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

Seasonally-adjusted (SA) for-hire truck tonnage in November was up 3.5 percent compared to October, which was up 0.5 percent over September at 136.8 (2000=100), marking the highest SA on record.

UPS said that through this acquisition it will augment its healthcare expertise and network in Europe, specifically in the fast growing healthcare markets in Central and Eastern Europe.

Carloads were up 12.1 percent at 312,271, and intermodal at 280,337 containers and trailers saw a 4.5 percent annual gain.

Total November POLB volumes were up 2.1 percent year-over-year at 581,514 TEU, and POLA volumes in November decreased 3 percent compared to November 2013 at 663,346 TEU.

When railroads are doing business with a larger than large customer like UPS, it stands to reason, it can often be the best, and worst, of both worlds, depending on how things are going. That was one of the main takeaways from a presentation by UPS Vice President of Corporate Transportation Services Ken Buenker at this year’s RailTrends conference in New York.

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