BNSF sees shippers seeking longer contracts

The top marketing executive at BNSF Railway says shippers concerned about securing available capacity at current rates are seeking contracts of longer duration than they have in the past.

John P. Lanigan, executive vice president and chief marketing officer, said he is seeing shippers wanting to enter into contracts of five to seven years in length, much longer than the duration of previous deals. Speaking Sept. 28 at CSCMP's 2010 Annual Global Conference in San Diego, Lanigan said the railroad signed two contracts the week before that were double the duration of prior contracts with the same shippers. Lanigan wouldn't identify the shippers or the lengths of the contracts.

Lanigan said the interest in longer pacts is driven by shipper concerns that demand for railcar and intermodal services in coming years will outstrip available supply, leading to capacity shortages and significantly higher rates.

Lanigan's comments were echoed by Rosalyn Wilson, author of CSCMP's annual "State of Logistics Report." In a decidedly more bullish update to the 2009 report she presented in June, Wilson forecast that 2011 will be a year of capacity shortages and said shippers wanting to ensure appropriate service levels without having to hold excess inventory should take action now to secure space, even if it means delivering guaranteed volumes to the carriers.

"Consider trading guaranteed volumes for a check on rates for the next few years," she said. Ironically, while Lanigan sees more shippers taking a longer view in contract negotiations, he says they still have a very short-term perspective on the outlook for their business. Many customers have no visibility beyond the next month or the current quarter, he said, adding that many don't budget on an annual basis anymore, and instead are managing budgets through quarterly updates.

Lanigan said the short-term focus creates a personnel issue for BNSF. The company would like to hire additional trainmen as more locomotives enter service and older engineers near retirement. However, it normally takes about nine months from the time engineers are hired until they are sufficiently trained to operate a train. It is difficult for BNSF to invest that much time and money in recruiting and training only to discover that business volumes could fluctuate from one quarter to the next.

"I don't have a nine-month window," Lanigan said.