OMAHA, Neb. – Berkshire Hathaway is monitoring Union Pacific as it adopts Precision Scheduled Railroading and will make changes at its BNSF Railway if necessary, Berkshire Chairman Warren Buffett says.
Buffett fielded several questions about BNSF during a six-hour question-and-answer session at Berkshire’s annual shareholder meeting on Saturday. Among them: Why does BNSF lag UP on profitability even though it has grown revenue and traffic volume faster than its Western rival?
“We pay a lot of attention to what’s going on at the Union Pacific, as we should,” Buffett says.
“It’s not like we’re losing business to anybody but they have been operating more efficiently, in effect, than we have during the last few years and, like I say, we take notice of it,” Buffett says.
UP has eliminated a lot of jobs as part of its efficiency drive, Buffett notes, particularly in Omaha where both UP and Berkshire Hathaway are based.
“We’ll see what that does in terms of shipper satisfaction,” Buffett says. “But we are measuring ourselves very carefully against what they do and if changes are needed we’ll do them.”
UP’s operating ratio last year was 62.7%, which was 4.2 points ahead of BNSF’s 66.9%, which was last place among the Class I systems.
BNSF Executive Chairman Matt Rose, who retired in April, was critical of Precision Scheduled Railroading in several conference appearances this year. BNSF is the lone Class I system not adopting PSR.
But Buffett says BNSF could learn from railroads that use the operating model touted by the late E. Hunter Harrison.
Buffett noted the financial turnarounds Harrison led at Illinois Central, Canadian National, Canadian Pacific, and CSX Transportation.
“All of those companies dramatically improved their profit margins,” he says, while also noting the varying degrees of service disruptions that accompanied Harrison’s quick operational changes.
“We are not above copying anything that is successful,” Buffett says. “And I think that there’s a good deal that has been learned by watching these four railroads.”
“If we think we can serve our customers well and get more efficient in the process, we will adopt whatever we observe,” Buffett says. “But we don’t have to do it today or tomorrow, but we do have to find something that gets at least equal and hopefully better customer satisfaction and that makes our railroad more efficient. There’s been growing evidence from the actions of these other four railroads … that we can learn something from what they do.”
“I doubt anyone is interested in unprecision in railroading,” Berkshire Vice Chairman Charlie Munger says.
Buffett noted that BNSF brings in the lowest revenue per ton-mile of the six big systems in North America. He attributed that, in part, to the railroad’s traffic mix.
The Oracle of Omaha, as the 88-year-old Buffett is called, did not note that BNSF operates what’s by far the industry’s largest intermodal franchise and is the railroad most reliant on intermodal traffic, which generates lower revenue per unit than carload freight.
“We’ve got a wonderful franchise and we should have margins comparable to other railroads,” Buffett says.
Berkshire Hathaway took a stake in BNSF in 2006, then bought the entire railroad in 2010. Buffett says that remains a great investment decision and praised railroads in general and BNSF in particular.
— Updated May 6 at 11:40 a.m. CDT with additional Buffett comments.
Sounds like Warren Buffet needs to step back and take a good look around at this so called PSR Railroading that he admires so much. Maybe the UP Railroad is making profits at this time and has made deep cuts into their work force but as we all know to well this always comes tumbling down on their heads later and the next thing you hear is the UP Railroad is heading towards Bankruptcy for their corporate greed. It takes a lot of money and people to run a successful Class 1 Railroad today and you don’t do it by getting rid of employees. The Railroad infrastructure in America today is suffering from Class 1 Railroads getting rid of to many employees and making to many cuts as a result just look around at the Railroads infrastructure problems by taking a close look at them for yourself. It all boils down to one thing corporate greed and this has killed off more business in America than any time in US history today. The BNSF Railroad needs to watch the other Class 1 Railroads over the next few years and then see how there so called profit margins are doing after they run their Locomotives, Railcars, infrastructure into the ground. Like i said it takes a lot of money and people to run a successful Class 1 Railroad.
At what point does business in general and Wall Street in particular realize that without a well paid workforce there will be no one to pay for for the goods and services that drive the economy.
PSR is Vulture Capitalism – pick the bone clean and fly off to the next victim.
Running a train is harder than you think. Try having 18000 trailing tons with 10000 horse power pulling on the front and 15000 on the rear pushing. Also the tain is 7500ft long and the track ungulates, that means in the 7500ft it’s going up and down hill multiple times. Train do run there self it’s called PTC and almost all of BNSF train have it running now, but do you really want a train traveling 2000 miles across the country with no crew on board. Thousands of road crossings and multiple close calls with pedestrians and animals with no crew to step in.
Seems like, if self-driving cars are right around the corner, it shouldn’t be hard to get the same amazing technology to drive a train right now (I mean, how hard can it be compared to driving a car? You don’t have to swerve a train to avoid another train cutting in front of you. You don’t have to change lanes. All you’ve got to do is start and stop the darn thing.) BNSF should make the leap to Autonomous Precision Schedule Railroad (APSR). Zero people running infinitely long trains (limited only by the number car available on the planet). Seems like maybe they could get the operating ratio down into the 20’s.
Try to remember that, in the case of, Berkshire Hathaway, they have more than one investment. Just because other railroads do something does not mean that B-H wants BNSF to chase away business from other B-H companies.
Note he said they are watching customer satisfaction. In other news items, shippers are lining up to testify how they feel gouged by increased demurrage and ancillary fees. How many times does Wall St. have to learn the lesson about making record profits until all your customers leave?
We will see… Railroad infrastructure will be compromised and people terminated, derailments and damage. Loss of infrastructure, jobs and then pay to have it all repaired in the end. Not a good business plan…
Unremarked here is Buffett’s careful elipses regarding PTS (PTSD?) toward Wall St. He is not going to directly undercut Rose’s comment on same, which, also unremarked, dealt with customer satisfaction. Take a survey, who has the highest degree of shipper pleasure?