BNSF Says It is Owed Whopping $100 Million, as Arbiter's Interim Ruling Appears to Favor Rail Carrier

Intermodal transportation by definition requires partnership between different types of carriers or logistics service providers. Commonly, trucking firms negotiate a deal and pricing with the shippers, and share the revenue with their rail carriers partners based on an agreed upon formula.

Supply Chain Digest Says...     Even for giants such as JB Hunt and BNSF, $100 million is a big number. What do you say? Click here to send us your comments Click here to see reader feedback

In at least one major case, how that split is tallied has become the source of a legal dispute.

As reported this week in this week in the Wall Street Journal, BNSF Railway says it is owed more than $100 million by JB Hunt Transport Services, the rail carrier's main trucking partner, in what is says "is an escalating dispute over how the companies split revenue from their truck-rail intermodal business."

It turns out that the two carriers have been in arbitration over the issue since January 2017, the second time both have sought arbitration during their nearly three decades of working together. In the relationship, JB Hunt trucks pick up trailers and deliver them to BNSF rail yards for long haul transportation. JB Hunt or contracted trucking firms then handle the pick-up and local delivery after the rail move.

JB Hunt has invested heavily to build its intermodal business over the past two decades, and its intermodal business unit is its largest, producing $4.08 billion in 2017, or 57% of JB Hunt's total revenue.

But from that revenue JB Hunt must pay its rail carrier partners, under complex formulas made even more complicated by the fact that market rates, fuel costs and more are highly dynamic in the freight sector.

According to the Wall Street Journal, JB Hunt said before its third-quarter financial report that an arbitration panel's confidential interim award would cost the company $18.3 million in pretax earnings in Q3.

Meanwhile, BNSF said in a securities filing this week that it has provided JB Hunt with calculations for payments due "in excess of $100 million, consisting of additional revenue owed BNSF for 2016 and 2017 and certain charges…for specific services for customers from April 2014 through May 2018."

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Even for giants such as JB Hunt and BNSF, $100 million is a big number.

Naturally enough, JB Hunt has a different view of the matter.

In a separate securities filing, Hunt said that it would submit its calculation of the adjusted revenue for that period to the arbitration panel, which "may then issue an additional interim award as appropriate" – sounding very much like even Hunt believes it will owe BNSF some money.

BNSF carries 62% of Hunt's total intermodal loads, according to Citi Bank analyst Christian Wetherbee in a research note Monday.

All this at a time when Hunt and by extension BNSF's intermodal businesses are surging, at least in terms of revenue. In Q3, intermodal revenue for JB Hunt per load jumped 15% year-over-year, though volume grew by only 1% compared with the same quarter in 2017, some of that flat performance the result of hurricane-related issue.

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