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Warren Buffett open to precision railroading

Berkshire Hathway (NYSE: BRK) 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.”

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.

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily. Her transportation background extends to writing about automotive fuels and additives for Hart Energy Publishing and producing summaries on advanced transportation research for a federal government agency. In her spare time, she likes writing travel articles, taking photographs, and singing and dancing. She has a bachelor's degree in music and political science from Barnard College, a master's in journalism from Boston University, and a master's in musical theater from Boston Conservatory.

4 Comments

  1. Yet, the CEO want to pay us less. We move the freight, which pays dispatchers, CEOs, CFOs and a host of others. These people have a system that tries to keep us on disciplinary action. They stall trains to keep us on them. They won’t call crews correctly. Rules are not the problem. If Mr Buffet would actually talk to some of his nose to the grindstone employees. He’d see that we could move freight better. Everyone at BNSF gets slaps on the wrist for any infractions. But conductors and engineers are persecuted for things that are not their fault. You follow the rules per the gcor and they still try to throw the book at us. It’s a sad predicament and I’m healthy one!

  2. Who can I talk to, to get us a higher wage as a DoD employee , I am an Engineer/Conductor, and work long hours. Do mechanic work (as needed ) .and just trying to get us a comparable pay scale .

  3. Precision Scheduled Railroading, especially as practiced by the late Hurricane Harrison has made railroad employees’ lives a living hell, some of which has gotten even worse after he was gone. Warren Buffett seems a decent guy. I hope he considers the welfare of his employees more important than the crooks on Wall Street.

  4. Precision Scheduled Railroading is old school railroading. You talk with 1,000 railroaders you might find 4 that remember the train order days. I am one of those 4. When I started my railroad career as a road brakeman in 1954 we had between 24 trains a day, one departing every hour or so. On top of that, we had between 15-30 additional trains a day showing up, plus countless yard and road switchers. The problems started when about everything was closing down and consolidating in the mid-’70s. It was highly unprofitable for any Class 1 Railroad(23 back then, 5 today) company to operate a train that did not carry enough to pay for the diesel oil burned and the crew on the train, yet they did and were required to by many federal and state laws. Then before the Staggers Act was signed into law, they had to maintain thousands of miles of trackage seeing dwindling need and usage. Before any big changes could be made they had to get the Unions on board, that happened in October 1986. It seems like almost overnight, thousands of miles of unused trackage was being sold or scrapped. Having trains running with fewer tonnage and more people riding the train went away and an as needed style of train ordering was being used more and more. Now comes 2005. The railroads have more trains on the system then the system can handle. A lot of those trains can be combined into one train, thereby freeing up man and equipment for other things. The only exception to this is unit trains, most unit trains, coal, autos, grain, etc are operated near the maximum capacity of the equipment and route. Also moving a few dozen cars from industry can be a hundred car train if ten days is allowed between train departure, as most industry is always point to point and the point never changes. All things old are new again. Precision Scheduled Railroading.

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