Railroader of the Year: CARL ICE

BNSF’s President and CEO leads a railroad that continuously sets high standards for investment, service quality, profitability and safety. Following is the complete interview, as published in the January issue of Railway Age. Click HERE to access a video of the interview. Railway Age Contributing Editor Larry Kaufman’s interview with BNSF Executive Chairman Matt Rose follows the main story.

Railway Age’s 53rd Railroader of the Year, BNSF Railway President and CEO Carl Ice, is a career railroader who leads a Class I railroad that has had the industry’s largest capital expenditure program for several years running. In 2015, BNSF invested more than $6 billion in its network.

Under Ice’s leadership, BNSF continues to make significant investments in four key areas—capacity, locomotives, people and equipment—to ensure future capacity to meet its customer needs. BNSF in 2015 devoted $1.5 billion alone in terminal, line and intermodal expansion and efficiency projects. It can proudly say it operates the industry’s fastest, most reliable intermodal service, the centerpiece of which is the Chicago-Los Angeles Transcon. Other key capital programs included the completion of more than 65 miles of new second main track on the busiest segments of the railroad’s Northern Corridor. The single-largest component of the capital plan was $2.9 billion for maintaining BNSF’s 33,000 track-miles.

Ice has been CEO and President at Burlington Northern Santa Fe LLC since January 2014. He has been President of BNSF Railway Company since Nov. 1, 2010 and its CEO since Jan. 1, 2014. Prior to that, he served as Chief Operations Officer of BNSF Railway, Senior Vice President of Operations, Vice President-Operations North, and Vice President-Chief Mechanical Officer.

Ice received a degree in engineering in 1979 from Kansas State University College of Engineering, and began his career in the railroad industry with Santa Fe Railway in the Industrial Engineering department that same year. He later held positions in Operations, Finance and Information Systems. BNSF Executive Chairman and 2010 Railroader of the Year Matt Rose (the subject of an interview with Contributing Editor Larry Kaufman on p. 34), who preceded Ice as CEO, has called chief operations officers “the key to this industry. Every morning, they get up and see what they’re facing, in terms of the day-to-day operation, but longer-term, they have the incredible responsibility of the capital plan, which is really the lifeblood of the railroad. Being able to marry those two, dealing with the short-term reality, as well as setting the agenda for the longer term, isn’t easy.”

Carl Ice took over Matt Rose’s position as CEO when Rose was named Executive Chairman at the end of 2013. In a wide-ranging interview with Railway Age Editor-in-Chief William C. Vantuono, he talked about his career, the railroad he runs and the future of the industry.

Railway Age: Carl, congratulations on behalf of Railway Age. You are our 53rd Railroader of the Year. This award has been given out since 1964, so you’re one of a long line of distinguished people in the industry.

Carl Ice: Well, thank you very much. I’m humbled by the honor and accept on behalf of everyone at BNSF.

RA: You’ve been with BNSF and predecessor Santa Fe since the beginning of your career.

CI: That’s correct. I worked as a summer intern while I was still in college at one of our predecessors at Santa Fe. It was about 37 years ago.

RA: What prompted you to join the rail industry?

CI: I was an engineering undergraduate and I thought it was important to get work experience in jobs related to engineering. Before that, I’d done things like construction and factories during the summertime. That summer, I thought it was important to get that experience. And then I wound up at the railroad. It was an exciting place. It was at a time when things were starting to change. It was 1979 so it was before deregulation, and I saw lots of opportunities for ownership, projects to work on that were mine to solve and mine to do. I had a great summer and was excited about being able to come back full time once I graduated.

RA: You seem to me to be a real hands-on type of person. At one point in your career, you were chief mechanical officer?

CI: That’s true. I was privileged to lead the mechanical team in 1995. I do enjoy being out on the railroad and spending time with the people. The people that do what they do on the railroad are what makes BNSF the great place that it is, and being out with them and hearing what they’re doing and talking about their challenges is something I really enjoy. The details matter. There are thousands and thousands of decisions that get made every day, and all of us work together. So I think all of us have a responsibility to know what’s happening, what’s going on out on the railroad. After all, we’re in an operating company. We take things from where they are and move them to where they need to be, and to do that you need to have a strong operation.

RA: Let’s talk about the operating side, which I’m sure is a passion of yours. You have 28,000 track-miles. What is the most challenging part of operating a railroad that size?

CI: It’s 28,000 that we own and 33,000 we operate on. It’s hard to pick any one thing. It runs 24 hours a day, every day of the year. There’s no time to reset, so we have to run well and we have to be able to recover, be flexible. We try hard to make sure we plan in a way that we manage both long-term and short-term variables. We have resources in place for our customers and for our growth as we project the future. Then there are still variations from day to day, and having a group of people who know how to attack that who have a plan that can be flexible and make adjustments is very important.

RA: BNSF has a remarkable intermodal operation. It’s regarded as the fastest, most reliable, most efficient, especially with that jewel of a line, the Transcon between Los Angeles and Chicago. Would you say that seems to be the real growth area for the industry in general, not only for BNSF?

CI: Intermodal is a huge growth area; it has been for some time. We have a very powerful intermodal franchise serving the western United States, the central part of the country and going to the Atlantic as well, and we’re proud of that franchise. We think it’s important to fulfill our value of listening to our customers and doing what it takes to meet their expectations, and we do that every day in intermodal. We have routes that have let us offer service that’s competitive. It’s a growth opportunity because it’s a chance to work on getting trucks off the highway onto the railroad. We have huge relationships with many large trucking companies where they handle the moves in and out of intermodal facilities. We make the long haul that lets us both do what we do well. Intermodal is, economically, definitely a powerful opportunity for our customers. We can give strong service that’s good for highway congestion. It works really well for everybody.

RA: That started of course on the Santa Fe, the relationship with J.B. Hunt that got things off the ground.

CI: [Mike] Haverty and Mr. Hunt did of course make that landmark deal. I wasn’t on the train trip, but I was fortunate enough to be involved right after that so I was actually a part of the discussions and the formalizing of all that. It has been a great opportunity to work together to jointly serve his customers, and it has worked very well.

RA: One thing we’ve seen with intermodal is that there seems to be a lot of growth in the domestic area.

CI: We have had growth in domestic intermodal. It’s at record levels and is a big growth opportunity. I mentioned our working with Hunt, but we also work with Schneider and Swift. We have a relationship with many large trucking companies. It’s important that we provide a product that works for our customers. That comes back to knowing customers’ expectations, making sure that we get shipments across our railroad consistently and reliably. The trucking companies then do the pickups and deliveries. That gives a good product for our joint customers.

RA: A big part of this has been the terminals constructed within the past 10 or 15 years. BNSF has done a lot of that.

CI: We have opened a number of new intermodal facilities or added to ones we have. That kind of investment is something we think is important. We invest significantly in our railroad to be there for the growth of all of our customers. Railroad capacity is based on how many people we have, how many locomotives, the rolling stock and the infrastructure, our lines and our terminals, and we make investments in all of those to make sure we’re positioned for growth.

RA: Some of the programs are public/private partnerships, the Alameda Corridor, for example. Those have worked well.

CI: Yes, they have. [For example,] our facility near Kansas City, in Edgerton, was a public/private partnership where we worked with the state of Kansas, which made a contribution that really put us in a position to make the investment faster than we would have otherwise made it. We would have made a significant-enough investment in the facility, but the state was helpful and had foresight for how the facility being built sooner could be helpful. We started it actually during the previous [economic] downturn. It’s come on line and it’s a great facility.

RA: There are a lot of public benefits. That’s why you see a lot of public investment in facilities like this.

CI: They create what we call a logistics park that attracts business to the area—large warehouses and other companies. We see that growing. That’s beneficial for the state, a magnet that can also help with the road structure being built around the facilities. So yes, I believe public policy makers would say it’s a great thing.

RA: Let’s talk a little bit about some of the other commodities. As you well know coal has been soft, but it seems to have been not so soft on BNSF compared to some of the other carriers. Why is that?

CI: Well, for everybody, coal is in a changing time. You know, we see coal for BNSF down from our highs from about 2004 or 2005, when the mines expanded. From that time to now the range of tonnage for years has been 255 to 260 million tons to just short of 300 million tons on our railroad, but most of the time it’s been 270 and 285 million. So last year, we were at about 270 million tons, so we were 10% off our all-time high. But the coal that comes from the Powder River Basin continues to be coal that the utilities prefer. That helps us not be as soft. Last year we believe there was more coal tonnage that we could have moved, so I think that set us up this year for positioning to move near-records again if need be. We do see coal falling for us over the next few years. Coal, you know, once upon a time was 25% of the revenue for railroads in total. So it can fall by a lot but remain a significant, important commodity. We’re planning and positioning for that. We expect to have parts of our coal franchise that will continue to be strong. We need to be a low-cost provider for that to be the case. As we move forward and have less volume, we’ll figure out other ways to use the facilities that are on the coal routes.

RA: The crude oil boom seems to have settled down. Where do you see that going?

CI: A lot of it depends on the price of crude. You are absolutely right—we are down off our highs. Crude oil grew to where it was almost 4% to 5% of our franchise. That was significant: There aren’t that many things that go literally from nothing to 4% or 5 % in five years. At the same time, it’s important to remember that it’s one part of our balanced portfolio business. That’s one of the things that we think is a strength at BNSF, that we have a number of different kinds of businesses that all perform well in different economic conditions. Crude oil has come off of its high by probably in the 30% range, maybe even a little more if you compare peak to peak. That has been because of commodity prices, and that has made it a little-steadier sort of business, but we continue to see a strong future for crude oil. We think over time commodity prices will change, and it’s an opportunity for North American energy independence. That’s an exciting concept to think about. It solves problems of generations. And we’re proud of our role in moving oil to where it can be refined. We still see it as a strong opportunity.

RA: I recall talking a number of years ago with Matt Rose about crude oil and energy independence. It’s good to see that those things are still in play.

CI: They remain at the forefront of our thinking and planning.

RA: One of the truly impressive aspects of BNSF is the amount of capital investment. It’s unprecedented. We’ve never seen anything like this past few years. 2015’s was about $6 billion. What do you see the next two or three years? Will we continue to see those levels, or maybe a little bit less as more capacity is now in place?

CI: We can see that 2016 will need to be another large year. We started some projects early so that we get the benefits sooner. We won’t need to continue at that level. The growth of our customer is important to us. You know our business model: Safety is the most important thing we do. After safety, it’s service, and our financials really based on being productive, getting value for what we do, and growing. We need all three of those things. So as we plan our capital, we plan for how much work we have. We take our various lines of business, and the business units work with our operating teams to project what we believe our volume levels will be. But we also approach it from what I call top down, where we look at our routes, so we know what potential they have. Our operations team and our business units work together to know the capacity of every part of our railroad, and then we can evaluate what we think the potential is in needing more capacity. That led us to make the $5.5 billion and $6 billion investments.

In fairness to our customers, I have to say we thought we were behind on a building season, so we worked hard to do a lot to help our customers, to be committed to their growth. Once we’ve done that, we won’t need to make that level of investment going forward. I would see us falling off in 2016, but it will still be a historically high number. Think about the first time railroads spent $4 billion dollars, and us having exceeded five and six billon. It will still be a strong effort. Our railroad is in the best shape ever. We often talk about capital and we talk about expansion, and we think expansion is the way to have capacity, but it’s vitally important that the railroad itself is in good shape and that we have good utility. We could never build enough new railroad to make up for not having the railroad in the best condition it can be.

Our maintenance teams do a great job working with our transportation teams to get windows to work on the railroad, and again, it’s in the best shape it’s ever been. We can see that in our metrics, we can see that being on the railroad. We go out every month and ride for at least a couple days, somewhere around the railroad. We’ve been doing that for years and years. We’ve been over the whole railroad multiple times, and so when we talk about the condition of the railroad, we know we have credibility, and we’re proud of that.

RA: You’ve invested a lot, for example, in the northern corridor. What are your targeted investments for 2016?

CI: We’ll be finishing projects similar to what you’ve seen the past couple of years. We will complete some projects on the northern tier. We also did a tremendous amount of centralized traffic control. As we work through steps of capacity, sidings become longer; then we double-track and enhance the signal system. We did a lot of that across the north. We had three significant segments left on the Chicago/L.A. [Transcon] route. We completed one of those; we’re working on a second one that we’ll finish up this year. Across Nebraska, what would traditionally be thought of as our coal route, there’s a lot of maintenance, as you could imagine, with coal tonnage, and we finished one of those. We’ll be completing the second one this year. It’s really all around the railroad. That’s the great thing about a railroad and its network: As we make an investment it benefits the entire railroad. It benefits our whole customer base. So we don’t usually talk about one piece of business to justify investment. They all do. We plan our work and how much capacity we need, and that benefits everybody. And then we have a railroad that’s better, which is certainly what has happened with BNSF over the past couple of years.

RA: Which leads me to Positive Train Control: Huge task, huge investment, unfunded mandate. You now have the extension, you have three years to complete it. BNSF has really been a leader in terms of PTC, working diligently even before it was a mandate.

CI: We have worked on PTC for a long time. You could talk about multiple forms of technology we would use that were forerunners to PTC. So it is something we’ve worked on a long time. The whole industry’s worked very hard on PTC, but despite all that hard work it wasn’t something that could get done in the time frame. It’s a “system of systems,” so even as you get the infrastructure done, which is a massive effort, you have to make a significant number of runs to discover the various conditions. We’re in the midst of doing that. We have a lot of our infrastructure work done. There is some more still to complete. We look forward to that being done in the relative near term, but the extension is necessary, to make sure that we shake the system out, that we learn what we need to learn. It will remain a difficult task to have everything done, even with the new deadline, but we’re up to it.

RA: Beyond safety, which is the primary intent of PTC, what other benefits do you envision once the technology is in place, once the network is up and running. What else can you do with PTC?

CI: At this point, safety is the [sole] benefit of PTC. Railroads are very safe operations and we already have tremendously high levels of compliance. Things like switch position: We all have lots of processes to make sure we do those things right. Having said that, what else can we do with PTC? I think that’s yet to be discovered. The ongoing march of technology is, once you have a system, then you work on how you try to use it and what you might do. We will look for things along those lines. Maybe we can do something to tie it in with our fuel conservation technologies, and so forth. At the moment it’s a significant expense. But we don’t do cost-benefit ratios on PTC because safety is the most important thing we do. If you look at the other benefits, there aren’t any that really flow from this big investment.

RA: Some of the technology that’s out in the field has proven quite beneficial, things like trending on hot bearings, or machine vision technology. This new initiative that seems to be very promising is UAV (Unmanned Aerial Vehicles), which you’re using for looking past the line of sight for track inspections, bridge inspections, things like that. It’s a brand new tool.

CI: We do put a tremendous effort in our technology. We believe technology is something that you deploy for a specific reason and outcome. You mentioned several that we’ve done. Whether those are for performance of our mechanical components or the way we use our detection system around the railroad, we’ve made great advances there.

RA: Predictive maintenance is tied in with that?

CI: Absolutely, and that relates to safety as well. The UAVs are an example of the ways we can enhance inspection of our track condition. What we’ve worked on covers the whole spectrum, whether it’s training or ways we can enhance our training, all the way through things like ground-penetrating radar. With the UAVs, we can gather more data. We can be there without track time. We can enhance processing with computer support, if nothing else to make sure that we present data in a more-consistent and centralized way.

RA: I would think using a UAV for something like bridge inspections would increase the safety factor for the people that actually inspect the bridges. That has to be a dangerous job.

CI: You’re absolutely right. One of the things we do with UAVs is go under a bridge to inspect. We can see more things. The quality of the pictures that you get from the UAVs is incredible. But to your point, to get completely under a bridge is hard to do, and you’re often high in the air. We would use fall protection, of course, but it’s still hard to be able to get all the places you need so it definitely enhances the safety of the bridge inspectors and presents some data they can handle in a more effective way.

RA: Let’s talk about the safety culture at BNSF. The industry as you well know has a terrific safety record, but specifically, what things have you done to achieve your safety goals?

CI: It’s something we’ve all done together to drive safety at BNSF, and we have seen strong improvement in our safety. We’re in our 6th consecutive year of being the lowest frequency ratio for our employees. It’s important to look at those numbers not for the sake of the numbers, but to be sure that the things we’re doing are having a positive impact. We’ve long believed that safety is about behaviors, that it’s about people. When we say that, we mean all of our people—all of us from the environment we set up, the approach we have, the expectations we have, and certainly the front-line people doing the job. So we’ve talked about and put in place what we would say is a culture of compliance, meaning it’s important to follow all of our rules all of the time, but we have an emphasis on rules that have the most significant consequences.

To accomplish all of our safety goals, our vision to realize a workplace free of accidents and injuries, we need all of us pulling together with what we’d call a culture of commitment. We often describe that as meaning we take responsibility for our own safety, but also for the safety of our co-workers. That’s the shift in culture we’ve had. We have an important initiative that we call “Approaching Others About Safety” to set up an environment of interacting with co-workers about safe processes. It’s a very straightforward concept to say we want to interact with each other about safety, but you have to recognize that before an interaction needs to happen, you have to be prepared to do that, which isn’t always easy. You have to deliver the dialog and the interaction in a way that’s actionable, and the person hearing it has to take it and be prepared to hear it and take it and act on it. So one of the things we did with Approaching Others is arm people with the tools they needed.

But certainly as important, it began setting up an expectation. The first time it might be hard, and somebody might say, “Why are you bringing that up to me?” The second time is a little easier, and the third time’s a little easier. Eventually we get to the point where everybody’s expecting that to happen, so it’s not about why did someone say something but about what they said. What behavior are we addressing? That has shifted our safety culture. That’s why you’re seeing the kind of safety environment we have today. We’ve continued to enhance that every year. We’ll be doing it again in 2016.

RA: Sustainability. It goes beyond fuel conservation or Tier 4 locomotives. Can you describe some of BNSF’s sustainability initiatives?

CI: In terms of impact on the environment, emissions from locomotives have the most significant impact. That’s why we’ve worked to make improvements. Everything we do with fuel conservation helps with emissions because we’re burning less fuel. Our fuel programs range from simple things like turning the locomotive off if you’re not using it all the way to trying a hydrogen fuel cell locomotive all fit with that. But it’s really more than that as we fulfill our value of being good corporate citizens. Our sustainability efforts have three prongs. One is better fuel efficiency that helps the environment and reduces our dependency on oil. Then there’s locomotive emissions. We’re purchasing Tier 4 locomotives, which are at about a 1.6 in terms of NOx, compared to something that was probably in the 12 to 15 range when Tier 1 came out. Then there’s highway congestion: getting trucks off the highway to reduce the impact on our nation’s infrastructure. Our employees get involved in many ways additionally. We have a sustainability report each year to evaluate the impact on the environment. Things ranging from recycling to our locomotives are all things that we focus on at BNSF.

RA: I wanted to talk a bit about the future of the industry, in terms of talent. There has been a transition over the past few years. You have a lot of people reaching retirement age. What sort of initiatives is BNSF engaged in to bring in new talent and keep talented people working for the railway?

CI: We have development programs for everyone—people who have been here for more than 35 years to people who started in the past year or so. We put a tremendous effort around that. We do leadership training every year. Having a good place to work goes a long way. People like coming to work every day. They’re proud of their company, and we do see people working longer and retiring at later points in their life. There’s nothing better than, when you’re talking to somebody, hearing them saying “I love my job, I love coming to work every day. There’s a psychology of success around that. When I started my career a long time ago somebody might have said to me, “Why are you going to go work for a railroad?” Now, lots of people talk about railroads as preferred employers. That helps with retention, and helps us get people who come to the railroad with great talent and skills. We create development plans. We do have a tremendous number of railroaders who have acquired a lifetime of knowledge, and we want to make sure that we pass on as much as we can.

We have a significant recruiting program, and it does [cover] college campuses. Railroads are a preferred sort of employment. It’s certainly true for people graduating from college today. They want to do something they know is important, that has an impact, and railroads have a tremendous positive impact on our country, on our commerce, as well as sustainability. That gives us a good chance. Lots of young people think railroads are cool. You know? Who doesn’t love a train? As opportunities arise, we believe in promoting from within, and often that’s the way it works, but occasionally it’s helpful to bring in someone with a certain set of skills or talents or add to those skills and talents. That works great when we pick the right people. If you look around our leadership team we have a lot of people who’ve come from other industries and other companies and make great impacts.

RA: During your career, is there anyone in particular who was an influence, who helped you develop your skills and talents?

CI: I don’t want to pick one person because I’d leave somebody out. I’ve been very blessed. Lots of people helped with my career and my development and helped put me in a position to succeed. I was lucky enough to be in a lot of different roles. That’s something we do thoughtfully now. We move people across functions and give them a chance to see and learn different things. I got to do that early on. Then there’s certainly the role I have today, where Matt’s role as Executive Chairman is definitely helpful to me. There’s been somebody in every step of my career at the two railroads I’ve been part of. All helped me learn things.

RA: Carl, again, congratulations. We will see you in Chicago on March 15th at the Union League Club.

CI: It’s a great honor and I look forward to it.

Matt Rose: “A disciplined approach”

BY LAWRENCE H KAUFMAN, CONTRIBUTING EDITOR

Carl Ice and Matt Rose worked so closely for 13 years that Rose, who then was chief executive of BNSF Railway, finally promoted Ice to chief executive of the nation’s largest railroad.

Ice and Rose are different temperaments. Ice is an engineer by training and brings to the position what Rose calls a rigid, disciplined approach that engineers tend to bring to problem-solving.

“We worked so closely that we began to complete each others’ sentences,” Rose said in a recent conversation. By turning the day-to-day management of BNSF to Ice, Rose felt free to undertake a new and different role, one that no other railroad chief has.

“I had time to create a public policy role,” Rose said. He clearly believes that he serves BNSF better in his new role than if he had stuck with the traditional railroad managerial format. He has accepted positions on other company’s boards of directors and spends considerable time in Washington meeting with government officials.

Few corporate executives even try to be a presence in Washington, opting to leave government relations in the hands of Washington lobbyists, some of whom are retained consultants, not even employees. Railroad public affairs practitioners also tend to be limited in effectiveness because they don’t know the industry nor the company that retains them.

Most executives are quite content to have their government affairs people represent them. That way the government affairs function is diminished and senior executives feel justified in complaining that government pays little attention to their needs.

Over the years, BNSF was like other railroads. With encouragement from Warren Buffett, who owns BNSF through his Berkshire Hathaway conglomerate, Rose has changed the railroad’s position in Washington.

Railroads have tried to carve out a public policy personna in the past, but “we were ignored,” Rose says. When key legislation is under consideration in Congress, it takes more than a drop-by office visit by a lobbyist to persuade a member of Congress to vote for or otherwise support a pending bill. Rarely does a corporation score a major success. But when a chief executive officer makes the rounds of congressional offices, the results can be considerably different. Just the presence of a high-ranking executive is impressive to a member. Few members know much about the process of moving American production about the country. Rose does not claim specific successes, but he is getting known as an executive who has learned how to play the Washington game, and he plays it well.

Bring up the subject of Buffett, and Rose is unabashedly enthusiastic. “Warren Buffett is the smartest man I ever met,” he says. “Warren loves the railroad,” he adds, but absolutely does not meddle in the operation of the railroad. Berkshire Hathaway is large enough to guarantee BNSF’s capital allocation for execution of its business plan.

In the relatively unique relationship that Ice and Rose developed, “Carl was a right hand for six of the 13 years we worked together,” Rose says. When he decided to give Ice the CEO title and position, there were some observers who thought Rose was stepping back, perhaps in preparation for an early retirement. Nothing could be farther from the truth; Rose is just as busy as ever, just focusing on different issues than before.

Of the seven Class I railroads (as the federal government defines them) in the U.S. and Canada, BNSF is the only one reporting earnings growth in a difficult 2015. Other carriers are having to cope with sharp declines in their coal business and have not yet figured out how to adjust. BNSF has main line access to the Powder River Basin of Wyoming, which allows it to move extremely-low-sulfur coal to utilities to the south and east of the PRB.

As utilities switch from coal to natural gas and other non-carbon-emitting fuels, it is Norfolk Southern and CSX that are losing once-lucrative carloads. BNSF also had a significant business moving crude oil from the shale oil deposits of the Bakken in North Dakota. The current oil glut has hit BNSF, but traffic has held up so far, and just about everyone who follows such things is convinced that demand for CBR (crude by rail) will return as the oil glut is contained.

A Bloomberg writer recently spoke with Rose and came away with a story that Rose would do a deal of his own if Canadian Pacific and Norfolk Southern were to merge. Rose says he was misquoted, and that what he did say was that railroad mergers don’t happen in a vacuum. If CP and NS were to get together, BNSF would have to view the new venture very carefully. He chooses not to say how BNSF might react, but did tell Railway Age that he doesn’t think there is a need for any mergers among the Big 7.

Click HERE to access a video of the interview.

Video produced by BNSF and sponsored by Amsted Rail