

Biden Plan Would Accelerate Coal Decline

April 5, 2021

The Biden administration’s proposals to fight climate change would accelerate what has already been a downward decline of the use of coal for generating electricity.

That would further depress railroad coal traffic, industry observers say.

Rob Godby, an economics professor who is deputy director of the University of Wyoming’s Center for Energy Regulation and Policy, said the Biden proposals would accelerate the decline of coal that has been under way for a decade.

During the past 10 years, railroads have seen their coal traffic fall but “black diamonds” still remained a substantial source of revenue.

In 2020, coal was 12 percent of rail freight volume in the United States, figures from the Association of American Railroads show.

Coal was the single largest commodity that Class 1 railroads carried in 2020 and provided $7 billion in revenue.

Yet the use of coal to generate electricy has fallen from 48 percent of the nation’s power supply in 2008 to less than 20 percent last year.

Most coal mined in the United States is used to generate electricity but is also used in steel making and exported to other nations.

Biden has proposed using tax incentives for renewable energy for another decade while making power grid investments to support greater use of wind and solar power.

Godby said those changes, if implemented, will make it difficult for coal to compete on an economic basis with natural gas and renewable sources of energy.

“The bottom line is if this were to happen, you could say the Powder River Basin would almost entirely be shut down,” Godby said referencing a region in Wyoming and Montana served by BNSF and Union Pacific that produces nearly half of U.S. coal.

Godby said some renewable energy projects provide electricity more cheaply than coal, even without subsidies.

Transportation costs can take up three quarters of the delivered cost of coal to a power plant.

Even if Congress were to reject the Biden plan, Godby said coal is living on borrowed time and he expects demand for it to be a shadow of itself by 2035 when very little of the nation’s power will be generated by burning coal.

Already, coal producers are seeking to sell or shut down mines in the Powder River Basin. Arch Resources plans to close the Coal Creek mine in Wyoming in 2022 and reduce production at Black Thunder Mine, the second-largest U.S. coal mine.

The Biden infrastructure plan has proposed establishing as many as 10 power plant carbon capture demonstration projects.

But Godby said for those to be commercially viable, carbon capture would require technology and cost breakthroughs as well as the development of markets for carbon dioxide use.