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Like rail yards across the country, Missoula's is seeing much less activity these days as freight traffic drops off – down 16.6 percent in the first three weeks of 2016 as compared to the first three weeks of 2015.

Montana Rail Link won’t be hiring this year.

BNSF Railway's system-wide capital expenditures plan for 2016 is a 25-percent cut from 2015.

BNSF isn't saying how many of its Montana workers have been laid off this winter. A spokesman said MRL has furloughed two dozen as “we adjust employee levels to meet our customers’ needs.”

For now at least, those needs are dramatically fewer than a year ago.

Montana Rail Link is a short-line railroad headquartered in Missoula and owned by billionaire Dennis Washington’s Washington Companies. Texas-based BNSF, one of the nation’s “Big 4” railroads, is wholly owned by Warren Buffett’s Berkshire Hathaway Inc., which bought it for $44 billion in 2010.

Though neither claims to be in crisis mode, both are feeling the pinch of a freight recession that’s battering the rail industry.

The Bakken oil boom has busted. Even as the Obama administration imposes a moratorium on new coal leases on federal lands – a move already being challenged in Montana and elsewhere – overseas markets for coal from southeast Montana and Wyoming are turning to dust. China alone reduced coal imports by 30 percent last year.

Nationwide, coal shipped by rail was down by nearly 700,000 carloads in 2015 – a decline of 12 percent from 2014. And it’s only going to get worse in 2016.

“At this point we expect coal shipments on MRL to decrease 50 percent over volumes experienced in 2014,” said Jim Lewis, Rail Link's chief sales and marketing manager.

If that comes to pass, Montanans along the Rail Link's main route through Billings, Bozeman, Helena and Missoula will see 70,000 fewer carloads of coal this year than they did two years ago.

Compounding the outlook is the global call for renewable energy. The spending bill passed in Congress late last year extended two key federal tax credits supporting wind and solar energy. In his final State of the Union address this month, President Obama said, “We’ve got to accelerate the transition away from old, dirtier energy sources,” and asked, “Why would we want to pass up the chance for American businesses to produce and sell the energy of the future?”

As a pundit pointed out, you can’t haul sunshine on a train.

***

The 2015 numbers are startling.

The Association of American Railroads (AAR) said this month that freight rail traffic in the U.S. in 2015 was down more than 900,000 carloads – 6.1 percent – from the year before. In the first three weeks of 2016 it’s dropped 16.6 percent compared to the same three weeks in 2015.

Other than a rock-bottom year in 2009, when U.S. rail carloads dropped below 14 million, the 14.3 million loads shipped last year were the fewest since the AAR started keeping track in 1988. The peak year of 2006 leading up to the nation’s recession was the only one above 17 million carloads.

For MRL, the 2015 plummet was steep – 15 percent fewer coal cars and 10 percent of its total volume of the year before.

That, said Lewis, was before Cloud Peak Energy’s Spring Creek strip mine in Decker announced it wouldn’t be shipping 4 million tons of coal to export destinations in 2016. And it was before the same company laid off 66 workers from its underground Signal Peak Mine in Roundup at year's end, and nixed the shipment of 1.5 to 2 million tons of coal.

According to Lewis, that equates to some 50,000 fewer carloads – a 42-percent drop from even a lean 2015.

BNSF, which operates in Montana and 27 other states as well as three Canadian provinces, reported “relatively flat” freight volumes in 2015, Matt Jones, the company's director of public affairs for Montana, said in an email Friday.

“However," he said, "we have experienced lower than expected freight-transportation demand from our customers, and the economic outlook is uncertain as we head into 2016.”

The weakening demand isn’t limited to coal, “but the coal industry faces several significant headwinds that are reducing U.S. coal transportation demand,” said Jones.

Those headwinds include additional regulations, low natural gas prices and a strong dollar, and Jones said they impact rail demand for other commodities like grain, steel and crude oil as well.

BNSF is “adjusting (its) workforce demand numbers down to match volume and the work required to move that volume,” he said. “Consequently, in 2016 we will satisfy additional needs by bringing back furloughed employees.”

Jones said he doesn't know the numbers of workers BNSF has furloughed, but “they aren’t concentrated in any one geographic area.”

The railroad began handing out furloughs last April. News outlets reported in December that 100 BNSF employees had been laid off at three locations in North Dakota and Minnesota.

***

Ron de Yong worries that Montana railroads will use declining volumes to justify raising their rates.

“Everything’s relative,” the state's director of agriculture said Friday from Helena. “When you say not a good year for producers, they’re actually losing money. Not a good year for railroads means they’re not going to make quite as much profit as they did before.”

Just a couple of years ago the railroads were having entirely different challenges, DeYong pointed out.

“They shipped huge volumes. They couldn’t keep up with volume,” he said. “Coal, oil, agriculture – we were all having service problems, and the railroads made a lot of money. But their rates didn’t go down.”

The rail industry tracks carload numbers in 20 commodity groups, and across the U.S. all but five showed declines in numbers in 2015. The biggest single exception was grain, which shipped some 36,000 more carloads than in 2014, an increase of 3.4 percent. Carloads in grain mill products also showed a slight increase.

The temptation is to balance the books and, as DeYong said, satisfy shareholders’ demands by charging more when you’re hauling less. He fears grain trains are attractive targets.

Lewis said that even though MRL’s regional shipments were down, its 150 on-line customers in Montana experienced 5-percent growth in 2015.

One of his short line’s biggest hits is in intermodal cargo, those big industrial containers and trailers. To compete with the Union Pacific Railroad, its “Big 4” rival in the West, BNSF spent nearly $3.5 billion during the past few years to provide expedited service for intermodal and standard traffic between Chicago and Seattle. It launched the service in September.

Lewis said BNSF is now routing a majority of intermodal traffic along its Hi-Line route instead of the tracks its leases to MRL across southern Montana. It’s no coincidence that Rail Link’s intermodal shipments fell 17 percent in 2015.

***

Both of Montana’s largest railroads stress their investments in capital improvements and focus on safety.

President and CEO Carl Ice unveiled BNSF’s capital expenditure plan for 2016 on Tuesday. The $4.3 billion budget is a big drop from the $5.8 billion spent last year.

“Our railroad is in the best shape it has ever been,” Ice insisted in a press statement. “Each year our capital plan works to balance our near term need to regularly maintain a vast network that is always in motion with the longer term demand outlook of our customers.”

It’s not yet known how much money BNSF will spend in Montana in 2016. Jones, who’s based in Bozeman, expects to have those numbers in coming weeks.

He said BNSF spent a record $15.3 billion in capital investments in 2013-2015, including $450 million in Montana.

According to Lewis’ figures, Montana Rail Link invested $50 million in capital improvements and maintenance in 2014 and $62 million in 2015. That will be trimmed to $40 million this year.

He said that will cover the cost of such items as replacing 133,000 ties, installing 22 miles of new rail and resurfacing another 245 miles of track “despite rail volume being on a downward trend,” he said.

He called the investment in infrastructure “evidence of MRL’s commitment to the people and land of the state we call home.”

 ***

Montana's two biggest railroads say they’ll ride out their freight recession just as they did an even bigger one following the peak in 2006.

“MRL is accustomed to the peaks and valleys of the U.S. and global economy,” Lewis said. “Although the current economic environment will certainly be a challenge for us, and some changes will likely be necessary to adjust to current freight volume levels, we will continue to be focused on safety, efficiency and providing the best rail service in the industry.”

Lewis is not alarmed about plummeting costs and government incentives for wind and solar production.

“We value the global and local environment in which our employees live, work and play,” he said. “MRL hauls many different commodities, including wind power towers/blades and other products related to renewable energies and recyclables.”

Typically, when volumes of one commodity shrink, growth occurs in another sector.

“MRL stands ready to haul whatever commodity groups are in demand,” Lewis said.

The great stabilizer, de Yong said, is agriculture.

“The railroads got started with agricultural commodities, and at the end of the day there are going to be agricultural commodities again,” he said. “That’s what built the railroads.”

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