Surge in Rail Shipments of Oil Sidetracks Other Industries
Pileups at BNSF Railway Is Causing Delays for Shippers of Goods
Ranging From Coal to Sugar
Wall Street Journal
13 March 2014
By Betsy Morris, Jacob Bunge and John W. Miller
A major snarl in railroad traffic is ricocheting through the
supply chains of businesses across the U.S., causing delays and
losses for shippers of goods ranging from coal to sugar.
Many of the problems stem from pileups at BNSF Railway Co. in a
critical northern stretch of the country where it is shipping
crude oil from North Dakota's booming Bakken Shale region. The
railroad, one of the biggest in North America, was already taxed
by the heavy demand for oil transport. But its difficulties
multiplied when it ran out of locomotives and crew, as a bitter
winter forced it to use smaller trains.
That has caused a ripple effect across the country as shipments
have been delayed. Deliveries of empty grain cars to farmers and
grain elevators in the Midwest and Great Plains are running about
two to three weeks late, the railroad says. The chief of a major
sugar producer said he likes to load 50 railcars a day this time
of year, but BNSF sometimes brings more than 50 and sometimes 30.
An executive close to big utility companies says coal-fired power
plant inventories are running much lower than the usual 30 days.
"The railroads tell us they aren't serving power plants until
their inventories are in single-digit days," he said.
BNSF isn't the only railroad with capacity problems, but its woes
have been aggravated by a big grain harvest and its surging crude
The railroad knew it was in trouble when winter hit. "We found
ourselves behind the curve," said Bob Lease, vice president,
service design and performance, for BNSF. "Now, we are finding we
can't fill all of the demand" as quickly as usual.
The backlogs could wind up costing shippers hundreds of millions
of dollars, says Steve Sharp, president of Consumers United for
Rail Equity, a group representing agriculture companies,
manufacturers and utilities. His group has been pushing for
tougher railroad regulation.
Andrew Walmsley, director of congressional relations for the
American Farm Bureau Federation, a trade group for farmers,
worries that continued capacity problems could hurt U.S.
competitiveness in the world arena. "Our reliability as a trading
partner comes into question anytime we can't provide the most
cost-competitive price in a predictable and timely manner," he
BNSF is scrambling. The railroad is leasing and buying locomotives
by the hundreds and hiring new crews. In mid-February it began
building new track on top of frozen snow-covered ground along its
main oil-patch route. It normally wouldn't have attempted such a
project until spring.
Mr. Lease says traffic should become more "normalized" by April 1,
but he concedes that the railroad's challenges will extend through
2014. "It takes a while to unravel," he said.
BNSF, a unit of Warren Buffett's Berkshire Hathaway Inc., invented
the business of carrying crude oil by rail when it launched its
first long oil train, essentially a rolling pipeline, in 2009. The
business has sharply exceeded its expectations. Shipments of crude
by rail from North Dakota rocketed to a peak of 800,000 barrels a
day last October from fewer than 100,000 barrels a day in 2010.
The surge has contributed to a tangle with potentially widespread
impact. Larry Stranghoener, chief financial officer of fertilizer
maker Mosaic Co. , says that transport problems, including the
crunch in railroad capacity, could spell "a slower season."
"The primary preoccupation of our sales force, our supply chain
and our customers frankly is getting product to them in time for
the spring season," he told the Minneapolis-area company's
investors Wednesday. Any delays transporting Mosaic's fertilizer
to dealers could cause them to defer additional orders, he said.
Some shippers, eager to move their products, have opted to use
trucks. Trucking rates compare with rail costs within a 500-mile
radius, but beyond that companies can wind up paying four to five
times as much on a per-ton basis, says one shipping official.
At Black Gold Farms, based in Grand Forks, N.D., Chief Executive
Gregg Halverson says his company has had to pay more to hire
trucks to transport its potatoes, which it sells to chip makers.
"There's more demand for truck transportation, and that hits us
between the eyes," Mr. Halverson said. "It's not only the actual
availability of the trucks, but trucking firms having trouble
getting drivers, because of demand from the oil patch." He
declined to estimate how much more he is paying for trucks.
American Crystal Sugar Co., which says it supplies about 15% of
the nation's sugar, had to slow production at three of its five
plants for 11 days in mid-February because it was running out of
storage space while waiting for trains to ship its sugar to food
companies. That has disrupted the Moorhead, Minn.-based
cooperative's just-in-time delivery system, said David Berg, its
chief executive. "The railroad just threw that into complete
chaos," he said.
He said delays in outbound shipments of sugar have interfered with
the production schedules of American Crystal's customers, many of
them major food manufacturers.
While he said he wasn't aware of any food companies that have had
to halt production, "They've been running on fumes for weeks," he
said. "We've been humping trucks all over the U.S. to keep people
in supply." American Crystal supplies General Mills Inc., Kraft
Foods Group Inc., Nestlé SA, Mars Inc. and Kellogg Co. , among
Mr. Berg and Perry Cerminara, director of global sweetener and
energy-risk management at Hershey Co. , called the problems caused
by BNSF "serious" in a March 4 letter to regulators and stressed
the "urgent" need to fix them. Mr. Cerminara wrote on behalf of
the Sweetener Users Association, representing food manufacturers.
A spokesman for BNSF said it is working with customers
individually to address their most critical issues and plans
record spending on expansion this year.
Utilities are hoping railroads can improve their capacity before
the busy summer season. "We try to build up inventories to around
40 days, so we're counting on spring," said one official at a
coal-fired power plant. But, he added, "We're not counting on a
—Tony C. Dreibus, Annie Gasparro, Chester Dawson, David
George-Cosh and Laura Stevens contributed to this article.
Write to Betsy Morris at firstname.lastname@example.org, Jacob Bunge at
email@example.com and John W. Miller at firstname.lastname@example.org