BNSF Railway exec hopeful for an economic recovery by 2013

While the economic recovery has had its fair share of stops and starts, it may be happening again in earnest on the railways. That is the consensus from John Lanigan, executive vice president and chief marketing officer at BNSF Railway.

Speaking at the RailTrends conference presented by Progressive Railroading and independent industry analyst Tony Hatch, Lanigan talked about volume trends for BNSF and economic trends, among other subjects.

Unlike a year ago, when Lanigan said BNSF was caught a little bit “off guard” in terms of the pace of the economic recovery at that time, things have leveled out to a certain degree, with volumes being relatively sideways from about the end of this year’s first quarter to about a month ago, when BNSF had its first 200,000 shipment week for the first time since a pre-recession week in 2006—a record volume year for the railroad industry—that came in around 220,000 carloads.

Another good sign since hitting 200,000 not long ago is that since then BNSF has been in the 195,000-210,000 weekly carload range, which Lanigan said is about 90 percent back to pre-recession levels and is a figure BNSF would like to sustain heading into 2012. But whether or not that occurs, remains to be seen.

“There is still a lot of uncertainty on the horizon,” he said. “Some large retailers we have talked to are so skittish about the holiday season that they had their suppliers create forward supply points to…have their suppliers ready to supply on demand from relatively close distances away. They decided they did not want to fill their shelves or distribution centers and were going to reply on supplier to have adequate supply at their own cost at current locations or arranged locations so that they can ask for 200 blue windbreakers next week.”

Lanigan said this approach is a departure from the inventory overhang at the front end of the recession, with nobody wanting a repeat of that situation another time.

And with consumer spending representing about 70 percent of total U.S. GDP and the country still fighting to emerge from the recession, which he said is still intact, this type of strategy by retailers gives everyone a reason to pause and wonder exactly what the current state of economic recovery is.

“Going into next year, we are planning for modest growth at BNSF,” explained Lanigan. “We think the economy is going to continue to kind of kick back to where we have been before. We don’t think we will be back to 2006 volume levels next year; we think it is probably going to be 2013. So…from 2006, which was the least peak of rail volumes and 2013 becomes the next peak that would be a seven-year period of time from peak-to-peak. If you go back to various recessions we have had in the last 30-to-50 years, no economic cycle has ever taken seven years to go from peak to peak.”

Lanigan said this period has been a very difficult time and stressed the fact that the key component to get the economy going back to where it could be is consumer spending. But until consumers feel they have some certainty in their lives, with hiring and progress being made, the recovery figures to be slow.

And until consumers regain confidence in the economy and purchase things like homes, cars, household appliances and furniture, Lanigan said the slow growth will remain in effect, with the hope that things are fully back by 2013. But if there are further shocks to the system, such as the current situation in Europe, that date could be pushed back. 

And should the economy make a decent comeback, Lanigan broached the issue of whether railroads are equipped to handle growth.

“In the six years since 2006, we have had record investments into the railroad industry even though our volumes on a year-over-year basis have not been as high as they were in 2006,” he said. “We have all collectively believed as an industry that the growth is going to be out there in the future. We have to build and plan ahead for that. BNSF is setting an all time record this year, with $3.8 billion in capital spending and we are not going to come anywhere close to setting an all time record for units and volume.”

But BNSF, he said, is looking to the future, because things like highway congestion and rail’s environmental impact compared to alternative modes of transportation all lead to a future where more freight will come to the rail industry and BNSF will be ready to handle it.