Buffett bets on rail superhighway to beat trucks as coal fades
A noisy yellow machine laying down railroad track near Alva, Oklahoma — as much as a mile a day of concrete and steel — is Warren Buffett’s solution to the industry’s dwindling coal traffic.
After this year, BNSF Railway Co. will be more than 99 percent finished with a second, parallel line to its 2,200-mile (3,500-kilometer) Los Angeles-to-Chicago route. Doubling up will create a rail superhighway speeding deliveries of toys, electronics, autos and other goods, because trains won’t have to yield to each other on sidings as they do on single tracks.
The goal: help the unit of Buffett’s Berkshire Hathaway Inc. grab cargo now going by road.
“If the rails can improve the reliability of the transit time,” shipping consultant Satish Jindel said, “it helps them compete with the trucks.”
Snatching consumer products and other freight from big rigs is more crucial than ever. Coal, once a pillar of U.S. rail traffic, is fading as utilities burn cheaper and cleaner natural gas. Average weekly carloads are down 20 percent from five years earlier, according to data compiled by Bloomberg.
The Los Angeles-to-Chicago route links the busiest U.S. container port to the biggest mid-continent rail hub, giving BNSF a leg up in the race to find alternatives to those dwindling coal cars. And there’s room to grow: one consultant estimates that trains now move only about 19 percent of the 71 million trailer loads that travel 550 miles or more, a rough threshold for where rail becomes an viable option.
“We have significant opportunities to convert” truck cargo to rail, said Katie Farmer, chief of BNSF’s consumer group. “We’ve really narrowed the gap now between what was traditionally rail service and over-the-road trucking.”
That’s where the dual tracks come in. More and longer trains can be run on two tracks than on a single line. Once the double-tracked section in Oklahoma is completed at the end of October, BNSF will have just seven more miles of line to build – – involving three costly bridges — and will be able to run 78 trains a day in that region, up from 62 now.
With no need to pull over, they can also go faster. A BNSF train laden with truck trailers now can make the Los Angeles- Chicago run in 64 hours, said consultant Jindel. Completing the twin-tracking will shave off as much as three hours, he said.
XPO Logistics Inc., an arranger of shipments for customers such as Costco Wholesale Corp., figures that about a third of the long-haul freight that it now sends by truck is a candidate to switch to train, Chief Strategy Officer Scott Malat said. If that rule of thumb were applied across the industry, there could be more than $100 billion of business up for grabs by railroads, he said.
“Rails have realized that, and that’s one of the main reasons they’ve been investing so much in their capacity, service and efficiency,” Malat said.
In the eastern U.S., CSX Corp. is reconstructing a Washington tunnel with twin tracks and enough height to handle two containers stacked atop one another. In the west, Union Pacific Corp. is laying a second track on its 760-mile line between Los Angeles and El Paso, Texas. It has about 150 miles to go.
Buffett’s railroad has a key advantage over Union Pacific: the most direct shot between Chicago and Los Angeles, where the region’s two ports handle about 40 percent of U.S. imports shipped in containers. Those boxes, holding finished goods like shoes, furniture and auto parts, leave ships to be hoisted onto trains or trucks.
Railroads are already winning more of this so-called intermodal business. Rail shipments of containers grew 15 percent over the last decade while other cargoes, such as coal and chemicals, dropped 11 percent.
But persuading shippers to switch still isn’t easy.
While it’s cheaper to send freight by rail, it takes longer. The cost of transferring containers to trains and then back to trucks for final delivery makes it difficult to compete on trips of less than 550 miles, said Larry Gross, a partner at FTR Transportation Intelligence. Trucks are more punctual and flexible.
This is why Kiera Adams’s job in Oklahoma is crucial for BNSF. Sporting an orange vest, white hardhat and a two-way radio on her hip, the 25-year-old is project manager for the 10-mile stretch of new line going in alongside the Southern Transcon route, which was completed in the early 1900s to bypass steep mountains in northern New Mexico.
Adams, tramping along on foot behind the clanking track layer and dispensing instructions, revels in taking out the bottleneck in the midst of the farmland outside Alva.
“You see the fruits of your labor when they start running the trains double once you’re done,” Adams said.
By Thomas Beck, Bloomberg