Matt Rose, chief executive officer of the Berkshire Hathaway-owned Class I railway, said federal regulators should consider how the sharp decline in coal traffic is affecting the nation’s railways.
Federal regulators should consider how the sharp decline in coal traffic is affecting the nation’s railroads, BNSF Railway CEO Matthew Rose said in Houston at the annual Intermodal Expo, which was sponsored by the Intermodal Association of North America (IANA).
While the U.S. population has grown 30 percent since 1990 when IANA was formed, he said intermodal volumes have doubled, and at the same time, coal volumes are plunging.
According to the Association of American Railroads, intermodal has grown from 27.3 percent of railcar loads in 1990 to 49 percent in 2015. In addition, coal loads have fallen from 29 percent of railcar loads in 1990 to 18.3 percent in 2015.
At BNSF, coal accounted for $1.4 billion in revenues and 763,000 railcars in the first six months of 2016, or about 16 percent of overall revenues and traffic. This was down from $2.4 billion in revenues and 1.15 million railcars in the first six months of 2015, or 23 percent of overall revenues and traffic
Rose said the U.S. Energy Information Administration is forecasting that in 2016, for the first time, more electricity will be generated by burning natural gas than coal in the U.S.
The fact that coal is in a “structural decline” is important because revenues from all traffic over the years have provided stable returns that allow railroads to reinvest in and expand their networks to accommodate all growth, including intermodal traffic.
“A drop of the magnitude we have seen in coal has the potential to restrict reinvestment if not handled appropriately by our economic regulator,” Rose said.
He expressed concern about what he said were “multiple, overlapping rulemakings” before the Surface Transportation Board that he said began before the precipitous drop in coal.
Rose said those rulemakings propose to change almost every element of the current economic regulation of railroads, which allow railroads to respond to markets’ real revenues and reinvest.
“The board must take the current economic climate into consideration as it finalizes rules or the consequences to our industry will be sizeable,” he said.
Comparing intermodal transportation to a relay race in which railroads are one member of a team along with ocean carriers, dock workers, trucking companies and freight owners, he said railroads have spent heavily on terminals and increased linehaul capacity to accommodate growing intermodal volumes.
As examples, Rose pointed to BNSF’s investment of $3 billion in its route connecting Southern California with the Midwest. It has steadily added double track since 1992. This summer, the railway completed the Pecos River bridge in Fort Sumner, N.M. The completion of that bridge means all but four miles of its 2,200 “Southern Transcon” corridor is double tracked, BNSF said.
Along its northern corridor, the railway has spent $3.5 billion over the past couple of years, adding more than 1,000 miles of centralized traffic control, 139 miles of double track and 16 new sidings. He said BNSF is 16 percent faster, on average, than other Class 1 railroads.
He also pointed to BNSF’s investments at its intermodal hubs in Kansas City and Chicago, which have large amounts of adjacent warehousing. Rose said that “truly fulfills the ultimate public policy vision of attaching warehousing right next to intermodal facilities, which reduces truck loads on our nation’s highways.”
Rose also said public policy can be a headwind or tailwind to railroads and intermodal growth.
Taxes designed to reduce carbon dioxide emissions could be a benefit to the intermodal industry but could be “the death blow” to the coal business of railroads.
The decline in coal does have an upside for intermodal shippers – BNSF is now able to use underused capacity in its network for intermodal service that would not have been possible in the past because of heavy coal traffic.
BNSF this month started an intermodal service that connects Seattle and Portland, Ore. with Alliance, Texas. Rose said the service is two days faster than other intermodal options and has a transit time similar to that which can be achieved by a truck with a single driver.
“The current freight economy is in an energy depression, industrial recession and consumer is doing okay,” he told his audience.
There is no greater threat to intermodal growth than permitting delays or disapprovals for intermodal facilities, said Rose, noting BNSF is appealing a decision by a California court that blocked the company’s plan to build a new, $500 million intermodal terminal about four miles from the ports of Los Angeles and Long Beach.
Southern California is the second largest market for intermodal traffic in the country and that “there is a clear need for more on-dock rail capacity with container volume expected to grow by 25 percent by 2020 at the ports of Los Angeles and Long Beach and double by 2035,” Rose said.
He said the Southern California Intermodal Gateway was designed to remove billions of truck miles from the I-710 and other highways and would have included electric cranes and ultra-low emission locomotives.
After eight years of study, an environmental impact review was approved by the Los Angeles Council, but seven lawsuits from the neighboring city of Long Beach and environmental groups challenged it. In March, a California state court judge voided the approval by the council.
Preventing the facility from being built will affect not only BNSF abut “everyone in this room” Rose told the members of IANA.
“We are going to appeal if for nothing else, on behalf of transportation policy. It was a horrendous decision,” Rose said. “It will impact the ability to build anything by anybody in terms of transportation” because it would force the cumulative impact of a facility to be looked at, not just a project as a sourcepoint.”
Rose said he believes that at some point, there will be intermodal rail service from the ports of Los Angeles and Long Beach to the so-called “Inland Empire” where many warehouses and distribution facilities are located, but that BNSF does not believe the economics will work today.
BNSF CEO: Railroad regulators need to recognize dip in coal traffic
