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Futures contracts are available for dozens of commodities — from pork bellies and orange juice to natural gas and dynamic random access memory chips. And now, thanks to Americas second-largest railroad, investors can buy futures in train capacity.
In what appears to be the first-ever auction of transportation options, the Burlington Northern and Santa Fe Railway is using its Web site to sell options that allow buyers to lock in transportation prices on 100-car coal trains up to 18 months in advance. The options let buyers hedge against future price increases.
The auctions are the latest example of the use of the Web as a medium to buy and sell futures in commodities.
BNSF officials said they created the program in response to customer requests. BNSF also hopes to increase its customer base. “We are creating a secondary market for our services which may have an added benefit for us in terms of adding new customers,” said Bob Brautovich, assistant vice president of coal marketing.
Although the options cover only a small part of BNSFs coal-hauling capacity, they fill an apparent need in the supply and risk-management chain. Investors have long been able to buy futures in coal and electricity. By offering futures in the transportation that links coal mines with power plants, BNSF is allowing energy buyers to hedge all of their future price risk, Brautovich said.
The options, which the railroad began selling last month, are sold much like items on eBay. Bidding on each option starts at $400 and lasts for one business day. So far, the railroad says it has sold nearly 70 percent of the options offered. The company did not disclose the buyers.
Stephen Stabinger, a rate analyst at Traffic Service Bureau, a Pennsylvania firm that audits transportation costs for client companies, applauded the concept. “If fuel prices are going up, it might be a good idea, especially for utilities that are getting many trainloads of coal,” he said. In addition, selling options may help BNSF in logistics planning because it will help the company determine when and where demand will occur, he said.
Energy analyst Larry Lawrence, a principal at Teknecon Energy Risk Advisors, also found merit in the auctions. But he warned that the move could force BNSF to lower its prices. “If you have a scarce resource, its better to have an opaque market so you can get a higher price,” he said.
Other rail companies are tracking the auctions.
John Bromley, a spokesman at Union Pacific Railroad, said Union Pacific, Americas biggest rail firm, is watching BNSFs sales “with much interest. We think it has some real merit in demonstrating the marketability of transportation ser-vices in some corridors.”