BNSF Tells-All!

Abe Zumwalt, Rail Passengers Association

Burlington Northern Santa Fe (BNSF) is defined as a class I railroad, operating around 32,000 miles of track across the American West. If you’ve ridden the Empire Builder, Coast Starlight, Southwest Chief, or any number of services in Washington State, clear across to Illinois or Texas, you’ve ridden on BNSF tracks. Though they bear resemblance to the other four Class I railroads operating in the United States, there is one crucial difference: BNSF was bought outright in 2009 by Warren Buffet’s Berkshire Hathaway, while the other four are publicly traded on the stock market.

Railway Age’s in-depth “Less is NOT Better!” interview with CEO of BNSF Railway Matt K. Rose is a must read. Seemingly more at liberty than in the past to discuss the industry on the eve of his retirement, he offers astonishing insight. Here are three important takeaways for passengers.

1

Look no further for root cause of late trains: Publicly traded railroads, which constitute the majority of Amtrak’s network, are being managed at the whim of increasingly aggressive profit seeking Wall Street interests, to the detriment of operational efficiency. As Rose outlines very clearly:

“The railroads are still investing significant sums, but we’re starting to be goaded into lower capital targets by Wall Street, the sell-side guys. They’re giving railroads kudos for saying, “Oh, I can spend capital as a percent of revenue.” That’s not the best measure. We don’t spend capital as a percent of revenue. We spend capital based on gross ton-miles we haul. Bridges don’t wear out with revenue; they wear out with units and gross ton-miles […]When a hedge fund says, “I really want to know how you’re going to do next quarter” on a railroad that is making 30-, 40-, 50-year-long asset investments, it’s really not consistent.

[…] The Street—I’m talking about sell-side analysts—has been extremely aggressive with the publicly traded railroads. They’re saying that less is better. Less capital [track, signals, capacity] is better. Fewer market opportunities are better. Fewer unit trains are better. It’s all about lowering the operating ratio. I disagree with almost all of that.”

We’ve heard anecdotally that investors will look at a completely congested railyard and come away thinking that a given railroad couldn’t be in better shape, having ‘more business than they can carry!’ when, in fact, such conditions are a sign of neglect and bad operations. These conditions are precisely why the same trains are late, again and again. There is no longer capacity to run them on their host railroad’s infrastructure due to reduced capital investment.

“I had a saying. I never said it publicly: “There’s really no such thing as a bad load of freight.” We need to find the right operating expense to haul it, but we’ve also got to find the right price to haul it. We didn’t go around shooting down freight, because we saw this industry in the ’90s lose enormous amounts of market share to truck. I believe that, when we fast-forward 10 years in the future, we may not be saying that there is no such thing as a bad load of freight.”

Currently, passengers are a “bad load of freight” in the eyes of many host railroads.

“You would think that as the railroads become more profitable, by however measure you want to look at it, service would actually improve. And I’m not sure we’ve seen that. I think we’ve seen, actually, a degradation in overall performance of the rail network in general […] You would think Amtrak performance would be at an all-time high. You would think commuter rail performance would be at an all-time high. They’re not.”

2

Just in time for the surface transportation reauthorization coming in 2020, comes the Class I Railroad CEO’s advice that we must decide through policy that we, as a nation, want a national passenger rail network, and then we actually need to fund it. In Rose’s view, Amtrak suffers from a lack of policy direction, overexposure to political debate, and a lack of funds:

“Public policy needs to determine, do you want, long-term, to have a national passenger railroad network? If you do, then you need to pay for it. […] Amtrak is not getting enough capital to renew its long-distance trains. And over time, you’ll have more and more service failures, you’ll be clogging up the national railroad network.

“Public policy needs to determine who pays for this stuff, and what is the role of Amtrak. It’s not for the railroads to determine, and quite frankly, it’s not for the Amtrak board to determine. Do we want a national system? Do we want just a regional system? What is the value of having passengers being able to utilize that system in the middle of North Dakota? If you’re living in the state of North Dakota, it’s a high value. If you’re living in L.A. and want to get to Chicago, it’s probably not a huge value.”

The timing of these observations couldn’t be better, as the opportunity for comment on the creation of such policy is coming next year. Still, should Amtrak be reorganized substantially, as has been provocatively suggested, we need to be careful not to throw the baby out with the bathwater:

“If outside operators were going to come in, we’d be concerned that they wouldn’t respect the same railroad operating rules and cadence that Amtrak does, and that we wouldn’t have the same liability structure that we have with Amtrak. We’d probably look at it, out of defense more than offense. One thing we do appreciate about Amtrak. They really do conform to our safety rules. That is unbelievably important to us.”

3

Mr. Rose has had the relative luxury in his industry of working for Buffet, a boss who directed him to plan as if he owned the railroad and was “going to be in charge of it for the next 100 years.” The direction was perhaps as unique as the perspectives that emerged from it. Briefly, if railroads are to be successful in the future, policy will need to be put into place that recognizes a few market failures. Highway user fees will need to be rationalized, especially with the advent of autonomous trucks potentially operating in gigantic caravans. Carbon emissions will need to be priced and taxed. Above all, railroads will need to be a few steps ahead of federal regulators, rather than reacting in a downward spiral to draconian policies inspired by negligent management:

“[Future success will] come with attended automation, moving block and movement planner. With a battery-operated locomotive. If policy makers put a price on carbon. With a highway system paid for by users, and a regulatory agency that, as long as we are making these significant capital investments, will allow us to make double-digit-type returns.

That’s the virtuous cycle [...] We’ll be attracting more business, we’ll be making higher returns, and we’ll be using that money to make more investments in addition to giving it to our shareholders. And regulatory oversight that will say, ‘Yep, this is all working really well.’”

Note that nowhere does Rose imply that passenger trains are an inherent hindrance to the future success of the nation’s private railroads. Read the whole interview here, it’s worth your time. Or, better yet, if you possess Mr. Rose’s level of foresight, get over to our page on the upcoming surface transportation reauthorization and comment on what you’d like to see out of it!