J.B. Hunt, BNSF will review revenue split

J.B. Hunt Transport Services Inc. and BNSF Railway Co. both exercised the right Tuesday to arbitrate the details of the division of revenue in their joint services agreement, the two companies confirmed.

The Lowell-based trucking company said in a release that revenue-sharing specifics with BNSF remain confidential, but "the issues submitted for arbitration include both the interpretation and application of these standards."

Citing the confidentiality of the terms of the agreement and the arbitration proceedings, Michael Trevino, a spokesman for the Fort Worth rail company, declined to make any further comment. He did say the company's customers "will not be affected by this review."

The original 1991 contract was the first successful implementation of intermodal transportation. Since then, the strategy of moving freight between modes to maximize rail's long-haul efficiency and trucking's short-haul capabilities has completely altered freight transport.

Last year, about $3.7 billion -- 60 percent of J.B. Hunt's revenue -- came from its intermodal segment. Michael Haverty, who was the president of Santa Fe Railway when he approached J.B. Hunt with the original intermodal deal in 1989, has estimated that BNSF makes about $1 billion annually from the deal. Santa Fe Railway Corp. and Burlington Northern Inc. merged to form BNSF in 1993.

The "evergreen" intermodal contract automatically renews each year. The agreement stipulates that the revenue division will be negotiated by the two companies and is reviewed quarterly. J.B. Hunt is questioning the period beginning May 1, 2016.

The agreement was previously taken to arbitration in 2004 by BNSF. J.B. Hunt had to pay $16.5 million as a result.

In the release, J.B. Hunt noted that the "fairness of the revenue division" had not been evaluated by a third party since that last arbitration. Company officials pointed to the "tremendous growth" of the intermodal network and "increased operating complexities" as the reason to do so now.

J.B. Hunt did not respond to further requests for comment but stated in the release that though the process "may be lengthy and time consuming," the company "considers this part of the normal course of business within the long term relationship."

"I think an arbitrator will settle the disagreement, and they will move on and work together," Haverty said. "The business relationship is too important to both parties, and it has survived 26 years. So I cannot imagine this having a material affect on either the relationship or the financials of either party."

Business on 01/04/2017

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