A tale of two railroads: BNSF, Union Pacific and the California intermodal surge

Posted by Bill Stephens
on Thursday, August 27, 2020

An eastbound BNSF Railway stack train rounds Sullivan's Curve in Cajon Pass in Southern California in 2013. TRAINS staff photo.
BNSF Railway and Union Pacific are facing the same problem: An unprecedented spike in intermodal traffic that wants to move out of Southern California to Texas, Chicago, and elsewhere in the Midwest.

The onslaught of containers and trailers that began in June and continues today followed record declines in April in May due to the economic impact of the coronavirus pandemic. No one – truckers, railroads, transportation analysts – saw the spike coming. All at once retailers sought to refill store shelves and online fulfillment centers with inventory stored at warehouses near the ports of Los Angeles and Long Beach. 

BNSF and UP, both of which had scaled back their crews, locomotives, and intermodal equipment to match the decline in traffic, were caught flat-footed, as railroads always are in these situations. How they have responded to the surge is a tale of two railroads.

For a few weeks an overwhelmed BNSF put limits on inbound trailer and container loads that sought to swamp its terminals in Los Angeles. At one point, intermodal volume at BNSF’s terminals in Hobart, Calif.; Alliance, Texas; and Chicago was up 30%. 

“As you can imagine, we quickly moved to position resources to be able to handle that increase,” BNSF Chief Operating Officer Katie Farmer told an Intermodal Association of North America webcast earlier this month.

BNSF recalled crews, fired up parked locomotives, and pulled miles of cars out of storage and sent them west as baretable trains. It added drayage support and parking spaces at its Los Angeles area terminals. And BNSF even flew terminal personnel from Chicago and elsewhere on the system to its terminals in Southern California. 

“We worked very hard to get baretables and empty equipment out to the West Coast because we recognize that’s a load coming back,” Farmer says.

UP took a much more measured approach, even as volume in June jumped 40% in Southern California from one week to the next. UP recalled crews and pulled locomotives and cars from storage, too. But UP did so at its own pace because railroads simply can’t handle such sudden swings in volume, UP Chief Operating Officer Jim Vena explained on the company’s earnings call in July. 

“There was no way I was going to flow trains one way and have all the deadheads and extra costs. We took it on a systematic basis, and we’re fluid now,” Vena said. “The railroad is running smooth. And we’re always going to have that a little bit of a lag. I mean that’s the way to railroad. Somebody else might have done it differently. I would not have changed anything I did when we started back up and the business came back.”

Kenny Rocker, UP’s executive vice president of marketing and sales, told customers this week that the railroad continues to add resources to handle rising demand and was modifying ingate windows at several terminals to better manage volume. “We continue to evaluate our terminal activity and will make any necessary adjustments to accommodate your needs and, at the same time, deliver the safe and reliable service you expect,” Rocker wrote.

But UP also has used increasingly expensive surcharges in California – first $500 per container, then $1,500, and now a record $3,500, the Journal of Commerce reports – that tell potential low volume customers to hit the highway. This hurts UP’s partners, the intermodal marketing companies it relies on to fill its railroad-supplied containers. 

Why would BNSF move heaven and earth to capture volume while UP aimed to tightly manage its capacity?

The most obvious answer is that UP’s response was straight out of the Precision Scheduled Railroading playbook. Container traffic isn’t a high-margin business. Running empty trains, or repositioning empties, increases your costs and burns crews and locomotives while throwing your network out of balance.

UP did not cause the volume swings that affected the entire supply chain, the thinking goes, so the railroad should not be on the hook for the extra costs required to fix a fundamental imbalance in traffic. But this focus on costs almost certainly means that UP left volume and revenue on the table while ticking off potential customers and sending loads to the roads.

BNSF, of course, is the only Class I railroad that has not officially adopted E. Hunter Harrison’s Precision Scheduled Railroading operating model. So it pulled out the stops to get equipment and people in position to handle more volume.

The less obvious answer to the different surge responses is that BNSF and UP approach intermodal differently.

Unlike UP, BNSF’s intermodal customers supply their own containers and trailers. It is a BYOB railroad, or Bring Your Own Box. So all of BNSF’s customers had to bear the costs of the empty repositioning moves of containers and trailers to Southern California. BNSF also enjoys nearly four times more high-margin trailer volume than UP, so it has a lot more incentive to move trainloads of empty cars to L.A.

What’s the result of all this? 

BNSF’s terminals, while busy, are now fluid despite a 7% increase in its overall intermodal volume over the past four weeks. 

UP’s terminals – particularly in Chicago, where it closed terminals last year to simplify intermodal operations – are not. UP’s volume has held relatively steady over the past four weeks, at about 10% above last year’s levels but 6% below 2018 volumes. And this week for a time, UP closed its congested Global 4 terminal in Joliet to incoming containers.

You can reach Bill Stephens at bybillstephens@gmail.com and follow him on twitter @bybillstephens

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