BNSF boss says transport system nearing crisis

[zardoz]

ALBUQUERQUE, N.M. -- The head of Burlington Northern Santa Fe Corp. warned Thursday (March 23) of a coming crisis in the nation's ability to move goods because of an aging and increasingly congested transportation system.

"In 10, 15 or 20 years, there is a crisis coming in how we move commerce," said Matthew Rose, chairman and chief executive of Fort Worth-based BNSF, the nation's second-largest freight railroad. "I just don't see how that's going to be avoided," he said.

Mr. Rose and other executives at BNSF on Thursday showed off the railroad's effort to install a second set of tracks along its main transcontinental route between Los Angeles and Chicago.

After years of suffering from excess capacity, BNSF, like other railroads, is struggling to handle an unprecedented increase in shipments, caused primarily by a surge in imports from China and rising demand for coal produced in Wyoming and Montana.

The railroad is investing $2.4 billion this year, a 10 percent increase over 2005, to maintain its tracks and expand its ability to carry more freight.

In a sign of just how much business is booming, BNSF's top priority this year is increasing the speed of its trains so it can handle more shipments, Mr. Rose said.

Many of the railroad's nearly 40,000 employees now have about a third of their incentive compensation tied to whether the company can improve this year's average train speed by 5 to 10 percent over 2005 levels.

BNSF is also focused on improving its customer service, which has slipped in recent years as it has absorbed huge increases in shipments.

"We fully acknowledge our service isn't what it ought to be," Mr. Rose told reporters Thursday during the media tour. "Customers right now are frustrated."

To improve its performance, BNSF is taking a number of steps, including adding cars and locomotives, re-examining how it can operate more efficiently and adding a third set of tracks along key routes.

With less than 50 miles to go, the railroad already is close to meeting its longtime goal of adding a second set of tracks along its 2,214-mile Los Angeles-Chicago line.

With the flood of imports from China showing no sign of letting up, BNSF and other railroads are under tremendous pressure to expand their capacity.

The industry is backing a proposed 25 percent federal tax credit for rail infrastructure capacity improvements.

Of the $8 billion in capital that U.S. railroads will spend this year, only 20 percent will go toward expansion. The rest will be invested in maintaining rails, ties and other equipment.

But railroads are only one part of the transportation network. Longer term, experts say, the U.S. also must upgrade its highways and waterways, many of which were built during the Eisenhower administration.

However, the chances of finding the money and the political will to undertake this overhaul remain slim during a time of war and competing needs for programs such as Medicare and Social Security.

"Things are going to get worse before they get better," Mr. Rose said. He said a crisis would result in higher shipping prices.

(The preceding report by Katherine Yung was published by the Dallas Morning News on Friday, March 24, 2006.)
http://www.utu.org/worksite/detail_news.cfm?ArticleID=27154

[eolafan]

Ten, fifteen or twenty years hey? Well, sounds like my post-retirement (I plan on retireing in 2012) will be really exciting and full of trains to watch.

[Anonymous]

Well, there's so much Mr. Rose avered that could be parsed and diced, but the fact remains that the actions of the railroads post-Staggers (mege-mergers, capacity retrenchment) is the cause of the current crisis. Now the rail oligarchy wants taxpayers to subsidize the expansion of the import intermodal corridors? Does anyone think these guys would be in favor of subsidizing NEW railroads into their captive service territories?

Solution #1 is to break up the rail oligarchy via antitrust action to form separtate infrastructure and transporter entities. Then and only then can public funds be used in such massive outlay to provide capacity expansions (to be then utilized by all rail transporters), and do so within the philosophical constraints of encouraging free market competition.

What Mr. Rose proposes is to deal with the devil, namely subsidizing rail monopolies to the benefit of overseas importers and to the chagrin of domestic rail shippers. "Higher shipping prices" he says? Tell that to those domestic rail shippers paying 400% of R/VC, aka memo to Mr. Rose: We're already paying higher shipping prices due to your railroad's actions. What are you suggesting, that we'll be paying 800% R/VC while our Chinese competitors continue to enjoy rates of 106% R/VC?

Let's subsidize our trade deficit! What a concept!

[Anonymous]

QUOTE: Originally posted by eolafan

Ten, fifteen or twenty years hey? Well, sounds like my post-retirement (I plan on retireing in 2012) will be really exciting and full of trains to watch.

I just hope ill dead by then.........
Allan.

[Anonymous]

BNSF will get through this. UP might not[swg][swg][swg] (if it affects them). BNSF had better order more SD70ACes to handle this traffic[swg]

[Anonymous]

Futuremodal,

Where did Mr. Rose suggest subsidizing the railroad? From my interpretation of the article, Mr. Rose talks of the demand for transportation capacity from all modes, not just railroads. The article goes on to show what the railroad is trying to do to keep up with the demand and at no time is the word "subsidize" mentioned there. It is the talk about the roads and waterways that infer tax payers money.

To blame the railroads' past decision to eliminate unused capacity for the current bottle neck is kind of strange. Would any business continue to maintain high cost assets "just in case" the need arose 20 to 30yrs down the road? I would hope not. Not many share holders would play that foolish game.

[Anonymous]

QUOTE: Originally posted by NS2317

Futuremodal,

Where did Mr. Rose suggest subsidizing the railroad?

Last time I checked, 25 percent federal tax credit = subsidy.

[Anonymous]

QUOTE: Originally posted by NS2317

Futuremodal,

Where did Mr. Rose suggest subsidizing the railroad? From my interpretation of the article, Mr. Rose talks of the demand for transportation capacity from all modes, not just railroads. The article goes on to show what the railroad is trying to do to keep up with the demand and at no time is the word "subsidize" mentioned there. It is the talk about the roads and waterways that infer tax payers money.

See post by James the Mad.

QUOTE:
To blame the railroads' past decision to eliminate unused capacity for the current bottle neck is kind of strange.

Why? I happen to think the opposite is strange, aka the railroads for the last few decades have gone hog wild to eliminate effective rail capacity, then they turn around and ask the taxpayers to subsidize new capacity. You don't find that the least bit ironic?

QUOTE: Would any business continue to maintain high cost assets "just in case" the need arose 20 to 30yrs down the road? I would hope not. Not many share holders would play that foolish game.

Look at the forest products industry for a model of maintaining underutilized assets for future gain 20 to 30 years down the road (although their long term hold goes for more like 40 to 50 years). Why do such businesses do so? Because it results in a long term pay-off. Just because some greedy stockholders demand profit maximization now at a cost of future lost profits doesn't mean you aquiesce to them, because to do so is a bad business model, unless you're in it for the shorthaul e.g. take the money and leave a corporate corpse.

However, the railroads didn't embark on the task of eliminating capacity to avoid even mothballing fees, they eliminated capacity to extract pricing power aka monopoly profits with the unwitting aid of those Stagger's era politicians. When you can reduce usage to a few remaining lines, you get predictable congestion, which means you can pick and choose premium price takers and eliminate sub-premium price takers, who then of course will default as much as possible to using highways, so now we get more highway congestion. That's where the federal regulators really screwed up, and why Mathew Rose's statements of *concern* over our nation's transportation system clogging up is really laughable. And we should remind Mr. Rose that the purpose of our nation's transportation policy isn't to make it easier to bring in more imports in a time of growing trade deficits. On the contrary, our transportation policy should be directed to making it easier for domestic producers to get their products to the consumer markets, both here and abroad. The current railroad modus operandi is the antithesis of this purpose.

[Anonymous]

@John_the_ Mad

Never would have considered a tax credit as a subsidy. Thanks. Guess I should start checking more often.

@ Futuremodal

I see the point of your response. Where can I get some of the green kool-aid? The red stuff is starting to get old. [;)]

As for the idea of making a separate entity owner of the rail infrastructure and creating an open access rail market, the idea sounds good. Many rail companies under cutting each others rates would create a boon to the economy. Not to mention dropping the shipping rates to all those poor, struggling farmers. Who knows. Maybe it would even create more businesses here at home, willing to take advantage of the rock bottom shipping costs.

[Murphy Siding]

QUOTE: Originally posted by NS2317

@ Futuremodal

I see the point of your response. Where can I get some of the green kool-aid? The red stuff is starting to get old. [;)]

As for the idea of making a separate entity owner of the rail infrastructure and creating an open access rail market, the idea sounds good. Many rail companies under cutting each others rates would create a boon to the economy. Not to mention dropping the shipping rates to all those poor, struggling farmers. Who knows. Maybe it would even create more businesses here at home, willing to take advantage of the rock bottom shipping costs.

[(-D][(-D][(-D]

[TomDiehl]

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by NS2317

To blame the railroads' past decision to eliminate unused capacity for the current bottle neck is kind of strange.

Why? I happen to think the opposite is strange, aka the railroads for the last few decades have gone hog wild to eliminate effective rail capacity, then they turn around and ask the taxpayers to subsidize new capacity. You don't find that the least bit ironic?

QUOTE: Would any business continue to maintain high cost assets "just in case" the need arose 20 to 30yrs down the road? I would hope not. Not many share holders would play that foolish game.

Look at the forest products industry for a model of maintaining underutilized assets for future gain 20 to 30 years down the road (although their long term hold goes for more like 40 to 50 years). Why do such businesses do so? Because it results in a long term pay-off. Just because some greedy stockholders demand profit maximization now at a cost of future lost profits doesn't mean you aquiesce to them, because to do so is a bad business model, unless you're in it for the shorthaul e.g. take the money and leave a corporate corpse.

However, the railroads didn't embark on the task of eliminating capacity to avoid even mothballing fees, they eliminated capacity to extract pricing power aka monopoly profits with the unwitting aid of those Stagger's era politicians. When you can reduce usage to a few remaining lines, you get predictable congestion, which means you can pick and choose premium price takers and eliminate sub-premium price takers, who then of course will default as much as possible to using highways, so now we get more highway congestion. That's where the federal regulators really screwed up, and why Mathew Rose's statements of *concern* over our nation's transportation system clogging up is really laughable. And we should remind Mr. Rose that the purpose of our nation's transportation policy isn't to make it easier to bring in more imports in a time of growing trade deficits. On the contrary, our transportation policy should be directed to making it easier for domestic producers to get their products to the consumer markets, both here and abroad. The current railroad modus operandi is the antithesis of this purpose.

First, there is no current transportation policy in this country related to railroads, just the decisions of the railroad management based on current trends. Mothballing fees PLUS property taxes on unused infrastructure add up quickly if the freight revenues aren't coming in. In my area about 15 years ago Conrail removed a section of the Lackawanna cutoff in New Jersey, and single tracked the part in Pennsylvania. Why? because the traffic levels at the time didn't support maintaining two routes from Binghamton to NYC. It's the same section that the rail authorities are trying to reinstall to provide rail passenger service from Scranton to North Jersey and NYC area. Property taxes an NJ sure ain't cheap, and the line was sold off to a developer so the RR had no property tax obligation in New Jersey. Sounds more like a sound business decision, made based on the business conditions at the time.

[DPD1]

QUOTE: Originally posted by zardoz

After years of suffering from excess capacity, BNSF, like other railroads, is struggling to handle an unprecedented increase in shipments, caused primarily by a surge in imports from China and rising demand for coal produced in Wyoming and Montana.

They make it sound like they're doing it for free or something...'We make more money, so we want more of our bills to be paid by somebody else.'

It works for the oil companies, so why not I guess.

Dave
http://www.dpdproductions.com
- Featuring the TrainTenna Railroad Scanner Antennas -

[CSSHEGEWISCH]

All modes of transportation are getting close to the limit regarding capacity. We're pretty familiar with the capacity constraints of railroading, one would have needed a very good crystal ball to justify paying taxes on unproductive property when excess capacity was the problem. Shareholders don't take too well to that sort of management decision.

The limitations in trucking have been sliced and diced pretty well on these forums, but how do you alleviate a personnel (driver) shortage when it gets increasingly hard to recruit and KEEP drivers. Larger trucks are worthless if they sit at the terminal due to a lack of drivers.

The airlines are running into the same problem. Airports are getting more congested and it's becoming almost impossible to expand any of the existing airports (see Chicago O'Hare) or build new ones that the airlines will use (see Mid-America near St. Louis). The airline situation shows that "open access" doesn't necessarily increase overall capacity.

[FJ and G]

they're always complaining about something. 20 years ago it was lack of traffic so they removed a lot of track; now it's congestion.

Maybe if the system was 265K + instead of 125K, they would have more routes. No matter, they'll find something to grumble about.

[SALfan]

Does anyone remember the Chicago, Rock Island & Pacific? They held onto underused capacity so long they went out of business. Granted, the Rock didn't have enough traffice density anywhere except Chicago-Quad Cities to justify its continued existence, but a lot of other railroads weren't much better off. The capacity decreases that took place after 1975 weren't a matter of evil railroads plotting to take advantage of everyone 30 years down the road, they were a matter of survival. Remember Erie? After Conrail was formed, and after deregulation made abandoning track easier, virtually the entire former Erie was abandoned - it was one railroad too many.

[Anonymous]

sounds to me like their is something wrong with the system.

[Anonymous]

QUOTE: Originally posted by futuremodal

the fact remains that the actions of the railroads post-Staggers (mege-mergers, capacity retrenchment) is the cause of the current crisis. Now the rail oligarchy wants taxpayers to subsidize the expansion of the import intermodal corridors? Does anyone think these guys would be in favor of subsidizing NEW railroads into their captive service territories?

[#ditto][#ditto][bow][bow][bow][#ditto][#ditto]

Maybe if taxpayer subsidy is limited to helping new entities open parallel corridors, the existing RR's will find something they can do to solve the problem.


Funny how when there are several competing entities looking for growth opportunities in an industry, they never seem to have a crisis that harms consumers. But once you allow a small handfull of mega entities to predominate an industry, then every little problem spells doom for the consumer's check book.

Electricity, Gasoline, etc.

[samfp1943]

QUOTE: Originally posted by JOdom

Does anyone remember the Chicago, Rock Island & Pacific? They held onto underused capacity so long they went out of business. Granted, the Rock didn't have enough traffice density anywhere except Chicago-Quad Cities to justify its continued existence, but a lot of other railroads weren't much better off. The capacity decreases that took place after 1975 weren't a matter of evil railroads plotting to take advantage of everyone 30 years down the road, they were a matter of survival. Remember Erie? After Conrail was formed, and after deregulation made abandoning track easier, virtually the entire former Erie was abandoned - it was one railroad too many.

In the Southeast, the NS has suuccessfully" rail banked" [mothballed] several low traffic lines. It would seem with a minimum of maintenance they can be reactivated, or used occassionally. Here in Kansas, many lines have been abandoned and salvaged out of existance. Capacity that could be used as needed. I understand that lightly used track still has maintenance cost issues, but certainly those costs might be small in light of having to do total rebuilds and relays.
A prime example of a program of capacity reduction was the Illinois Central's removal of one of its double tracked main lines from Chicago to New Orleans for salvage. The relay to gain new capacity will be thunderously expensive for the new owners CN when it is needed. Not to mention complications from local kenvironmentalists or the NIMBY crowd. Which is why hindsight is 20/20.
Sam

[Anonymous]

maybe the railroads want it both ways .abandon track to satisfy bankers .get tax relief to rebuild.seems to be a problem here

[wallyworld]

The typical commodities that made up a train have changed as well as the length of a haul and the length of consists as well. Over the past twenty years, the evolution from carload to containers, the increases in car weight are driven by the market and in turn by reengineering the technology of the system to balance the equation has used to expotentially bypass the issues of capacity. Routing have always been a moving target based on profitability..None of these factors can be "controlled.' The problem is not capacity, it is fluidity based on traffic currently outpacing the current dispatching of loads through terminals that interchange. More run throughs-more coordinated forecasting and schedualling among Class 1's could be researched and implemented by a third party consortium among Class i roads to keep cars rolling instead of parking them.

[TomDiehl]

This sounds like another reporter covering the same story. From the Trains Newswire 27 March 2006, Story title, BNSF shows off the Transcon for press representatives:

http://www.trains.com/Content/Dynamic/Articles/000/000/006/555uiowx.asp

[edbenton]

Yes the RR are running at capacity. I fwe do not want a service meltdown like the UP in 97 and the whole country in WW1 we need to give the RR their tax break to increase capcitay so we do not have this issue. When we think about it still faster to ship a container across the country for a shipping line then reaload it onto another ship for europe then go around the horn or around africa since the mega ships are to big for both the canal or Suez so we will need the capicity for the long term not short term.

[MichaelSol]

QUOTE: Originally posted by edbenton
.... so we will need the capacity for the long term not short term.

But the rail industry has not thought that way in 25 years.

A friend of mine, retired BN, offered the following remark on the rail industry, as it lurches from major policy change to policy change, each one allegedly motivated by regard for the "bottom line" by allegedly "capable" executives.

"If there are any of them left still working for Mr Rose, whose pronouncements sound to me like (finally) an exercise in common sense, I am sure all the Ex-Frisco lackeys who nodded their heads up and down like good little lapdogs when his distant predecessors Richard Grayson and Bill Thompson and a third manager, (well-known for converting double or two main track territory into single track, and who incidentally now is head of another transcontinental railroad as we speak) all said Stampede Pass had to be shut down and the "redundant" Milwaukee Option over Snoqualmie pass sold to State Parks (remember "to better serve our railroad customers," and "our whole railroad is for sale..."), not to mention the MRL Sale, those same lackeys now are innocently nodding their little heads up and down, when all of this past foolishness is now brought to light.

"Too bad P.Bill Thompson and Gang couldn't have gotten their hands on all that
Santa Fe double track. They'd have had it all sold for scrap in a jiffy, making
Matt Rose's job even more difficult now...

"Remember the famous line from the movie "Judgement in Nuremberg," where the Nazi judge is attempting to convince american judge Burt Lancaster that he didn't think his support of the regime was wrong or would cause any problems? The answer he got was, "You knew it was wrong when you made your very first
conscious choice to support those people."

"Lest somebody jump all over me for the Nazi comparison, I don't mean that at
all. What I do mean is the reply given to the moral part of it. You don't
liquidate profitable businesses, or portions of them, just to squeeze out a
profit. That's wrong, and it is wrong whether you do it with just a little
short piece of "redundant" track or with the whole dam thing".

Best regards, Michael Sol

[TomDiehl]

The two things that seem to be contrary to each other: in the last paragraph of your quote, third sentence, "You don't liquidate profitable businesses, or portions of them, just to squeeze out a profit. That's wrong, and it is wrong whether you do it with just a little short piece of "redundant" track or with the whole dam thing".

Then compare it to the first paragraph of the quote, the unnamed third manager states that "our whole railroad is for sale..."

If it was profitable and for sale, why didn't anyone buy it?

[MichaelSol]

QUOTE: Originally posted by TomDiehl

The two things that seem to be contrary to each other: in the last paragraph of your quote, third sentence, "You don't liquidate profitable businesses, or portions of them, just to squeeze out a profit. That's wrong, and it is wrong whether you do it with just a little short piece of "redundant" track or with the whole dam thing".

Then compare it to the first paragraph of the quote, the unnamed third manager states that "our whole railroad is for sale..."

If it was profitable and for sale, why didn't anyone buy it?

The quote "the whole railroad is for sale" is from a manager, judged an incompetent strategist by many. The second quote is from a long time BN dispatcher-- the author of the comment -- offering his views on the quality of such managers, including his opinion on the manager who made the observation, "the whole railroad is for sale."

Yes, the comments are contrary to each other.

His point is that the rail industry paid high salaries to men who are responsible for the current "crisis" which is in many ways a self-inflicted crisis, as most rail industry "crises" have been.

[TomDiehl]

Unfortunately, not a crisis limited to the railroad industry. In recent news reports, recall the major flap over a big bonus paid the the big-wheel of Delta Airlines, right on the heels of the workers being asked for big give-backs in salary and benefits.

[Anonymous]

Sounds like it will be a repeat of the UP crisis of the late '90s. Only time will tell.

[Anonymous]

Well, we have quite a few unused rooms at the farmhouse. I guess we could tear out the "excess capacity" so that we're not paying mothball fees (higher property taxes, more energy to heat/cool, etc). Then, when family growth spurs the need for more rooms, we'll just pay a contractor to rebuild those rooms at a much higher price than if we'd just kept the rooms minimally maintained......



[oops]
[:-,]


...well, I guess that's what we'd do if I was a "rail professional"![D)]

[jeaton]

I suppose those of you who argue that the railroads should have never eliminated under used lines would also argue that General Motors, Ford and Chrysler are making a big mistake by shutting down plants. After all, what will they do if the American public suddenly decides to "Buy USA".

The carrying cost of unused or underused assets will put a compnay under in the blink of an eye. The world is littered with the bones of businesses that died because the owners and/or managers did not manage the business assets. If the railroads had not downsized as they did, they would probably now have less ca***han I have in my change jar.

By the way, people do live in houses with much more space than they need, but many will sell the house that is to big or to small to get something that more closely meets their needs. I have even heard that some people who down size their housing just want to spend their money on something else.

[jeaton]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by edbenton
.... so we will need the capacity for the long term not short term.

But the rail industry has not thought that way in 25 years.

A friend of mine, retired BN,

"Lest somebody jump all over me for the Nazi comparison, I don't mean that at
all. What I do mean is the reply given to the moral part of it. You don't
liquidate profitable businesses, or portions of them, just to squeeze out a
profit. That's wrong, and it is wrong whether you do it with just a little
short piece of "redundant" track or with the whole dam thing".

Best regards, Michael Sol

Was he saying that common business practises are immoral or capitalism is immoral?

Jay Eaton