Tuesday, Apr 28, 2015

As Warren Buffett praises his BNSF railroad, customers rail against delays

Warren Buffett is sure to laud the impressive growth of BNSF Railroad, his company's largest-ever acquisition. Reuters Warren Buffett is sure to laud the impressive growth of BNSF Railroad, his company's largest-ever acquisition. Reuters
By: Reuters | New York | Published on:May 3, 2014 5:41 pm

When American investor Warren Buffett addresses Berkshire Hathaway’s shareholders at the conglomerate’s annual meeting on Saturday, he is sure to laud the impressive growth of BNSF Railroad, his company’s largest-ever acquisition.

The railroad, which was struggling amid the Great Recession when Berkshire bought it for $26 billion in 2010, returned a $3.8 billion profit last year. In his annual letter to Berkshire shareholders in February, Buffett called BNSF, whose 32,000 miles of track spans 28 states, “the most important artery in our economy’s circulatory system,” handling 15 percent of all inter-city freight across America.

Praising BNSF’s smooth relations with customers and regulators, Buffett wrote: “Like Noah, who foresaw early on the need for dependable transportation, we know it’s our job to plan ahead.” Buffett was likening BNSF’s foresight to the biblical figure Noah and his vessel.

He added: “America’s rail system has never been in better shape.”

What Buffett didn’t mention is that a growing number of BNSF’s customers say the vital artery is clogged, causing economic losses for industrial firms and farmers scrambling to get their products to market.

As more U.S. goods ride the rails amid an economic recovery, delays can reverberate widely. A harsh winter bungled rail schedules this year, causing slower train speeds, terminal log-jams and stranded crews and locomotives.

Other major railroads, including giant Union Pacific Corp , also have experienced interruptions. Railyards in and around Chicago, a gateway for several major lines, have been backed up for months after record snowfall there over the winter. Even BNSF itself has suffered: Berkshire said on Friday that its first quarter rail unit’s earnings, which fell 9 percent to $724 million, was “negatively affected by severe weather conditions and service-related challenges.”

Some shippers believe the winter woes are only part of the problem. The concerns have been greatest across the Great Plains and the Upper Midwest, where BNSF is among the dominant rail players and has been the biggest beneficiary of a boom in shipping a high-value commodity – crude oil – from the Bakken oil patch of North Dakota and Montana.

According to a Reuters analysis of filings made to the U.S. Surface Transportation Board (STB), the rail industry’s economic regulator, over the last month more than four dozen industrial trade groups, lawmakers or commodity firms who rely on BNSF and other major Class 1 railroads have lodged complaints or pleas for regulator action to improve their rail service.

One common claim is that railroads including BNSF may be de-prioritizing the shipment of other commodities to make way for higher-priced crude oil on their trains, which railroads deny.

“BNSF is not favoring crude shipments over other shippers. This is a case of rapid growth for several commodities using parts of our railroad network that hadn’t previously seen that kind of volume,” said …continued »

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