BNSF CEO Apologizes to Grain Shippers - Mar 17, 2015 

By Katie Micik
DTN Markets Editor

SAN ANTONTIO, Texas (DTN) -- BNSF railroad's CEO apologized to grain shippers for last year's poor service and explained why he thinks the railroad will be able to handle freight better in the future during a presentation at the National Grain and Feed Association's annual convention. 

"We know we disappointed. We didn't meet your expectations. We didn't meet our own," Carl Ice, BNSF's CEO and president, said. "We do believe we're running better now. Our plan is working. We are hearing a lot of that from you all."

Ice explained that BNSF exceeded its capacity improvement goals last year by adding more staff, locomotives and overall capital investment than planned. Initially, BNSF wanted to add 5,000 staff members, 500 locomotives, 5,000 grain cars and spend $5 billion on improvements to track and maintenance. Instead, they hired 6,000 people, bought nearly 530 locomotives and spent $5.5 billion on infrastructure upgrades. As a result, railroad backlogs vanished.

The railroad executive took a different approach to the meeting by addressing the audience as customers, attendees said. He stepped down from the stage, eschewed the traditional PowerPoint presentation and dedicated more than half of his speaking time to answering questions. 

"I think BNSF is right that the fluidity of their system, particularly for shuttle trains, this year is much better, but farmers also haven't brought all that corn to market," NGFA President Randy Gordon told DTN. "They're generally waiting for price improvements, so we didn't get that full brunt of harvest like we're used to, and exports haven't been as vibrant as they were. In a way -- I don't want to call that a blessing -- but in a way, we just didn't feel the full brunt of harvest and what that would have done to the service like it did a year ago."

The U.S. is facing a big crunch in overall transportation capacity, he said, making it a dominant theme at this year's meeting. 

Inland waterways advocates explained at earlier sessions how the success of the recently passed Water Resources Reform and Development Act relies on the Congressional appropriations process to actually fund the projects the law prioritized. Trucking advocates explained why allowing heavier truck weights and modified axle configurations would increase highway capacity while maintaining breaking distance and other safety measures. 

"All of our modes are really struggling right now in terms of capacity issues," Gordon said. "Railroads certainly aren't alone in that."

Ice said the rail industry faces some headwinds. In order to keep spending money on improvements, they have to keep making money. That has them watching regulatory issues, like enhanced tank car regulations, very closely. 

Bryan Boaz, a manager of rail asset performance at Enbridge Energy Partners, told conference attendees that recent derailments, like the one in Galena, Illinois, last week, have drawn increased scrutiny to the rule because they've involved safer tank cars. But Boaz pointed out the cars in the Galena derailment weren't jacketed, meaning they lacked the extra coating that slows down the rate at which the car catches on fire, making them more likely to set on fire. 

While BNSF supports improved tank car safety, Ice said they've gotten the impression that the upcoming rules may be more all-encompassing and could potentially include new rules on speed limits. 

"We voluntarily lower speeds at the proper times, but speeds even lower -- sometimes as low as 30 to 40 miles per hour across our whole railroad -- if something like that were to happen, it would have a serious impact on the capacity of our railroads," he said. 

While the railroad industry underestimated the crude-by-rail movement initially, it makes sense, Ice said. 

"If we go back and look at the growth of oil on railroads, the reason that happened is part of what railroads are good at doing: We do one thing -- move stuff from where it is to where it needs to be," he said. Railroads offer flexibility, the ability to deliver unaltered product, "and lastly, railroads are faster, and that's not intuitive. With pipelines, it actually takes twice as long from when you load it until it gets out."

Ice said he thinks more pipelines will be built. BNSF is not opposed and thinks the permitting process for new pipelines needs to be quick as well as thorough. "If (pipelines) want to compete, that's OK. That's how our economy works."