Subscribe to our free, weekly email newsletter!

Rail shippers oppose BNSF write-up stemming from company’s acquisition by Berkshire Hathaway

By Jeff Berman, Group News Editor
December 05, 2011

In a recent filing with the Department of Transportation’s Surface Transportation Board (STB), a group comprised of several rail shippers voiced their opinions as to why allowing BNSF Railway to take a write-up of roughly $8 billion based on the acquisition premium paid by Berkshire Hathaway in its February 2010 $34.5 billion acquisition of BNSF is “objectionable for many reasons.”

The rail shippers, including the Alliance for Rail Competition and the National Association of Wheat Growers, among others, said that this acquisition premium is problematic for the shippers and producers of agricultural commodities that are captive to BNSF.

This follows a September filing made by the Western Coal Traffic League (WCTL), a voluntary association comprised of consumers of coal produced from United States mines located west of the Mississippi River, filed a petition this week with the Department of Transportation’s Surface Transportation Board (STB) requesting that the STB issue an order that would adjust the Uniform Railroad Costing System (URCS) of BNSF.

According to the STB, URCS is its railroad general purpose costing system that is used to estimate variable and total unit costs for Class I U.S. railroads. URCS only develops costs for U.S. Class I railroads.

In the recent filing, the rail shippers stated that BNSF’s reliance on Generally Accepted Accounting Principles is flawed, citing BNSF CEO Warren Buffett as saying “managers who actively use GAAP to deceive and fraud,” although BNSF said in its opening comments with the STB that its shipments are not captive and unaffected by rate reasonableness standards established by Congress.

But the rail shippers explained that this approach by BNSF is backwards, saying that the fact that relatively little BNSF traffic is jurisdictional makes it more important, not less important that BNSF costing be adjusted to eliminate the acquisition premium.

“The fact that many BNSF shippers have competitive alternatives means that BNSF has less need of an $8 billion landfall than might a company that was pervasively regulated,” the rail shippers said in the filing. “Moreover, as a matter of law, the only rail rates levels that ‘must be reasonable…are rates on captive traffic. In other regulated industries revenues from all customers and rates for classes of customers may be capped, and are likely to be capped where there is monopoly power. BNSF can charge what it likes on competitive shipments and has demonstrated during the worst economic slump since the Great Depression that it can raise rates and gain market share even where it lacks monopoly power.”

And they also said that BNSF plainly considers regulatory factors, including UCRS costs, in developing pricing as well as terms and conditions for captive shipments, despite the claim that it charges market-based rates, noting that if the STB does not adjust BNSF costing to prevent a write-up, regulatory inaction will permit higher rates for some of BNSF’s most vulnerable customers.

Anthony B. Hatch, principal of New York-based ABH Consulting told LM in a recent interview that BNSF is the only one of the seven Class I railroads that has been allowed to mark its assets for the market.

“Its cost base has been increased, whereas everything else kind of stays the same and has depreciated,” said Hatch. “This makes things more accurate and it makes BNSF different than the other carriers. It is part of the strangeness of the vestige of the regulatory world that would be best solved by removing all the regulation.”

What’s more, Hatch noted that BNSF and all the other Class I railroads continue to make major capital investments despite indifferent traffic this year and an uncertain outlook for next year and are highly unlikely to have any type of huge cutbacks in capital expenditures. And in order to do that he said that railroads need to have projections of improved returns of which improved rates play a big role in.

BNSF officials were not available for comment at press time.

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

As was the case a month ago, the Global Port Tracker report from the National Retail Federation (NRF) and maritime consultancy Hackett Associates is calling for annual import cargo volume gains at United States ports, as retailers gear up for the holiday season.

More than nine months after saying it was not for sale, Long Beach Calif.-based non asset-based third-party logistics (3PL) services provider UTi Worldwide has apparently changed its tune, with the company saying it has entered into a definitive agreement to be acquired by Denmark-based global 3PL DSV for $1.35 billion and $7.10 per share.

September carloads—at 1,417,750—were down 4.9 percent—or 72,597 carloads— annually, and intermodal—at 1,365,980 trailers and containers—was up 1.2 percent—or 16,272 trailers and containers.

Slowing global trade and a bloated orderbook of large vessel capacity mean that container shipping is set for another three years of overcapacity and financial pain, according to the latest Container Forecaster report published by global shipping consultancy Drewry.

The NRF is calling for 2015 holiday sales to see a 3.7 percent annual gain to $630.5 billion, which comfortably outpaces the ten-year average of 2.5 percent.

Article Topics

News · Rail Freight · Railroad Shipping · BNSF · All topics


Post a comment
Commenting is not available in this channel entry.

© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA