BNSF CEO Carl Ice says efficiency is a key to railroad's growth strategy

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Ice
BNSF Railway CEO Carl Ice
Bill Stephens
SAN ANTONIO, Texas — BNSF Railway CEO Carl Ice refused to criticize Precision Scheduled Railroading at a shipper conference on Thursday, saying it inevitably leads to the misperception that his railroad doesn’t care about efficiency.

“That’s not true. We do,” Ice says. “And our history shows we care about efficiency very much. And all of our conversations with our employees show that as well.”

BNSF is the lone Class I holdout as E. Hunter Harrison’s operating model spread from Canada to CSX Transportation in 2017 and to the other three U.S. systems late last year. BNSF Executive Chairman Matt Rose, who retired last month, was highly critical of PSR this year.

Ice, who addressed the North American Rail Shippers annual meeting on Thursday, said he was reluctant to discuss PSR because the nuances of BNSF’s growth strategy get lost.

“Growth from our perspective is important. It’s important to our customers, so it’s important to us. We also think that’s the way you thrive for a long time,” Ice says.

Growth and efficiency also go hand in hand.

“To be able to grow you have to do a lot. First of all, you have to have good service. To compete for business you have to have a good cost structure,” Ice says. “So this really doesn’t mean you don’t care about efficiency. You have to have a good cost structure to be able to compete. You have to get a lot out of your assets to be able to have enough capacity to move business.”

Volume and revenue growth also support capacity investments.

“So as you hear us say things like we have a bias for growth, for BNSF that also means, though, that we expect to be efficient and we expect to get value for what we do,” Ice explains. “All three of those things fit together to form that cycle: we get returns, we invest in our railroad, that lets us handle more business, create more returns and then reinvest in our railroad.”

Warren Buffett, chairman of BNSF parent Berkshire Hathaway, fielded several questions about PSR during Berkshire’s annual meeting on May 4. Buffett suggested that BNSF needs to become more efficient, which did not surprise anyone at the railroad’s headquarters in Fort Worth.

“We know that. We’re working on that,” Ice says. “It’s not a new thing for us. We do that by having initiatives that drive cost outcomes across time and we’ve got a significant basket of those for this year.”

Ice says Buffett’s message to Berkshire investors was consistent with the expectations it has set for BNSF, which it purchased in 2010.

BNSF does not need an operations overhaul, Ice says, and it’s already doing what every railroad does by focusing on things such as terminal dwell, quickly turning assets like locomotives, setting schedules for individual cars, and running longer trains.

“Many of the things that get talked about, everybody does,” Ice says. “And any operating team worth its salt does those things. So we’ll do stuff our way, we’ll drive improvement.”

Ice was asked about the widening operating ratio gap between BNSF and its western rival, Union Pacific, which adopted PSR on Oct. 1. Buffett was asked the same question at the Berkshire annual meeting.

“We’re keenly aware of what everybody does,” Ice says, echoing Buffett’s comments. “We’ll watch what they do. We’ll implement the things that work for us … and you should expect to see good improvement from us.”

Part of UP’s four-point operating ratio advantage stems from traffic mix, Ice suggests.

BNSF operates what’s by far the industry’s largest intermodal franchise and is the railroad most reliant on intermodal traffic, which generates lower revenue per unit than carload freight. UP, on the other hand, has the industry’s highest-volume merchandise network.
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