BNSF - Contributing To The Economy, Communities And Recovery

Monday, June 1, 2009 - 00:00

The Editor interviews Roger Nober, Executive Vice President Law and Secretary, BNSF.

Editor: BNSF is the successor company to two storied names: Burlington Northern and the Santa Fe. Tell our readers a bit about the current reach and size of the company.

Nober: For more than 160 years, BNSF Railway has been an essential connector - safely and efficiently transporting freight from point A to point B. But we don't just move freight; we touch people and communities along the way. This is why we've worked hard to be a responsible corporate citizen and good neighbor.

Rail carries more than 40 percent of our nation's freight, and what we transport touches nearly every individual in all walks of life. Our system serves 28 states and two Canadian provinces; what we do is important and how we do it is equally critical. Headquartered in Fort Worth, Texas, BNSF employs about 40,000 people. BNSF plays a significant role in creating value for supply chains of nearly all U.S. industries.

Editor: How has the current recession affected your business, and what role do you see BNSF playing in the recovery? What are the challenges?

Nober: Our nation has faced a tough year, including wide swings in energy costs and unprecedented high fuel prices, the severe credit crisis and the sharp economic downturn that we have all been living through.

While the diversity of BNSF's franchise has helped us in this recession, we have seen a dramatic drop in our traffic volumes during the last quarter of 2008 and the first quarter of 2009, continuing into the second quarter of 2009. BNSF is acting to control our costs and make sure that our expenses and assets are in line with the demand for our services; for example, we have taken hundreds of locomotives and thousands of freight cars out of service.

When the recovery begins, freight rail is well positioned to help lead our nation back to growth and prosperity. Freight rail can help reduce our dependence on foreign oil, because trains transport on average a ton of freight nearly three times as far as a truck on the same amount of fuel. Freight rail can also provide tremendous value in reducing the country's transportation carbon footprint, given its reduced emissions versus truck-only freight transportation. Finally, freight rail can help reduce highway congestion by providing an alternative to long-haul trucking.

Editor: What is the long-term outlook, given the proposed stimulus package?

Nober: We are very bullish on the long-term outlook for freight rail and are pleased that in the stimulus bill Congress has allowed the states the flexibility to make further freight rail investments.

The U.S. rail industry transports 40 percent of the nation's goods, in terms of distance and weight, for only 10 percent of the intercity freight revenue. And the value of that transportation continues to rise. Since 1980 when the government's approach to rail regulation changed, railroads have invested more than $420 billion to maintain and improve their infrastructure. These investments also help create jobs and promote healthy economic development in communities throughout our network. Over the same period, prices for rail transportation fell by more than 50 percent in real dollars adjusted for inflation, according to the Association of American Railroads. The challenge throughout the rail industry is realizing a sufficient return on invested capital to enable investments that will meet long-term capacity needs.

The political landscape changed dramatically with the 2008 election and that change brings both risk and opportunity. BNSF believes that public policy and regulatory decisions should place a premium on ensuring that freight railroads are willing and able to reinvest. Appropriate policy also can leverage that private investment by providing incentives for additional private investment and bringing public partnership to rail projects to maximize the public's benefit.

The U.S. Department of Transportation forecasts that demand for rail freight transportation, measured in tonnage, will increase 88 percent by 2035. As the economy rebounds and freight demand grows, the nation will need new capacity through expanded infrastructure and improved productivity. In addition, it's predicted that every dollar spent on freight rail infrastructure will generate three dollars in economic output. If the rail industry were to spend $300 million on infrastructure, that investment would become a nearly $1 billion boon to the economy.

The way we move products is more cost-effective, more fuel-efficient, more environmentally friendly, and safer than other modes of surface transportation. We are constantly striving to maintain and improve our infrastructure - expanding capacity as needed and investing in our fleet of locomotives to ensure that we safely and efficiently meet long-term demand.

Over the long term, our nation's demand for transportation is destined to grow. As the most environmentally friendly form of surface transportation, rail is more fuel-efficient for moving freight than using the nation's crowded highways. If just 10 percent of the freight that currently moves by truck were diverted to rail, fuel savings would exceed 1 billion gallons per year and annual greenhouse gas emissions would fall by more than 12 million tons.

Editor: How are you responding to broader concerns about the environment?

Nober: Climate change continues to be a major concern for the global community, and we believe that increased use of freight rail is one of the best ways to reduce our nation's greenhouse gas emissions and dependence on foreign oil. Railroads, including BNSF, play an important role in reducing highway congestion by taking long-haul freight trucks off the road. BNSF can move on average one ton of freight 470 miles on just one gallon of fuel. An intermodal train removes more than 280 freight trucks from the highway - the equivalent of 1,100 automobiles. Every container shipped by rail means one less long-haul truck on the highway, easing congestion, reducing pollution and saving energy.

As a major transportation operator, BNSF is also focused on our role in reducing the impact of our operations on the environment. BNSF has been tracking our emissions of carbon dioxide since 1995 - long before it became common for companies to do so. We report our emissions to both the Carbon Disclosure Project and Department of Energy. BNSF will continue to implement technology and processes to further increase our fuel efficiency and reduce emissions.

Recently, there has been much discussion about passenger rail service. Intercity and commuter rail passenger service has been operating over BNSF or its predecessor railroads since the Civil War. By working with communities to develop passenger transportation solutions, we are not only helping to address highway congestion, but we are also helping the public accomplish its policy objectives of moving people safely, reducing carbon emissions and mitigating the need for building additional highway capacity.

Editor: There has been a great deal of speculation about future domestic terror targets. What do you and your industry do about this?

Nober: At BNSF, we put a tremendous emphasis on safety and security across our entire rail operation. While we have always had programs and procedures designed to prevent or mitigate criminal acts and terrorist threats to our property, we significantly expanded our efforts following the events of September 11, 2001.

We joined with other railroads through the Association of American Railroads to develop a comprehensive risk analysis and security management plan for all U.S. railroads (known as the Security Plan). We are represented on the National Joint Terrorism Task Force (NJTTF). Operating out of the Federal Bureau of Investigation's Strategic Information and Operations Center, NJTTF brings together law enforcement, intelligence, defense, public safety and homeland security functions and allows for timely analysis and efficient delivery of security information and intelligence, as appropriate.

Editor: Railroads are an historically regulated industry. How is BNSF regulated now and do you see changes in the future?

Nober: Like all U.S. freight railroads, BNSF is subject to extensive federal economic and operational regulation. Railroads were the first industry to be subject to federal regulation when the Interstate Commerce Commission was established in 1887. We are still regulated today by its successor agency, the Surface Transportation Board.

The rail industry regulatory regime was significantly altered in 1980 with the passage of what is known as the "Staggers Act," which allowed railroads to adapt to the modern economy through allowing market forces to shape our pricing and service options. Since 1980 railroads have become significantly more efficient and passed on substantial savings to our customers. However, some small groups of customers have been and remain unhappy with the current regulatory structure and are pressing the current Congress for changes. At BNSF, we are hopeful that any economic legislation recognizes the capital intensity of the rail industry and our need to make significant investments in our track, structures and rolling stock.

With respect to our operations, we are required to comply with all safety regulations and requirements of the Federal Railroad Administration (FRA), which is part of the Department of Transportation. These regulations govern the safety of railroad operations and rail employees throughout the country. BNSF has its own safety and operating rules for employees in addition to the industry's General Code of Operating Rules. Last year Congress enacted comprehensive rail safety legislation, including a mandate to install new train control technology over much of our 32,000-mile system, and we are working to implement the new requirements.

Regulatory compliance is extremely important to us. We work hard to meet regulatory requirements for our rail facilities as part of our commitment to sustainable operations in the communities we serve. We also recognize the importance of external audits of our compliance.

Editor: How about corporate governance initiatives at BNSF?

Nober: Our culture values doing the right thing and encourages the highest standards of ethical conduct and integrity. Based on a RiskMetrics Group, Inc. corporate governance assessment, published April 1, 2009, BNSF outperformed 94.9 percent of the Standard & Poor's 500 and 98.5 percent of the transportation segment. We're proud of that record and pleased that this governance rating organization recognizes our performance.

Each of our 11 board members is elected annually to a one-year term. All non-management board members are independent. BNSF adopted majority election of directors in uncontested elections to provide our shareholders with more input into director elections. In addition, the BNSF board reduced from 51 percent to 25 percent the ownership requirement for shareholders to call a special meeting.

To help assure our shareholders that independence is preserved, the board has a lead director position when the chairman is not independent. The lead director reviews meeting materials, reviews board agendas to ensure enough time is allowed for consideration of issues, and serves as a liaison between the board and the chief executive officer.

BNSF's board of directors takes shareholder concerns seriously and has an established communication process, which is publicly disclosed in our proxy statement. Every BNSF employee is subject to and trained on the company's Code of Conduct, which focuses on ethical behavior, integrity, fraud awareness and legal compliance. Each year our salaried employees certify they agree to abide by the Code of Conduct and they understand the code, BNSF policies and applicable laws.

We believe that our approach to executive compensation is aligned with shareholder interests and responsible practices. Improvement in the long-term value of this company will be the benchmark for delivery of the majority of our senior executives' compensation. Compensation philosophy, goal setting and all other program details are explained in our proxy statement.

Editor: What are your union relationships?

Nober: BNSF employs about 40,000 people in 28 states and two Canadian provinces, and employees typically stay with BNSF for a long time. The average tenure for all BNSF employees is more than 16 years. About 90 percent of BNSF's employees are represented by unions, and they work under collective bargaining agreements. Wages, health-and-welfare benefits, work rules and other issues are traditionally addressed through industry-wide negotiations. These negotiations have generally taken place over an extended time and have not resulted in any significant work stoppages.

We hire employees from many walks of life, but we are especially proud of our record in hiring military veterans, who are mission focused, skilled, motivated, and possess unique experience and technical knowledge. In 2008, more than 500 veterans joined our team, representing 22 percent of all new hires. Since 2005, BNSF has hired more than 3,000 veterans. Currently, more than 100 BNSF employees are serving on active duty and more than 1,000 have been called to active duty since September 11, 2001.

At BNSF, we recognize and value the sacrifices made by our Guard and Reserve employees. We offer enhanced and extended benefits for those employees called to active duty, including make-whole pay and benefits continuation. In addition, we offer 15 days of make-whole pay each year for annual training and drill duty.

In 2006, we received the Employer Support of the Guard and Reserve Freedom Award from the U.S. Secretary of Defense. This prestigious award recognizes that our policies and practices provide exemplary support for our nation's military personnel. As a result of these commitments and more, GI Jobs magazine consistently names us one of America's 50 Most Military Friendly Employers.

Editor: How do you collaborate on your core goals with other businesses?

Nober: Our environmental commitment extends beyond our own network to include relationships with our suppliers, shippers and others in our industry. The U.S. Environmental Protection Agency established the SmartWay Transport Partnership in 2004 as a voluntary, public-private partnership in the ground freight industry. BNSF is a member of this partnership. By 2012, the initiative aims to reduce 33 million to 66 million metric tons of carbon dioxide emissions and up to 200,000 tons of nitrogen oxide emissions per year. Achieving these reductions will save up to 150 million barrels of oil annually.

BNSF is the only railroad to have joined the Global Environmental Management Initiative, an organization of leading companies dedicated to fostering global environmental, health and safety excellence. The group has approximately 40 member companies representing $915 billion in annual sales, 2.5 million employees and 3,034 manufacturing facilities around the world. Fortune 500 companies in this initiative have been able to help smaller companies apply leading-edge environmental practices.

With generations of ingenuity and innovation behind us and a clear vision of progress and stewardship going forward, we are proud to provide efficient and cost-effective connections for people and businesses across the nation and throughout the world.

Editor: In your role, how important do you think it is for your counterparts in other companies and their senior management to "go public" and tell the story of the role of business in restoring sustainable economic growth and stability?

Nober: It is not only part of their responsibilities, but also an obligation as citizens in a free-market country.