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Buffett’s BNSF sees Bakken-area rail tie-up until year-end

THOMAS BLACK and NOAH BUHAYAR

FORT WORTH, Texas (Bloomberg) -- BNSF Railway Co., the carrier owned by Warren Buffett’s Berkshire Hathaway Inc., will need the rest of 2014 to untangle train tie-ups in the corridor that serves North Dakota’s Bakken shale region.

A system-wide traffic jam, caused by surging grain and crude-oil volumes coupled with harsh weather, is being resolved on the southern lines linking Chicago and Los Angeles, CEO Carl Ice said in an interview at the railroad’s headquarters in Fort Worth, Texas.

“Our southern region, we see that improving right now,” Ice said. “The central a little slower and the north taking through the year.”

Ice’s forecast underscored the scope of the recovery effort for U.S. railroads after winter storms and rising cargo shipments disrupted operations. BNSF sent 300 additional crew members to its northern region and plans to add 500 locomotives and 5,000 railcars this year to help ease the snarls, Ice said.

The Bakken shale formation is among the new crude-producing fields helping buoy U.S. oil output through advanced drilling techniques such as hydraulic fracturing. North Dakota was among the U.S. Plains states swept by snow measured in feet and subzero temperatures that reduced the effectiveness of trains’ air brakes.

Union Pacific Corp., whose network is concentrated in the western U.S. like BNSF’s, said in March that train speeds fell 9% from a year earlier. Ice said BNSF’s decline was more than that without giving details.

Part of BNSF’s $5 billion in capital spending this year will go to build infrastructure to ease congestion in the northern region, Ice said. At the same time, that construction can delay trains just as highway improvements can slow auto traffic, he said.

The rebound for the northern region “will be slower as the capacity comes on line,” said Ice, 57, who moved into his current role on Jan. 1 when predecessor Matt Rose gave up his post as CEO to become executive chairman.

BNSF’s traffic rose by more than 400,000 units last year, topping 10 million, and accounted for about half of the 800,000-unit increase across the industry, Ice said.

Buffett highlighted BNSF’s capital spending in his annual letter to Berkshire shareholders released last month. The railroad has boosted those outlays as it distributed more than $12 billion to its Omaha, Nebraska-based parent since the 2010 takeover.

“Whatever you may have heard about our country’s crumbling infrastructure in no way applies to BNSF,” Buffett wrote. “Like Noah, who foresaw early on the need for dependable transportation, we know it’s our job to plan ahead.”

Ice said BNSF was progressing in efforts to boost tank-car safety as it reviews proposals from railcar manufacturers for new, sturdier models. BNSF requested bids for a potential purchase of 5,000 cars.

“We’ve received preliminary information now” after most of the industry’s equipment suppliers responded to BNSF’s request, Ice said. “We’re going through that now, and then we’ll start some follow-up discussions.”

The U.S. Transportation Department’s Pipeline and Hazardous Materials Safety Administration is looking to set stricter tank-car regulations in response to accidents involving crude-by-rail shipments. A July derailment in Quebec killed 47 people.

Railroads are lobbying for upgrades that include a thicker steel hull, while the shippers and leasing companies that own the rolling stock have said modifying current tank cars to those specifications is prohibitively costly.

There are about 92,000 tank cars in service hauling oil and ethanol. Of those, only about 14,000 were made after the industry agreed to safety enhancements in 2011, according to the Washington-based Association of American Railroads trade group.

BNSF will be flexible while working with railcar makers on the design, Ice said. The railroad would like to see “an aggressive phase-out” of the older tank cars, he said.

“The right thing to happen is what we’ve called the next-generation tank car, at least for our railroad,” Ice said.

04/03/2014

 

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