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Warren Buffett Open To Precision Railroading

FreightWaves

Berkshire Hathway chairman and CEO Warren Buffett said he would be willing to consider some form of precision scheduled railroading (PSR) for western U.S. railroad BNSF, although he didn't say when or even if BNSF would eventually adopt the operating model.

"We are not above copying anything that is successful, and I think there's been a good deal that's been learned by watching these four railroads, Buffett said, referring to Canadian National (NYSE: CNI), Canadian Pacific (NYSE: CP), CSX (NYSE: CSX) and BNSF competitor Union Pacific (NYSE: UNP). Buffett made his remarks about BNSF, which Berkshire Hathaway acquired in 2010, at BRK's annual shareholders' meeting on May 4.

PSR is an operating tool railroads use to schedule railcars on a fixed schedule, regardless of the volume level of the car. PSR has been credited with helping railroads reduce their operating ratios because PSR can help cut costs and perceived operational redundancies, but some shippers have been skeptical about whether the changes improve capacity or service on the network. BNSF is the only Class I railroad that has not adopted PSR.

"If we think we can serve our customers well and get more efficient in the process, we will adopt whatever we observe. But we don't have to do it today or tomorrow, but we do have to find something that gives at least equal satisfaction to our customers and makes our railroad more efficient, Buffett said.

"There's been growing evidence from the actions of these four railroads that we can learn something from what they do," he said.

Buffett said BNSF "pays a lot of attention to what's going on at UNP," and he noted that UNP's operating ratio has fallen after implementing PSR. BNSF reported an operating ratio of 66.9 percent for 2018 compared with UNP's 62.7 percent. UNP, which began rolling out PSR in October 2018, has said it wants to achieve an operating ratio of 60 percent or below by 2020. Other railroads have expressed similar goals.

Union Pacific "cut a lot of people and we'll see what that does in terms of shipper satisfaction," Buffett said. "If changes are needed, we'll do them."

View more earnings on CNI

Buffett expressed confidence regarding BNSF's longevity in the logistics sector, citing BNSF's ability to generate sizeable revenue per mile on long hauls.

However, if driverless trucks become part of the equation, that could move some short-haul volume to trucks, Buffett said.

BNSF spokesperson Zak Andersen affirmed Buffett's comments, "We think what Mr. Buffett said is consistent with the public comments that BNSF has made. We'll take any action that will drive efficiency while providing good customer service."

BNSF's first quarter 2019 net earnings were $1.25 billion, up 9.4 percent from nearly $1.15 billion in the first quarter of 2018, according to Berkshire Hathaway's first quarter results. Despite seeing lower volumes and experiencing severe winter weather and flooding in the first quarter, BNSF saw higher profits from higher rates per car/unit and a curtailment gain that was related to an amendment to a retirement plan.

Revenue was up 2.5 percent to approximately $5.8 billion in the first quarter of 2019 on an 8.5 percent increase in revenue car per unit, which in turn resulted from higher rates and increased fuel surcharge revenue. Operating expenses were $3.8 billion in the first quarter of 2019, down 0.7 percent from the first quarter of 2018.

First quarter 2019 volumes were approximately 2.5 million cars, down 5.4 percent from the 2.6 million cars in the first quarter of 2018.

The post Warren Buffett open to precision railroading appeared first on FreightWaves.

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