BNSF Railway realized significant gains in operating income and revenue in this year’s second quarter and first half, attributable to volume increases in most commodities, tight truck capacity leading to highway-to-rail conversions, pricing and other factors.
Second-quarter and first-half 2018 operating income were $1.9 billion and $3.6 billion, respectively, an increase of $109 million (6%) and $276 million (8%), respectively, compared to the same periods in 2017. Total revenues for the second quarter and first six months of 2018 were up 12% and 10%, respectively, compared with year-earlier periods, as a result of 5% increases in unit volume for both periods.
Average revenue per car/unit increased 4% for the first six months of 2018 as a result of higher fuel surcharges driven primarily by higher fuel prices, increased rates per car/unit, and business mix changes.
Consumer Products volumes were up 5% for the second quarter and first six months of 2018, due to higher intermodal volumes. The increases were driven by economic growth and tight truck capacity leading to conversion from highway to rail, as well as strength in imports and containerized agricultural product exports, offset by a contract loss.
Industrial Products volumes increased 10% for the second quarter and first half, primarily due to strength in the energy and industrial sectors, which drove demand for sand, petroleum products, steel, and plastics. The first six months of 2018 also included higher taconite volume.
Agricultural Products volumes increased 9% and 8%, respectively, for the second quarter and first six months of 2018, due to strong export and domestic grain shipments, as well as higher fertilizer and other grain products volumes.
Coal volumes remained relatively flat and decreased 1%, respectively, for the second quarter and first six months of 2018, primarily due to plant retirements partially offset by market share gains and improved export volumes.
BNSF’s operating expenses for the second quarter and first six months of 2018 were up 15% and 11%, compared with the same periods in 2017, as a result of inflation, including higher fuel prices, and increased volumes. A significant portion of the increase was due to the following factors:
- Compensation and benefits expense increased 6% and 4% in the second quarter and first six months of 2018, primarily due to wage inflation, increased volumes, and higher training costs.
- Fuel expense was up 44% and 35% in the second quarter and first six months of 2018, primarily due to higher average fuel prices and increased volumes. Locomotive fuel price per gallon increased 34% for the second quarter of 2018 to $2.25 and increased 28% for the first six months of 2018 to $2.17.
- Purchased services increased 17% and 14% in the second quarter and first six months of 2018 as a result of higher purchased transportation costs of BNSF’s logistics services business, which were offset in other revenues, as well as increased intermodal ramping, drayage and other volume-related activities.
- Materials and other expense increased 54% and 30% in the second quarter and first six months of 2018, primarily as a result of higher locomotive materials, derailment-related costs, property taxes, and personal injury expenses.
- There were no significant changes in depreciation and amortization and equipment rents expense.
BNSF said it anticipates its capital commitments for 2018 will be $3.4 billion, “reflecting BNSF’s continued focus on maintaining its network as well as expansion projects aimed at meeting customer demands. Like last year’s plan, the largest component of the plan is to replace and maintain BNSF’s core network and related assets to ensure BNSF continues to operate a safe and reliable network. This year, the maintenance and replacement component is expected to be $2.4 billion. These projects will primarily go toward replacing and upgrading rail, rail ties and ballast and maintaining rolling stock.
“BNSF will spend approximately $500 million on expansion and efficiency projects focused on key growth areas along BNSF’s Southern and Northern Transcon routes. BNSF will also invest $400 million on freight cars and other equipment acquisitions in 2018.
“The plan also has $100 million allocated to continued implementation of Positive Train Control (PTC). In 2017, BNSF completed the installation of PTC on all its federally mandated subdivisions and is currently running over 1,000 trains daily with PTC in revenue service as we continue to refine the system.”