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Survey: Pumping up the velocity

  • Market: Crude oil, Oil products
  • 18/04/19

The first quarter of 2019 likely marked a low point for North American crude train movements, given severe cold weather across much of the US and Canada, as well as severe midcontinent flooding.

Both of Canada's major railroads made improvements in three measures of crude train velocity from a year earlier, according to US Surface Transportation Board (STB) data. But key Bakken crude transporter BNSF suffered the biggest impacts as the twin effects of record winter storms and a historic midcontinent flood took their toll. Union Pacific and Norfolk Southern were also forced to hold or reroute shipments as tracks were washed out across multiple states.

Petroleum shipments were the sole bright spot and the only major segment to rise in the first quarter. Overall US rail volume fell during the first 13 weeks of 2019, according to the Association of American Railroads (AAR), with carload shipments down by 3.1pc compared with a year earlier. Bucking the trend, petroleum carload volume rose by 22pc to 162,567 carloads during the quarter ended on 30 March, AAR data show.

Of all the seven Class 1 railroads, BNSF was the only one to show negative progress across three measures of crude train velocity from a year earlier.

BNSF's average train speed fell by 8pc from a year earlier to 21mph, while idled car measures both nearly doubled from a year earlier. Average train speed is a classic measure of efficiency, while data on loaded and empty rail cars that sit idle for more than 48 hours can reveal potential network or service problems.

BNSF was hit by a one-two punch of arctic cold in January, when all-time low temperatures were logged across the northern Plains and upper midcontinent. This included Chicago, which slowed traffic in its key Chicago-Twin Cities corridor. Then in March, BNSF had to make major curtailments because of midcontinent flooding, which left miles of track under water.

A bleak midwinter

Most other railroads showed train speed improvements from the prior year. Canada's two major carriers, Canadian National (CN) and Canadian Pacific (CP), improved in spite of frigid weather, which caused restrictions. CN's average train speed improved by 14pc to 23mph in the first quarter and CP's rose by 10pc to 25mph, and both railroads showed improvements on reducing idle time.

"It has been as difficult a February or as difficult a winter as certainly I have experienced," CP chief financial officer Nadeem Velani said at a 7 March JP Morgan conference. "We will certainly feel that in the first quarter."

CN said that February would likely go down as the coldest month in history across its entire network. It limited trains to day-time operations and shortened car lengths in order to ensure adequate braking capabilities.

Class 1 railroads are rolling out a new business model called precision scheduled railroading, or PSR. Introduced by the late Hunter Harrison in 2003 when he was chief executive of CN, PSR demands that carriers operate trains on a fixed schedule. A train leaving one plant must arrive on time at its destination or it will miss its next scheduled trip.

PSR has put new emphasis on the concept of velocity — or the speed by which locomotives and rail cars move across the rail network.

Kansas City Southern (KCS), which is increasingly targeting cross-border shipments of refined products and crude to Mexico, said that PSR initiatives helped to blunt the impact of severe midcontinent flooding that slowed service in March.

"Because of all the implementations of PSR, we actually absorbed the blow and maintained a very decent velocity," KCS executive vice president of precision scheduled railroading Sameh Fahmy said on a 17 April earnings call.

KCS said it is looking for PSR to cut congestion in the Houston area, along with pinch points between Beaumont, Texas, and Monterrey, Mexico, a key pathway for refined products imports to Mexico. Those solutions could include partnering with other railroads to detour around Houston, KCS said.

"Houston is becoming a bit like Chicago, and improvement in velocity in that area can significantly improve the velocity of our whole network," Fahmy said.

Eastern US railroads Norfolk Southern (NS) and CSX, which can take crude shipments from other carriers at interchanges like Chicago, both improved two out of three measures of velocity.

Overall, CSX improved its velocity and dwell times to record levels. CSX's precision model allowed it to squeeze more trips and output out of fewer railcars and locomotives. CSX said its active locomotive fleet was down by 10pc from a year earlier, and has dropped by over 1,200 units since the end of 2016.

"We [were] able to more efficiently manage every business through what is traditionally our most challenging operating quarter while still improving customer service," CSX chief executive James Foote said on a 16 April earnings call.

US crude train velocity

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