Documents cast doubt on BNSF’s reasons for shipping delays
By Mark Steil Minnesota Public Radio News/88.9 FM WORTHINGTON -- When months of rail traffic delays cost farmers, coal companies, utilities, grain businesses and others hundreds of millions of dollars, Burlington Northern Santa Fe and other carri...
By Mark Steil
Minnesota Public Radio News/88.9 FM
WORTHINGTON - When months of rail traffic delays cost farmers, coal companies, utilities, grain businesses and others hundreds of millions of dollars, Burlington Northern Santa Fe and other carriers blamed the delays on unexpected heavy shipping demand and bad weather.
In particular, they cited a record grain harvest and a sudden surge in demand for crude oil shipments delivered by rail. But public documents and statements from some BNSF customers cast doubt on the company’s version of events.
As federal regulators continue to look at why there was a costly shipping meltdown last winter across much of the railroad industry, BNSF maintains the slowdown on that carrier’s system started in October of 2013. But there were warning signs as early as the spring of that year.
The tremendous volume delivered gains in revenue and net revenue during the first nine months of the year for BNSF. But many of the companies that rely on the railway have paid a huge price.
“This is going to go in history as one of the worst service issues that we’ve seen,” said Kevin Thompson, chairman of the National Grain and Feed Association’s rail shipper and receiver committee.
Like most of the shippers hurt by the rail slowdown, the grain companies in the association had few shipping options other than railroads, said Thompson, assistant vice president of AgHorizons, and a transportation manager for Cargill.
“The frustration levels were high,” he said.
BNSF officials have expressed their own frustration with the shipping problems. The Texas-based carrier owned by Warren Buffett’s Berkshire Hathaway has a long history in the state. Its lineage includes Minnesota’s most famous pioneer railroad: James J. Hill’s Great Northern.
While BNSF has apologized for poor performance, the company’s executives have said they did everything possible to head off the problems.
At a hearing last week in Fargo, N.D., John Miller, a vice president of agricultural products for BNSF Railway, said an unforeseen jump in shipping in the fall of 2013 caused the rail problems.
“It doesn’t happen very often, it just doesn’t,” Miller said. “And let’s hope that this doesn’t happen again for a long, long time. Sometimes things come together in a perfect storm of demand.”
Last year shipments of coal, oil, grain and containers all increased. Coupled with a bad winter that slowed traffic, those factors largely led to the shipping slowdown, BNSF officials say.
In public appearances, company officials consistently maintained that the turning point was in the fall of that year.
“Through the second and third quarter, volume in our large commodity sectors was quite strong,” said Bob Lease, the railway’s vice president of services design and performance. “Then came October. Spreads in the crude oil market began to widen, driving up instant demand for more crude by rail capacity. Added to that a record grain harvest in a very compressed time period was underway.”
Every year the railroad sends a letter to the federal Surface Transportation Board addressing its readiness to handle normally heavy autumn shipping demand. In August of 2013, BNSF informed federal regulators that the company was “well-positioned” for the typically heavy autumn demand for transport. The railway acknowledged that shipping demand was increasing, but said the company was “well-positioned to handle additional growth” and that “we will meet our customers’ expectations.”
That assertion turned out to be way off. With traffic snarled by the following winter, the U.S. Surface Transportation Board demanded an explanation. Last February, the board asked “why BNSF has had such difficulty managing the increase in traffic it predicted it could handle in its August 22, 2013, letter.”
BNSF officials again pointed to unexpectedly heavy shipping demand and the bad weather.
While railway officials say the company was prepared to handle shipping demand until the fall of that year, several BNSF customers and trade groups have testified the carrier was having problems as early as the spring of 2013.
“Their service began its decline in May of 2013,” Bob Kahn, general manager, Texas Municipal Power Agency, told the Surface Transportation Board last April.
“BNSF regularly struggles to provide locomotives, crews and rail cars in adequate amounts to move our coal needs,” he said.
Kahn was just one of several voices. The president of Twin Cities-based United Sugars Corporation said BNSF shipping started slowing down in April 2013.
Bill Swanson, manager of supply engineering, Otter Tail Power Company, said problems with BNSF coal deliveries first surfaced in June 2013.
“That’s when I think we made some efforts to voice our concerns about what the supply level was,” he said.
On paper, BNSF itself has been inconsistent. This year, a letter from the railway dated the start of problems to the quarter beginning in July 2013.
“We were not able to meet the significantly higher concentrated demand we were experiencing across several key business sectors as we moved into the third quarter of 2013,” which began July 1, railway officials said.
But in August 2013, BNSF officials told regulators railway traffic was under control and that the company was “well-positioned” for heavy shipping demand in the fall.
Company officials have declined interview requests. They have not explained the apparent contradiction in timelines between the two letters, or whether the railway responded soon enough to fix the problems.
BNSF internal data published in an employee magazine bolster customer statements that the slowdown actually started in the spring of 2013.
One of the key measures of a railroad’s performance is something called velocity, basically average train speeds. For years, BNSF has given employees velocity data, usually for the first six weeks of a quarter. Those numbers show a sharp slowdown in the spring of 2013. During the four previous years, velocity increased as winter gave way to spring.
Velocity then continued to fall for the rest of 2013, dropping to its lowest level reported in five years by December.
The situation has left BNSF customers with few answers, but lots of red ink.
Scott Dalesandro, general manager of Columbia River Logistics, which is owned by Oregon-based West Linn Paper, said the company’s business dropped 12 to 15 percent because of BNSF-related shipping problems, causing a substantial monetary loss.
“You’re probably looking at $10 million in that bracket,” Dalesandro said.
Shippers that lost far more because of the rail industry shipping problems include Minnesota Power, Amtrak and United Sugars.
Thompson, of the National Grain and Feed Association, said shipping problems cost its members – among them many of the nation’s largest grain companies - at least $250 million.
“For a lot of people, it was pretty painful,” he said Thompson.