Buffett says BNSF has improved profitability without adopting PSR

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Berkshire Hathaway Chairman Warren Buffett runs a BNSF Railway model train as BNSF CEO Carl R. Ice, right, looks on during Berkshire Hathaway’s annual shareholder meeting in Omaha, Neb., in 2019.
BNSF Railway

OMAHA, Neb. — BNSF Railway has improved its profit margins without having to adopt Precision Scheduled Railroading, Berkshire Hathaway Chairman Warren Buffett said in a televised interview this week. 

Buffett told CNBC that Berkshire Hathaway’s railroad has gained market share and that its profit margins have improved. “But they haven’t improved as much as some other railroads,” Buffett said.

Buffett noted that the late E. Hunter Harrison was “enormously successful” with his Precision Scheduled Railroading operating model, which dramatically improved profit margins at Illinois Central, Canadian National, Canadian Pacific, and CSX Transportation.

Publicly, BNSF remains the lone Class I railroad holdout as the rest of the industry has adopted Precision Scheduled Railroading.

Will BNSF follow suit?

“Well, we’ll see,” Buffett says. “I mean we’ve watched it plenty. It makes the customers adapt to the railroad more than the railroad adapting to the customers and practically everybody's done it.”

Rail shippers have complained to federal regulators about PSR-related changes at CSX Transportation, Norfolk Southern, and Union Pacific. Shippers have been critical of the three railroads’ stricter demurrage and accessorial charges as well as changes to local service.  

“Our margins are close to … the better railroads,” Buffett said. “And then we’ve gained share because apparently the railroad customers like us better. Over the long term we’ll see. But it isn’t like it’s something we can’t do.”

BNSF’s operating ratio improved 2.3 points last year to 64.6%, its best performance since 2015. 

Rival Union Pacific was more profitable, however. UP posted a record-low operating ratio of 60.6% in 2019 and has a long-term target of a 55% operating ratio.

But BNSF has grown revenue and traffic volume, while UP’s revenue and volume have fallen. Since 2012, BNSF’s revenue has increased 12.9% as traffic volume grew 5.5%. Over that period UP’s revenue declined 3.3% as traffic slumped 1.8%.

Last year BNSF’s rail market share in the west was 53.4%, up from 51.6% in 2012, according to a Trains News Wire review of BNSF and UP carload data reported to the Association of American Railroads.

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