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

By Jeff Berman, Group News Editor
December 05, 2011 - LM Editorial

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

The value of exports from America’s Foreign-Trade Zones increased by 13.7 percent in 2013, to a record-high 79.5 billion in merchandise exported, according to figures released by the U.S. Foreign-Trade Zones Board in its Annual Report to Congress.

While summer may be nearing its end, the climate in the manufacturing sector remains very warm, according to the most recent edition of the Manufacturing Report on Business issued today by the Institute for Supply Management.

When publicly-traded Class I freight railroad and intermodal service providers issued second quarter earnings results earlier this summer, the topic of less than ideal service on the rails was a common theme within the earnings releases and question and answer sessions with top management at those companies.

Supply chain security provider Freightwatch International has released its semi-annual report on cargo theft in the Asia Pacific region for the first half of 2014, which contains some heartening news for U.S. shippers reliant on trucking, warehousing and retail.

FedEx Ground, a subsidiary of FedEx Corporation, reports today that a decision by a three-judge panel of the United States Court of Appeals for the Ninth Circuit reversed previous rulings by the District Court for the Northern District of Indiana in three class action cases involving mostly former independent contractors for FedEx Ground

Article Topics

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

About the Author

Jeff Berman, 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. Contact Jeff Berman.

Comments

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


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA