NS CEO Moorman says he’s “optimistic” on rail crude oil safety improvements

Despite some recent tragic accidents, hauling crude oil by rail is a safe and efficient mode of transport as well as a rising profit center for the nation’s five Class 1 railroads, the chief executive of Norfolk Southern Corp. told business leaders Thursday.
 
Charles W. “Wick” Moorman told the U.S. Chamber of Commerce second annual infrastructure that he was “optimistic” that new and improved methods of hauling crude on rails will be found that will make the system even safer.
  
Recently, in the wake of several high-profile tragedies involving derailments of trains hauling highly volatile crude oil, leaders of the Class I U.S. railroads met with Transportation Secretary Anthony Foxx and federal safety regulators to talk about improved procedures in hauling crude oil from the nation’s burgeoning inland deposit sites to refineries..
 
“We’re working on lot of things to make sure we are routing it in safest possible manner,” Moorman said. “I am optimistic we will meet a consensus.”
  
A recent investigatory report by the Associated Press showed that at least 10 times since 2008, North American freight trains hauling crude oil have derailed, causing explosions.  The AP found those derailments released almost 3 million gallons of oil. That’s nearly twice as much as the largest pipeline spill in the U.S. since at least 1986. The deadliest wreck killed 47 people in the town of Lac-Megantic, Quebec, last summer.
     
A self-described “big kid who loves trains,” Moorman insisted at the Chamber, “It is safer to work for a railroad than to work for a hotel.”
 
He said he favored more inspections of rail cars, which are usually not actually owned by the railroads but are owned by leasing companies and shippers. Also, tougher tank car standards are probably in the works as a result of the recent spate of accidents.
  
“It is very clear the (DOT 111) tank car is not hard to breach in the highly unlikely event of an accident,” Moorman said. “The process is under way to come up with an even higher standard.  I am optimistic we will meet a consensus.”
  
While Moorman applauded federal regulators on that safety initiative, he called for a halt to a $10 billion mandate that would require positive train control to separate rail cars in motion. He called that a “burdensome” regulation that would hinder rail profitability and the nation’s prosperity.
 
“Train accident rates have gone down dramatically and service levels have gone way up,” Moorman said, noting UPS and FedEx are “both great customers of NS” in its premium expedited intermodal service.
  
Taking more trucks off crowded highways has been a goal of all the railroads and, as Moorman put it, “That’s key to our business and key to solving this nation’s transportation problems.”
  
It certainly has been a key to rail profitability. NS posted $1.9 billion in earnings last year on $11.24 billion revenue. In the fourth quarter, NS earned record quarterly income of $513 million on $2.9 billion revenue, with an eye-popping operating ratio of 69.4 in the fourth quarter. Other Class 1s are reporting similar results.
 
“The railroad industry is in as good a shape as it’s been in a long, long time from a standpoint of industry and business,” Moorman said.

That was despite an off year in coal transport, Moorman said. Its coal-related business fell $1.2 billion last year, Moorman said. But that was offset by increases in NS’s auto transport and intermodal business.
 
“The big growth story for us is our domestic business, which is taking 53-foot trailers off the highways,” he said. “We work with the truckers, who are facing a driver shortage that is not going away. If we can take that long-haul business and let their drivers stay home, we can help.
    
But it is the crude oil business that has blossomed out of virtually nowhere. Moorman said NS went from hauling virtually no crude oil five years ago to 75,000 carloads this year. Besides crude, NS has benefitted from hauling sand for fracking from the upper Midwest to Pennsylvania and Ohio, where the Marcellus shale fields are located.
  
Moorman dismissed some captive shippers’ attempt at “re-regulation” of the rail industry, which has thrived since the effects of the Staggers Act of 1980 that largely economically deregulated rate regulation on parts of the rail business that has competition from trucks and elsewhere.
 
Moorman called attempts to change the rails’ regulatory framework “worrisome,” but said he was optimist they would fail
 
“At the end of day, I am confident these will not succeed in any meaningful way,” he said, calling it “cynical attempts by a few shippers to seek lower rate rates to get lower rail rates.”
    
“Railroads have been at the heart of this nation’s infrastructure for a couple hundred years now,” he said. “We clearly are planning a big role in recover from recession of 2009.”
 
Noting that one train moves 70,000 barrels of crude oil or the equivalent of 300 truckloads of freight, Moorman said: “Nobody has figured out a more effective or efficient way to move goods, and I doubt they will unless somebody figures out a way to beam us around.”
  
This year, NS has a $2.2 billion capital expenditure budget, Moorman said, with $900 million of that spent on merely maintaining its infrastructure. Moorman said NS has spent in excess of $7 billion in capital expenditures the past three years.  NS will buy 75 locomotives at more than $2 million apiece in this year alone.
 
“We have to maintain our infrastructure,” Moorman said, noting all Class 1 railroads will spend $26 billion this year on capital expenditure.
  
“Rail infrastructure today is in the best shape it’s been in since at least World War II,” he said. “That’s a great story for all of us.”
  
All the Class 1s are “looking closely” at running locomotives on natural gas, but Moorman said the jury was still out “It’s not something you can look at and say, ‘This is a no-brainer. Let’s do it.’ There is a lot of capital involved for engine modifications and spending on hauling natural gas
 
“What you are making a bet on is what is the spread between oil and natural gas 15 years from now,” Moorman. “It’s a very long term bet. There is still a lot to be determined.”

In a related development, BNSF Railway Co. says it intends to buy a fleet of 5,000 new generation, strengthened tank cars to haul oil and ethanol in a move that would set a higher benchmark for safety within the rail industry.
 
The move by the parent of Burlington Northern Santa Fe, a wholly owned subsidiary of Warren Buffett’s Berkshire Hathaway Inc., is a preemptive strategy as North American Class 1 railroads are coming under increasing safety scrutiny by U.S. and Canadian regulators.