Berkshire's BNSF says it'll buy 5,000 railcars to transport crude oil

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Posted: Thursday, February 20, 2014 12:00 am

BNSF Railway Co. said Thursday that it plans to buy 5,000 new and improved railcars to transport crude oil more safely than current models.

The nation's second-largest railroad, behind Omaha-based Union Pacific, said it is moving ahead with safer oil tank cars even as federal regulators and shippers continue debating the issue.

The Fort Worth-based BNSF, which is owned by Omaha's Berkshire Hathaway Inc. and employs about 5,000 people in Nebraska, said in a written statement that it has sent bid requests to major railcar manufacturers for the construction of tank cars with thicker steel, thermal protection and outlet valves that prevent unintentional opening.

An increased appetite for train-hauled oil has led to increased safety concerns. In July, a Montreal, Maine & Atlantic Railway train carrying crude from the Bakken formation of the upper Midwest and Canada crashed in a small Quebec town. Fires and explosions killed 47 people and blew up half the town.

In December, a BNSF crude train in North Dakota crashed into a derailed grain train. The oil tank car did not meet industry safety standards, according to investigators. Fires burned for more than a day. No one was hurt.

The BNSF move to buy improved railcars is also seen as notable because railroads have traditionally leased railcars rather than own them.

“This BNSF tank car request-for-proposal represents a significant voluntary commitment that may help accelerate the transition to the Next Generation Tank Car and provide tank car builders a head start on tank car design and production,” the company said. “BNSF believes that the RFP process will provide market participants more certainty, sooner.”

Rail shipment of crude oil is rising, with volume surpassing 780,000 barrels a day last year, up 71 percent from 2012, according to the Association of American Railroads.

U.S. oil shipments traveling via rail are mostly carried by about 78,000 tank cars that are prone to split during accidents, and 14,000 others built according to a more stringent standard established by the industry in 2011.

Chicago-based Union Tank Car is also a subsidiary of Berkshire Hathaway, part of the Marmon unit of industrial companies. It is a manufacturer of railcars and is aware of the BNSF plan but had no comment, spokesman Bruce Winslow said.

In the 2012 annual letter to shareholders, Berkshire Hathaway Chief Executive Warren Buffett wrote that Union Tank Car's “order book extends well into” 2014.

“At both BNSF and Marmon, we are benefiting from the resurgence of U.S. oil production,” Buffett wrote. “In fact, our railroad is now transporting about 500,000 barrels of oil daily, roughly 10 percent of the total produced in the lower 48. All indications are that BNSF's oil shipments will grow substantially in coming years.”

BNSF CEO Matt Rose said last year the rail giant was aiming to transport 700,000 barrels a day in 2013, up 40 percent from the 2011 figure cited by Buffett in his 2012 letter. At Union Pacific, 2013 oil shipments fell 22 percent from 2012, to 321,000 carloads.

Union Pacific, employer of about 5,000 people in Omaha, did not respond to email and voice-mail inquiries about oil tank cars. Funeral services were scheduled Thursday for former Chairman and CEO James R. Young, who died last week.

Tom Simpson, president of the Railway Supply Institute, a trade association representing tank car manufacturers and owners, said it is too soon to handicap if other rail operators will follow BNSF. “Everyone has the right to go to a tougher standard. We'll see how it plays out.”

This report includes material from the Associated Press.

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