NEW YORK/CALGARY (Reuters) - BNSF Railroad, the Warren Buffett-owned company that has benefited most from the North Dakota shale boom, has told some customers that they cannot add new oil tank-cars to its system until next year, according to two people familiar with the matter.
Oil shippers seeking to add as many as a dozen new crude oil trains to BNSF’s lines, or more than 1,000 tank cars, have been “blocked out,” one of the sources said. “They can keep however many they are running but cannot bring on any more.”
The moratorium on new cars, which customers were informed of in recent weeks, is BNSF’s latest effort to avoid worsening congestion on its rail network amid record freight traffic and growing scrutiny from lawmakers and federal regulators upset by months of complaints over poor service and delays.
Persistent delays in oil-train shipments to the U.S. East Coast are beginning to ease, providing relief to refiners such as Monroe Energy, a subsidiary of Delta Air Lines Inc, which has said it was forced to buy costlier foreign crude due to disruptions.
Preventing shippers from putting more rail cars onto the network may help prevent overloading the system, but it is also irritating some shippers who are still racing to tap in to the growing volume of oil from North Dakota. More than 9,000 new tank cars are expected to roll off production lines this quarter.
The efforts by BNSF come just as nation’s rail system faces what could be its biggest-ever test as farmers start shipping a record harvest of corn and soybeans just as winter weather threatens to slow down operations. About 16.5 inches of snow fell on Monday in St. Augusta, Minnesota, about 70 miles northwest of Minneapolis, according to the National Weather Service.
“A lot of grain is still backed up that they have to clear,” said one of the people familiar with the matter. The informal moratorium “means the volumes on rail are somewhat being forced lower. There’s demand and capacity but the railroads just cannot keep up.”
Mike Trevino, a BNSF spokesman, said he would not describe the company’s actions as a moratorium. Instead, the company is working to manage freight volumes that have reached record highs for each of the past eight weeks.
“There’s a lot of volume and we are going to evaluate new train starts,” he said. “Before we add incrementally more business to the network, we need to see if the network can handle it.” BNSF is owned by Buffett’s Berkshire Hathaway Inc.
Martin Cej, a spokesman with Canadian Pacific Railway Ltd, said the company has no plans at this point to issue a similar moratorium.
Asked if they have room to handle some of the business BNSF may lose, Cej said, “CP is always looking at opportunities to pick up new business as it improves service for existing customers.”
BNSF, once known as Burlington Northern Santa Fe, has taken the heaviest criticism over the system-wide deterioration in North American rail service this year, including a sharp fall in rail speeds and longer waiting times at terminals.
Railroads blamed a combination of record freight and last winter’s brutal weather. Farmers, ethanol producers and some refiners said rail operators were failing to keep up with demand for their service, often blaming the boom in oil-by-rail trade.
By preventing customers from adding new rolling stock to its 32,000-mile network, BNSF may avoid further complaints that its locomotives are not moving freight quickly enough from one point to another, as it is required to do.
Meanwhile new tank cars are rolling off production lines in growing numbers to meet demand for oil shipments. A record 9,235 were delivered in the third quarter, according to Railway Supply Institute data.
East Coast refiners - the nation’s largest consumers of Bakken crude oil - have been creative in finding ways around the moratorium, an industry source said. Some have cut deals with traders to divert trains from the Gulf Coast - where new pipelines have come online - to the East Coast, one of the sources said.
“There’s certainly demand for additional rail cars on the East Coast, and it’s certainly been frustrating for some,” said the source. Faced with a limited number of railcars on the BNSF system until January, some refiners are exploring using different rail carriers like Canadian Pacific, he said.
For the moment, operations on the U.S. rail network are improving.
BNSF recently placed a new 55-mile double track line into service in northwestern North Dakota, connecting Minot and Williston, part of a $5.5 billion plan to improve service along the Great Northern Corridor from the Pacific Northwest to Chicago, the most affected part of its network.
The company has also hired more than 400 new employees in North Dakota, spokesman Trevino said.
Shipments of crude by train are making round trips from North Dakota to the East Coast in about 18 to 19 days, down from 23 to 24 days over recent months, according to one oil industry source involved in the oil-by-rail trade.
A trader said the investments in tracks and manpower have helped, but “we’re still far from where we were in the summer of 2013 when it all started going downhill.”
But BNSF may face a new dilemma once it begins adding cars back on to the system, which is expected early next year.
“I would not want to be the guy at BNSF having to decide who comes first,” said one of the sources.
Reporting by Jarrett Renshaw and Catherine Ngai in New York; editing by Jonathan Leff, John Pickering and Matthew Lewis