BNSF CEO Rose highlights importance of supply chain in national and global economy

While the “good old days” of high freight volumes from 2005 and 2006 are not intact in the present day, they are coming back, or at least starting to approach those levels in some cases, and what is needed for that to happen is to ensure our supply chains retain their competitive advantage in both the global and United States economy.

This sentiment served as the thesis of an engaging and wide-ranging keynote speech by Matt Rose, Chairman and CEO of BNSF Railway, at last week’s National Shippers Strategic Council (NASSTRAC) Annual Conference in Orlando, Fla.

Looking at the boom days of 2005 and 2006, Rose observed that highway tons were peaking, as were port containers and railroad tonnage, which made for a welcome situation, with a major caveat, though.

“Things were also at a break in terms of what our infrastructure can reasonably handle, and demand was driven by a huge increase in household fulmination and incredible customer appetites and along with that came increases in other businesses like lumber, cement, furniture, plastics, and autos,” said Rose. “Many customers were not thrilled with railroad service at that time; everyone was asking how the railroads were going to handle increased demand, but the recession [in 2007] helped to avoid a railroad capacity catastrophe—which helped to solve capacity problems, and I believe the same thing happened on the highways with VMTs (vehicle miles traveled).”

As things stand now, Rose explained that freight volumes are approaching 2006 levels, following the nadir of the Great Recession, with interstate VMT miles rising and United States railroads about 75 percent back to 2006 peak levels, with intermodal having recovered by 97 percent compared to 2006, according to Association of American Railroads data.

Even though volumes sank during the recession, capital expenditure outlays by railroads did not, Rose said.

“We knew the decline would not last forever, and during the downturn railroads spent heavily on capex, and during 2009 more was spent than in 2006,” he said. “This year, BNSF will spend $4.1 billion, a $500 million increase over our previous best of $3.6 billion in 2012 and is also the largest capital investment ever announced by a railroad. We will spend $2.3 billion on our core network and related assets and $1 billion on locomotives, freight cars and other equipment, $550 million on new terminals, lines, and intermodal expansion and efficiency projects, and another $250 million on Positive Train Control.”

While volumes were down after 2006, Rose said it gave railroads the opportunity to focus on productivity and efficiency movements in the form of sidings, longer trains, and more fuel-efficient locomotives.

And it is more than likely that initiative will pay off, with Rose explaining that BNSF expects to see 5 percent annual gains on top of national economic growth of about 2 percent as the economy slowly continues to improve and get back to peak volumes.

“I believe we have taken the necessary steps to handle additional growth,” said Rose. “The question is if the rest of our nation’s infrastructure is ready to handle the additional demand. Unfortunately we lost 7 or 8 years without any meaningful impact or partners on our transportation policy and today there is less money in the Highway Trust Fund. If we maintain current revenue streams there will be a shortfall of about $80 billion [in the HTF] by 2020. This is not a sustainable funding situation, nor is it good public policy for the long term.”

Rose opined that what is needed is for Congress and the Administration to focus on programs related to project funding decisions and to provide the tools and specifics needed to move forward.

Efforts like this provide tremendous value in investing in and mitigating impacts in freight mobility, because when freight corridor projects benefit from freight movements, Rose pointed out the economy benefits, too. And while railroads pay for their own network expansion and improvements more federal participation for public-private partnerships like the CREATE rail project and the Alameda Corridor in Chicago are welcome and create significant value for all stakeholders and the economy, according to Rose.

“Whatever Congress decides for a gas tax increase or VMT, we should continue to adhere to the user-based system, which has worked well and is simply good policy,” said Rose. Maintaining a fair user-based system will be the single determining factor in deciding whether capital will be able to flow into railroad infrastructure.”

What’s more, Rose stated that he supports a user-based model for what many stakeholders contend is a major bone of contention for the railroads: increasing truck size and weight.

BNSF, he said, is not opposed to larger trucks as long as trucks pay their fair share, given what the railroads are doing in that they are almost nearly funded with their own capital.

“The competitive landscape in the United States should not be artificially tilted toward trucks on already congested highways away from freight railroads,” he said.

Another policy matter needing to be addressed, said Rose, is the project permitting process, which can take ten-to-12 years and are incredibly costly.