Buffett’s BNSF Seeks New Oil Tank Cars to Boost Rail Safety

Feb 20, 2014 5:18 pm ET

(Updates with BNSF owning tank cars in fifth paragraph.)

Feb. 20 (Bloomberg) -- Warren Buffett’s BNSF Railway Co. is seeking bids to buy 5,000 oil tank cars with improved safety standards following a series of spills and explosions related to hauling crude by railroad.

The request for bids will be made to “numerous” makers of the tank cars, said Roxanne Butler, a spokeswoman for BNSF, which is owned by Buffett’s Berkshire Hathaway Inc. They will be submitted by March 20 and the bidders are required to honor proposal prices until July 30, she said.

Regulators and trade groups are studying new rules to improve tank-car safety, spurred by a July derailment that killed 47 in Lac-Megantic, Quebec, and another in February that dumped 4,500 gallons of crude in Pennsylvania. An effort to reduce the potential risk of hauling oil by rail may be driving BNSF to adopt the new cars, said Anthony Gallo, an analyst with Wells Fargo & Co. in Baltimore.

“The railroads like the oil business, but if it suddenly has material liability risk to it, then they’re not going to like it nearly as much,” Gallo said.

BNSF will own the tank cars, Butler said, breaking with the industry’s common practice of leasing companies and customers keeping the rail-car assets on their books. While BNSF doesn’t currently own any tank cars for customer use, the purpose of buying them is to “kick-start the transition” to the safer cars, Butler said.

Among the companies that will get a request for proposals, known as an RFP, is Union Tank Car, which is also owned by Omaha, Nebraska-based Berkshire Hathaway, Butler said.

“This BNSF tank car RFP represents a significant voluntary commitment that may help accelerate the transition to the next generation tank car and provide tank car builders a head start on tank car design and production,” BNSF said in an e-mailed statement. Reuters reported the RFP earlier today.

Steel Jacket

The new cars will use thicker steel and come equipped with an outer steel jacket. They also will have ceramic thermal blanketing and a pressure-relief device “capable of surviving an ethanol-based pool fire,” according to the statement.

The added safety features will increase the weight of the cars and force producers to shrink their size to meet weight limitations, said Toby Kolstad, president of the consulting firm Rail Theory Forecasts LLC. A tank car without a steel jacket can haul more than 31,000 gallons, while one with the jacket has a capacity of 27,000 gallons, he said.

The safer cars may cost as much at $150,000 each, Kolstad said. Railroads often put out a request for bids on tank cars and then negotiate with a leasing company to take ownership of the rolling stock, he said.

--Editors: James Callan, John Lear