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Global Trade, Energy Prices
Force Changes at BNSF

by Nick Carey
Reuters, February 13, 2006

CHICAGO (Reuters) - Faced with major changes in global trade, No. 2 U.S. railroad Burlington Northern Santa Fe Corp. has revamped the way it does business from planning to dealings with customers from trucking companies to retailers and utilities, executives said in a series of recent interviews.

"The globalizing economy has forced us to look much further into the future," BNSF Chief Marketing Officer John Lanigan told Reuters at company headquarters in Fort Worth.

"We have to be able to spot demand years in advance, then adapt our business to meet it."

As U.S. imports have seen double-digit growth in the past three years and show little sign slowing -- especially while the U.S. economy expands -- this has "posed challenges for all shipping companies, for the railroads, for trucking companies and maritime shippers."

Lanigan said that, while BNSF does not have direct business relations with major retailers -- many go through companies such as No. 1 customer trucking company J.B. Hunt Transport Services Inc. -- it works with them to anticipate their needs.

BNSF worked closely, for instance with the giant U.S. retailer Wal-Mart Stores Inc. ahead of its decision in 2005 to build a 3.4 million square foot distribution center alongside Burlington Northern's Logistics-Park Chicago in Ellwood, Illinois.

BNSF Chief Executive Officer Matthew Rose said other retailers are likely to follow suit as railroads take over more long-haul business.

While trucking companies dominate the shipping business in the United States, taking 88 percent of all transport revenue in 2004, high fuel prices have begun pushing some long-haul business toward the more fuel-efficient railroads.

The railroads also do not suffer from the shortage of drivers that has begun to affect trucking outfits across the country, particularly long-haul jobs that keep drivers away from home for days at a time.

"As time moves on, the railroads will do more of the long- haul, while trucking companies will focus more on short-haul trucking where they truly excel," Lanigan said.

In order to meet and anticipate rising capacity demands -- a lack of capacity is one of the main complaints from railroad customers -- BNSF is also working with major U.S. ports to start providing capacity in advance.

Other than Los Angeles-Long Beach, the largest U.S. port, BNSF serves numerous others, including Vancouver, Seattle, Tacoma and Houston, "all of which saw record volumes in 2005," BNSF CEO Rose said.

As adding additional lines costs around $1 million to $2 million per mile to add, "we can't afford to put line in just anywhere," Lanigan said. "We have to plan carefully years in advance.

This is also true for coal, said Thomas Kraemer, head of BNSF's coal business unit, in particular coal coming out of the Powder River Basin. This is the nation's largest coal field, with estimated reserves of 75 billion tons. Some 440 million of U.S. total 2005 coal production of 1.1 billion tons came from the Powder River Basin.

Straddling Montana and Wyoming, where the coal is cheapest and lowest in sulfur in the United States, utilities on the East Coast have sought ever more coal from this basin. High natural gas prices have made coal an even more attractive alternative, at least for now.

Some utilities have also complained that coal is not coming out of the basin fast enough, leaving them low on inventories.

Kraemer said BNSF handled 50 million more tons of coal in 2005 than it did two years previously.

He said new coal-fired plants in the Western United States alone that are expected to launch operations over the next six years should add fresh demand of more than 60 million tons.

Kraemer acknowledged utilities' complaints over rail capacity, but said "boosting capacity takes time and is based on long-term plans" rather than short-term inventory crunches.

BNSF has announced it will invest $2.4 billion this year, 10 percent more than in 2005.

Nick Carey
Global Trade, Energy Prices Force Changes at BNSF
Reuters, February 13, 2006

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