BNSF Railway Transportation - Article Example

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BNSF Railway Transportation Date BNSF Railway Transportation Introduction Edward Hamberger, President and CEO of the Association of American Railroads stated, “Freight rail drives our nation’s economic recovery by delivering the things American businesses need to grow and create jobs…
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Download file to see previous pages The services offered by the industry are bulk freight, intermodal services, passenger services and switching and terminal railroad services (IBISWorld, 2011). According to statistics from the U.S. Department of Transportation, freight shipments have increased from 27% of the ton-miles of U.S. freight in 1980 to 38% in 2005 (Laurits R. Christensen Associates, Inc., 2009). This increase shows the growing significance of the role of railways in the U.S. economy. Among the cargo being shipped through the railroads, coal represents the largest proportion in terms of tons (Laurits R. Christensen Associates, Inc., 2009). Other commodities transported by railroads include chemicals, farm products, non-metallic minerals and miscellaneous mixed shipments. Over the years, the railway industry has experienced consolidations that have reduced the number of Class I from about 40 railways to the current seven. The seven major players in the railway industry are Union Pacific Corporation (UP), Burlington Northern Santa Fe Corporation (BNSF), CSX Corporation, Kansas City Southern (KCS), Canadian National Railway (CN), Canadian Pacific Railway (CP) and Norfolk Southern Corporation (NS). In terms of operating revenues of the major North American railroad, the Union Pacific posted the highest revenue with $15.5 million. It is followed by BNSF with operating revenue of $14.8 million, NS with $9.4 million, CSX with $8.6 million, CN with $6.8 million, CP with $4.1 million and KCS with $0.87 million (Association of American Railroads, 2008) . Porter’s Five Forces Like any other industry, the railway industry is influenced by Porter’s five forces model which shape the strategies of companies, as shown in Figure 1 (Porter, 2008). The first force identified by Porter is the threat of new entrants. This force is the possibility of new companies entering the industry. This force is not very influential in the strategy of a company in the railway industry because of several barriers to entry. The barriers to entry in the railroad industry are (1) huge capital requirement needed; (2) restrictive government policy which is being regulated by the Surface Transportation Board; and (3) the availability of the infrastructure needed to compete with existing ones. In the future, it is expected that mergers will continue in the future and may even reduce the present seven companies to two transcontinental railroads because of the uncertainty of the structure of the railroad industry (IRS, 2007). Fig. 1 Porter’s Five Forces Model The second force identified by Porter is the bargaining power of suppliers. Suppliers of the railway industry include the manufacturers of tracks, railway equipment, structural metal products, freight cars, locomotives and construction companies who build the tunnels and bridges. Investors in railway companies can be considered as suppliers of the much needed financing to improve the industry. Recently, billionaire Warren Buffet invested in BNSF by buying it for $26 billion while Microsoft’s Bill Gates now owns 10% of CN railway. Investment of these two prominent personalities says much of the future of the railway industry (North America's Corridor Coalition, Inc., 2010). To illustrate clearly, the supplier power according to Porter includes (1) charging of high prices; (2) limiting the quality of the ...Download file to see next pagesRead More
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