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January 2014
— by Jeff Stagl, Managing Editor
Growth is visible at BNSF Railway Co.'s headquarters. Site work is under way on a three-story, 164,000-square-foot building at the Fort Worth, Texas, campus.
To open in first-half 2015, the $30 million facility will house another 570 employees who are expected to join BNSF's growing workforce — which now exceeds 41,000 — in the coming years. The railroad currently employs 4,000 in North Texas, including 3,100 at the Fort Worth campus, and expects to hire 5,000 more company-wide this year.
Growth is apparent elsewhere on the railroad, too. In October, the Class I opened Logistics Park Kansas City, an intermodal facility in Edgerton, Kan., and began construction on a logistics center in Sweetwater, Texas, that will provide various supply-chain services for the area's growing crude-oil market.
Consider them critical assets. The facilities will help the Class I broaden its network horizons in an effort to build traffic and boost revenue in what clearly are the most promising growth segments for BNSF, as well as the other Class Is: crude oil and domestic intermodal.
BNSF is trying to mold its network and tailor services so shippers in those markets view the railroad as a more valuable supply-chain partner and enabler. In turn, the railroad can more deeply tap what's become an ongoing gush of crude and swelling rush of domestic intermodal loads, senior executives believe.
For the past several years, crude by rail and domestic intermodal have presented the best opportunities to offset weak coal business and dips in other traffic segments, they say.
Through November, BNSF's total volume was up about 4 percent year over year, driven primarily by petroleum products and domestic intermodal traffic.
The railroad's volume growth represented 53 percent (more than 400,000 units) of the volume growth registered by all U.S. railroads in that 11-month period, with petroleum products volume up nearly 60 percent.
"Crude by rail is the most significant change in the industry [since] intermodalism and the build-out of the Powder River Basin. There's no doubt it's a growth story," says Matt Rose, who became BNSF's executive chairman on Jan. 1 and passed the CEO reins to President Carl Ice. "Loading and unloading facilities are being built, and Canadian heavy crude will be coming into the U.S."
There's also virtually no apprehension about future prospects with domestic intermodal. BNSF's traffic in the sector was up nearly 8 percent for most of 2013, and in October, the Class I set new monthly records for units and revenue.
"Domestic intermodal is at breakneck volume growth, increasing well in excess of GDP," says Rose. "There have been more over-the-road truckload conversions."
To ensure BNSF can accommodate mounting crude and domestic truckload traffic both for the near and long terms, senior execs have opted to commit lots of capital for infrastructure, equipment and rolling stock enhancements — as in record amounts.
In 2013, the Class I budgeted an all-time-high $4.3 billion for capital expenditures, including about $250 million on capacity enhancements and infrastructure work in North Dakota and the Bakken region. In 2014, capex likely will reach another record level, and the railroad will spend $450 million to $500 million on the northern tier of its network — primarily in North Dakota, Montana and Washington — to address capacity needs for handling more crude and agricultural products traffic, says Rose.
The "aggressive investment" means 2014 will be the largest capacity expansion year in BNSF's history, he says.
"We have a history of adding capacity and process capability to accommodate growth," says Rose.
The top capex objective: make sure money and capacity are going into the network areas that need them the most. The Bakken network certainly qualifies.
At 2013's end, BNSF was transporting about 700,000 barrels of crude per day, with 550,000 to 600,000 of those barrels originating in the Bakken. Sometime in 2014, the Class I's daily handle is projected to reach 1 million barrels.
A long-term projection pegs production in the Bakken Shale — where BNSF handles 75 percent of the output — to eventually reach 2 million barrels per day from the current 1.2 million barrels, says Dave Garin, group vice president-industrial products.
"New destination facilities are coming on line," he says.
For example, CTRAN L.L.C., Cogent Energy Solutions L.L.C. and Stonepeak Infrastructure Partners in April plan to open a BNSF-served crude-by-rail terminal adjacent to the Casper Natrona County International Airport in Casper, Wyo. The terminal will accommodate unit-train and manifest loadings of both heavy and light crude, and feature an initial storage capacity of 750,000 barrels.
In late 2013, BNSF began to serve an Eighty-Eight Oil L.L.C. unit-train facility near Guernsey, Wyo., that can load multiple crude types, including oil from the Bakken and Niobrara shales, and Powder River and Big Horn basins.
To keep up with Bakken production, BNSF is trying to add infrastructure. For example, the railroad plans to build 45 miles of double track between Minot and Williston, N.D., this year.
Although the first big push was crude flowing from the Bakken to points in the South, more of the shale's crude now heads to the East Coast, says Garin.
BNSF also is moving more crude these days from the Eagle Ford and Niobrara shales, and Permian Basin, says Garin.
In October, the United States produced more oil than it imported — the first month since February 1995 that the nation's oil production exceeded imports, according to the U.S. Energy Information Administration. And that trend likely will continue, says Garin.
"We want to keep displacing import oil," he says.
The next big wave will be heavy crude moving out of oil sands in Canada to the United States on CN or Canadian Pacific, then heading to Gulf Coast refineries on BNSF, says Garin. The amount of heavy crude that can be extracted from the oil sands is quite substantial, he adds.
"It could be as big or bigger than the Bakken," says Garin. "Heavy crude will begin to grow [this] year, then start to take off in 2016 and 2017."
In addition to moving more crude in the coming years, BNSF expects to transport more frac sand, pipe and other materials associated with drilling and oilfield services — the key reason the Class I is building the Sweetwater logistics center. BNSF currently transports more than 15 million tons of frac sand and other drilling materials annually.
To be completed in summer 2014, the Sweetwater project calls for upgrading a yard and bolstering mainline infrastructure in the area, including 40,000 feet of new track and improvements to a branch line serving central Texas.
The $28 million, 75-acre logistics center is designed to meet the growing supply-chain needs of the energy corridor in Texas, predominantly in the Permian Basin and Cline Shale.
The center also will enhance the area's ag transportation capacity through a collaboration with grain shipper Cape & Son, which is expanding its operations to accommodate unit trains.
Sweetwater is an ideal location — in the middle of the energy boom, says Garin.
"If were starting over in the Bakken, we would build some similar centers there, but the amount of available land has run out," he says.
Ideally, BNSF plans to move as much oilfield supplies in a unit-train model as is feasible, says Garin. There are other industrial products that either are transported or could be carried in unit trains, as well, including scrap steel, aggregates, waste and taconite used in steelmaking.
A lot of taconite now moves to points on the Great Lakes, but new producers are coming on line and the product could travel by unit train from the Midwest to as far as Mexico via BNSF and Ferrocarril Mexicano S.A. de C.V., says Garin.
In April, BNSF also expects to begin moving eggs and other perishables in unit trains with McKay TransCold, a third-party logistics service provider that's making its first foray into rail. The "TransCold Express" will move refrigerated or frozen consumer goods in a 50-car unit train between Wilmington, Ill., and Selma, Calif.
The expedited train service aims to divert perishables traffic from trucks, says Garin. McKay TransCold will market the service and serve as the freight gatherer.
"There's a need for eggs in California — millions of eggs go west, along with cheese and dairy products," says Garin. "We will get backloaded cheese, artichokes and other products. We want to make perishables successful again."
But BNSF isn't trying to "unitize" the railroad, he says. Not every shipper can provide 100 cars of freight at a time.
"We still want the 'onesies' and 'twosies,''' says Garin.
BNSF is taking a somewhat similar approach to generating more domestic intermodal business. The Class I is trying to attract business from trucking companies that need to move as few as 40 or 50 trailers and as many as 1,000 or more trailers, says Katie Farmer, BNSF's group VP-consumer products.
The railroad employs an 11-member team that calls on carriers and beneficial cargo owners (BCOs) to drum up more intermodal business. As of mid-2013, salespeople already had made as many calls on small trucking companies as they had in all of 2012, says Farmer.
"It's important that we continue to educate users and non-users about intermodal's advantages. There are still myths out there, or people who say, 'I tried it 15 years ago and had a bad experience,'" she says. "People seem more open to it now than they used to be."
The No. 1 myth about intermodal is a lack of reliability, and "we can show them we're reliable," says Farmer. The No. 2 myth is that intermodal is complex, but salespeople can demonstrate how BNSF can provide an end-to-end solution and help extend a carrier's network, she says.
Dispelling myths helped BNSF land intermodal traffic from United Natural Foods Inc. (UNFI), which distributes natural, organic and specialty food products. Salespeople conducted an "Intermodal 101" session and rail yard field trip with UNFI officials in 2012 to help them better understand the mode. The shipper was concerned that BNSF would not be able to meet its stringent transit-time requirements for reefer moves since its organic products have a short shelf life. A few test runs helped squelch those concerns.
In 2012, UNFI was only using one rail carrier and moving 5 percent of its dry inbound loads via rail. Through 2013's first nine months, the company transported more than 3,600 dry and about 200 temperature-controlled loads in containers and trailers carried by BNSF and select carriers.
A federal onboard recording requirement and driver shortages are affecting truck capacity, which is helping BNSF divert traffic, says Farmer.
"We're finding that BCOs are dealing with spot shortages of trucks," she says.
There still are millions of truckloads along the Transcon line from Southern California to Chicago that BNSF can try to divert, says Farmer.
The new Logistics Park Kansas City (LPKC) intermodal facility in Kansas is pegged to play a major role in those efforts. LPKC became BNSF's fourth logistics park, joining facilities in Alliance, Texas, and the Chicago and Memphis, Tenn., areas.
A more than 1,500-acre distribution and warehouse development, LPKC is anchored by the $250 million intermodal terminal, which doubles the Class I's lift capacity in the K.C. region.
The terminal is the only full-service BNSF facility in the western two-thirds of the United States offering domestic and international intermodal, and direct carload services. Located 25 miles southwest of Kansas City, Mo., it's positioned amid growing distribution and warehouse centers in Iowa, Kansas, Missouri, Nebraska and Oklahoma.
"What's exciting is we're offering all types of services in a centrally located area and a growth area," says Farmer. "We can pull matchback loads, such as for grains, proteins and refrigerated products."
For example, grain shipper Delong Co. Inc. — LPKC's first tenant — is transporting grain in containers from the center to the West Coast for Asian exports, she says.
"We think there are several opportunities for facilities similar to LPKC elsewhere, and we will listen to customers where it makes sense," says Farmer.
Rose agrees that multi-use facilities that gather a number of supply-chain constituents around a single park can be replicated in other parts of the network.
Perhaps the next one will be the $500 million Southern California International Gateway intermodal facility that would serve the ports of Los Angeles and Long Beach if a number of environmental-related lawsuits filed against the proposed terminal can be settled, he says.
It would have been difficult to predict that multi-use facilities would play a key role in BNSF's intermodal strategy back in the early 1990s, when the Class I established its first one in Alliance, says Rose.
"Ten to 15 years ago, this wouldn't have even been dreamt of," he says.
There's little chance senior execs could have foreseen the explosion of crude and domestic intermodal traffic just a few short years ago, either. Now, the forecast is nothing but clear skies ahead in both markets for the foreseeable future. The potential for more oil-related business certainly is high, says Rose.
"We have an enormous opportunity with crude by rail," he says. "Pipelines are great, but they can't get into some areas."
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