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August 2015

Rail News: BNSF Railway

BNSF leaders reflect on rapid business growth as 20th anniversary nears

By Jeff Stagl, Managing Editor

BNSF Railway Co. is about to reach a significant milestone. The Class I will mark its 20th anniversary on Sept. 22.

BNSF was formed by the merger of the Burlington Northern Railroad and Atchison, Topeka and Santa Fe Railway, which was consummated on Sept. 22, 1995. First known as the Burlington Northern Santa Fe Railway, the Class I officially changed its name to BNSF Railway Co. in January 2005 and was acquired by Berkshire Hathaway Inc. in February 2010. (Click here to access a more detailed history on the railroad.)

BNSF is the result of 390 different rail lines that were merged or acquired over a period exceeding 160 years. Headquartered in Fort Worth, Texas, the railroad is North America’s second-largest Class I based on annual revenue and volume.

BNSF will mark its 20th anniversary on Sept. 22.
Source: BNSF Railway Co.

The company manages a 32,500-mile network in 28 states and three Canadian provinces, employs 48,000 people and operates more than 100 facilities, including 30 intermodal terminals. Traffic is generated from a mix of commodities, including agricultural and food products, energy products (such as crude oil and frac sand), housing materials, manufactured goods, finished consumer goods, automotive vehicles and parts, and chemicals.

The end-to-end merger of two strong railroads resulted in an organization with a broad reach, diverse customer base, dedicated employees and effective leadership, said BNSF President and Chief Executive Officer Carl Ice in an email. And one that has been able to weather the Great Recession and other difficult economic times, shield itself during cyclical business shifts, and exceed revenue and traffic growth projections, he said.

“Our strong franchise has helped us increase operating revenues from a little over $8 billion in 1995 to more than $23 billion in 2014, revenues that would equal a Fortune 150 company,” said Ice. “It’s astounding to think about how far we’ve come. In 1996, I would be surprised if anyone would have predicted this level of growth.”

Then-and-now statistics reveal other noteworthy achievements since 1995:
• shuttle-train-qualified grain elevators along the network have ballooned from zero to 229;
• the locomotive fleet has increased from 4,250 to 8,000 units, with more than 40 percent of today’s motive power less than a decade old;
• consumer goods shipments have doubled from 2.5 million to 5 million units;
• industrial products volume has more than doubled from 67,000 to 137,000 units;
• coal traffic has ramped up from 1.88 million to 2.27 million units; and
• grain shipments have increased from 663,000 to 974,000 units.

The Class I also has allocated more than $60 billion for capital investments over the past 20 years, including $1.4 billion in 1995 and a record $6 billion in 2015. Since the merger, the railroad has installed more than 1,200 miles of new mainline track across its network.

In addition, BNSF has registered significant safety improvements even though train miles have increased 34 percent since 1995. Reportable injuries have declined 47 percent, total injuries have plummeted 56 percent, reportable derailments have dropped 20 percent and total derailments have plunged 36 percent.

Last year, the railroad achieved best-ever safety metrics, which “demonstrates our progress toward achieving our safety vision of an injury-free workplace,” said Ice. For example, hundreds more employees returned home safely in 2014 than in 1996, even though today’s BNSF has a much larger workforce, he said

“We have made tremendous progress in fostering a safety culture of commitment in the past 20 years,” said Ice. “Some of our most important advances have been our shared processes where employees have taken ownership of safety and focused on ways to identify and eliminate risk.”

BNSF also endured its most challenging year in 2014, service performance-wise, because of a combination of trying circumstances. Catastrophic floods, large mudslides and extreme winter weather challenged the railroad’s high service standards, said Ice. This year’s record-setting capital investments in locomotives and line/terminal capacity are helping BNSF safely operate at a better performance level than last year, he said.

“Our service is also closely intertwined with economic and business cycles, and we’re seeing more frequent and more dramatic changes than ever before in customer demand and volumes for various parts of our business,” said Ice. “But, with tenacity and focused hard work, as well as strategic investment to flex capacity as needed, we’ve always returned to our heritage of strong service.”

The railroad manages a 32,500-mile network in 28 states and three Canadian provinces.
Photo: BNSF Railway Co.

This year, the focus has been on what Executive Vice President and Chief Financial Officer Julie Piggott characterizes as “the three R’s” — restoring service, returning to growth and rebuilding BNSF’s reputation. Although there is much to celebrate while marking the 20th anniversary, last year’s financial performance didn’t meet the company’s expectations, she said in an article published in the spring/summer edition of BNSF’s Railway Magazine. Operating costs were driven up in 2014 by resource additions — such as locomotives and rail cars — to help bolster service.

“If we are to be successful, we must improve our earnings capacity, which means, in addition to volume, getting the right value for our services, hitting our productivity metrics and improving our cost structure,” she said. “In a typical year, we strive to offset half to two-thirds of inflation with productivity improvements. In 2015, we need to do better than that … [and] offset 100 percent of inflation to ensure that we’re making traction and removing the excess costs we incurred in 2014.”

Second-quarter results show the Class I is making headway with costs: On a year-over-year basis, operating expenses in the quarter declined 11 percent to $3.6 billion and in the first half fell 10 percent to $7.3 billion. Also through the first half, net income grew 22 percent to $2 billion, operating income jumped 20 percent to $3.7 billion and BNSF’s operating ratio dipped 5.3 points to 65.9 even though revenue decreased 2 percent to nearly $11 billion.

Since the Berkshire Hathaway acquisition in 2010, BNSF’s annual revenue has increased by nearly two-thirds to $23.2 billion, net earnings have more than doubled to about $4 billion and market value has nearly doubled. To continue fostering business growth, the company will continue to maintain its mission, which hasn’t changed in 20 years, said Ice.

“Every action we take, every word we speak, every decision we make can contribute to our success in serving our customers, growing our company and achieving our vision,” he said. “Our mission remains the same that we established from the start, that we will realize BNSF’s tremendous potential by providing transportation services that consistently meet our customers’ expectations.”


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