Western Railroad Discussion > UP taking it to BNSF in coal and auto business

Gang,

The 4th quarter/year end results for both BNSF and UP have been
released and to put it politely, the UP is kicking BNSF’s rear in the coal market. When comparing 2001 to 2000 stats, coal revenue for UP increased by 11% to $2.4 billion while BNSF coal revenue dropped by 0.4% to $2.1 billion despite higher demand for coal. This is very telling because, not only did UP take away several large coal contracts from BNSF, but UP simply went after new business stronger than did BNSF. In the intermodal business BNSF revenues dropped slightly from the economic slowdown but still had big gains in its LTL business while UP remained nearly the same as 2000.

As an outsider looking in, the trend in coal business started to show a few years ago when BNSF started putting most of it's money towards fast freight. An example of this is the fact that BNSF stopped purchasing new locomotives for use in coal a few years ago depite all predictions indicating increasing demand, yet continued purchasing new locomotives for fast freight. Not that there is anything wrong with choosing to spend money in one area versus another. However, BNSF now has an extremely good intermodal division, but has left it's coal division reeling from insufficient motive power to compete with UP in the coal business. These trends look to just widen even more in the next several years as BNSF continues to focus their money/time towards fast freight/intermodal business while UP focuses their money/time towards coal, auto, and perishable business.

AaronJ

You bring up a good point that it's been awhile (compared to Dash 9 purchases) since the Big Nothing has purchased SD70MACs for the coal biz. Another question I want to pose is this. What has the BNSF spending been like the last few years on capacity projects on the coal lines, especially all the lines around the Alliance area? With some 60 trains or so a day between Alliance and Lincoln, for example, why aren't they making any progress in adding double track, for example?

The BNSF doesnt use alot of C44-9s in coal service. They have hundreds of SD70MACS for that purpose. I would not excatly call 2-8 year old MACs "old" power! But remember its not the BN anymore, its the Big New Santa Fe!!!

jere_engr,

You are totally missing the point I was making! I'm not saying that SD70MAC's are "Old Power", I'm saying that they need another 700 of them, because BNSF doesn't have enough MAC's to cover the coal business anymore! This is why more and more C44-9's, Oakway SD60's, and SD60M'a are having to reappear on unit coal trains in groups of 4 intead of 2 or 3 MAC's. When this is done, it is much easier for UP to bid lower on contracts given that their operating expenses are lower since they have sufficient motive power for coal business!

AaronJ

The BNSF / UP fight will be moot when DM&E gets their line into the Basin in 2004 or so. Laugh all you want, but they are poised to take a big chucnk of upper midwest and barged southbound coal biz from BOTH BNSF and UP. Remember, the C&NW (now the mighty UP) started out with a crummy connection, and look what they've done.

I think DM&E is the one to watch. They are the ones that need to start financing NEW power. Their third hand SD40-2's won't cut it.

On the other hand, maybe we won't have to worry about BNSF / UP battles if Osama hurls a nuke at us. (That's a joke, no need to get off topic on politics).....

chilli wrote:
> I think DM&E is the one to watch. They are the ones that need
> to start financing NEW power. Their third hand SD40-2's won't
> cut it.

If they even get close to finishing the line, I bet BNSF
will buy them in a heartbeat!

Tony Burzio
San Diego, CA

tburzio wrote:
>
> chilli wrote:
> > I think DM&E is the one to watch. They are the ones that need
> > to start financing NEW power. Their third hand SD40-2's won't
> > cut it.
>
> If they even get close to finishing the line, I bet BNSF
> will buy them in a heartbeat!
>
> Tony Burzio
> San Diego, CA

But if UP is kicking our butt so badly, we won't be able to buy the DM&E !!!! My idea of a great midwest RR?

DM&E plus IMRL plus KCS.....

Speaking of DM&E, I was looking through their plans given to the STB of potential business and their is no way the 3 BNSF single line served plants and 6 UP single line served plants will ever be handled by DM&E. Nice try DM&E, but BNSF and UP will just jack the interchange price up so that plants on their own lines, stay with them the entire trip! However, the 1 BNSF/CP served plant and 2 plants served by UP/CP&CN will likely be taken by DM&E! I would also expect DM&E to take the 4 power plants BNSF currently serves through the transload facility in Superior WI. This should give DM&E a very nice start of 7 loaded trains out of the PRB. DM&E will likely never match UP or BNSF in carloads, but they can provide another outlet for eastern US plants to switch over to PRB coal.

AaronJ

AaronJ-

Damn, you got it all figured out.

You wanna take a crack at managing my stock porfolios? <g>

chilli,

Sure! I must warn you though, I'd just end up posting information on TO! :)

AaronJ

I'm watching to see what CP does myself......

DM&E might not last long as a stand alone.

Beava

The U P is bidding these contracts so low that they are barely making money on these coal contracts hey but its better than BNSF having these contracts. Within the next couple of years the BNSF will be getting some of these back. The question really is who is giving the best service???

cdub, I don't think BNSF has any plans for capacity improvements between Alliance and Lincoln any time soon. A number of double-tracking projects were completed within the past few years, and look what they're doing with lots of that extra double track... parking trains! They stage empties to get through Alliance (sometimes for mine spacing, sometimes for power issues, sometimes for terminal congestion), and stage loads to get through Ravenna or Lincoln... coal loads and empties really aren't having all that much trouble getting over the road these days... it's getting into the terminals that's the problem. if you ask me, they need to explore opportunities to make the terminals more fluid.

WSC

cdub wrote:
>
> Another question I want to pose is this.
> What has the BNSF spending been like the last few years on
> capacity projects on the coal lines, especially all the lines
> around the Alliance area? With some 60 trains or so a day
> between Alliance and Lincoln, for example, why aren't they
> making any progress in adding double track, for example?

The DM&E will have a tougher fight on its hands trying to build a barge transfer at Winona. I don't think the STB can help them there.
Also no utility is going to stockpile enough coal to last while the river is frozen.

Coal Coal Coal! It's a good comodity however, the BNSF is obsessed with intermodal business. I don't know if it's the lightning speed of our trains or the fact that we can get it from LAC to CHI faster than ANYBODY ELSE. We may be taking a "hit" now but as they say, "No pain no gain"! The BNSF is more careful in making decisions. They take a little more time to study what they want to do. I have noticed that the UPRR acts on impulse. Remember too, back when GM was leaning towards using the BNSF over the UPRR. The UPRR pleaded with GM and bluntly told them that without them (GM), they wouldn't survive. This of course pissed off Rob Krebs since he (BNSF) worked hard for that contract which he had in front of him. GM went soft and stayed with the UPRR. Competition is fun. There is more than enough business to go around. Just sleep with one eye open UPRR. The BNSF is quick on the mainline and they are quick when they finally make a decision!

Michael_SD40-2
BNSF El Paso
UTU local 1571
US NAVY (active)

Michael_SD40-2 wrote:
>
> The BNSF is more
> careful in making decisions. They take a little more time to
> study what they want to do. I have noticed that the UPRR acts
> on impulse. Remember too, back when GM was leaning towards
> using the BNSF over the UPRR. The UPRR pleaded with GM and
> bluntly told them that without them (GM), they wouldn't
> survive. This of course pissed off Rob Krebs since he (BNSF)
> worked hard for that contract which he had in front of him. GM
> went soft and stayed with the UPRR.

Your ability to obtain this inside information and then formulate your crystal clear conclusions is nothing short of amazing. You may well be the next Admiral Rickover.

Michael_SD40-2,

You're saying exactely what BNSF is doing, focusing on fast freight/intermodal only. It is a money maker and BNSF has pretty much run UP out of the premium intermodal business, but UP is doing the same thing to BNSF in coal and auto business. There is only so much money to go around and RR's have to choose what direction they want to go. With BNSF continuing to focus in the same areas, don't look for a rebound in coal and auto business any time soon! UP has dominated in Auto business well before the GM contract, so I doubt it would have sunk the UP if BNSF would have got it.


mac10,

If UP bid these contracts so low, then why are they killing BNSF in coal revenue despite no change in per car revenue? That comment is about as unfounded as saying BNSF is making no money on premium intermodal business, since UP has less! Until BNSF starts getting serious with new locomotive purchases for coal business, coal line improvements, and moving some marketing away from fast freight/intermodal what you see is what you get from BNSF! The same thing can be said towards UP in premium intermodal business.

AaronJ

I receive a lot of my information from old heads on both roalroads. My father is a locomotive engineer (BLE) on BNSF and our next door neighbor is a conductor for the UPRR. I ask my father many questions and he answers them in such a way that he can catch anybody's interest. The guys who have been around awhile know a lot. There are many stories about how today's railroads have become what they are. I had a chance to get into some deep conversations about it. My folks and I recently drove from VA Beach, VA where I was stationed, to North Island, CA (Coronado)and I saw some railroad action along the way. However, I saw more the more west we drove. Driving accross the Unites States prompts one to think about a lot of things. Railroads were on my mind. The conversations with my old man began to snowball. I have learned a lot from him. I will miss T.O. for six (maybe 7) months starting in late May. I will deploy aboard the USS George Washington (CVN-73) supercarrier to the Mediterranean and Arabian Seas. The only thing railroad related I will receive is what my old man emails me. I sure can't wait to return to service in 2004. Who knows how the BNSF will be then! All for now. Everybody take care,be safe, and God Bless the United States of America!

Michael_SD40-2
BNSF El Paso
UTU local 1571
US NAVY (active)

Aaron, you're right about the DME without being right, if you can follow me. Yes, the BNSF and UP will undoubtedly keep their single line plants, the economics are against DME there. Plus, the Midwest Energy Terminal traffic will stay on BNSF/UP, again, single line service. However, there is a lot of traffic that is NOT single line. Two examples: First, the Columiba Two plant at Portage, WI. CP rail serves this plant, traffic interchanged with BNSF at St. Paul. Shipping via DME will save that utility a whole lot of money due to the shorter mileage involved. Then, there is a lot of coal interchanged at Chicago that the DME could get, including Detroit Edison coal now moving across Iowa on the UP.

As for the UP vs BNSF, I personally think that rate stability is going to be a big question. If we assume the information on UP rates is correct, that means their profit margins are very low. There is going to come a time when the UP is going to try and improve those margins by raising rates. BNSF is in position here to hold the line, and the utilities may rethink who they ship coal with for this reason.

Remember too that shipments of Wyoming coal are expected to increase as tougher environmental rules take effect. This would benefit a new carrier as they seek new business.

Simply put, Aaron, you're thinking too small by confining your views to the single line serviced plants.

Nick Tharalson,
Marion, IA

Aaron, I don't mean to argue with you but there are many places east of Alliance NE where the BN used to run 115 car unit coal trains with 2 units even before they acquired those SD70MACs! Sometimes the coal trains coming into Midwest Energy in Superior WI only have 2 SD60s, ushaully 3 if they are anything other than MACs. Alliance, NE is a perfect example. They used to run them with 2 Oakway SD-60s or SD-60Ms or 3 SD40-2s or C30-7s. Their are plenty of times when those DPU coal traisn still need a shove up Whitetail Hill on the Orin Line
heading south with only 2 70MACs on the point and 1 on the rear. They still have assigned helpers at Belle Ayer, Campbell and Nacco.
I worked out their for several years in train and engine service in the early/mid 90s until 96 when I moved back home. Work closer to home now. The BN always had the majority of the coal bus out of the Powder River Basin for many years, now UP is starting to level the playing field...