News & Reviews News Wire Buffett says BNSF has improved profitability without adopting PSR NEWSWIRE

Buffett says BNSF has improved profitability without adopting PSR NEWSWIRE

By Bill Stephens | February 26, 2020

| Last updated on November 3, 2020

Get a weekly roundup of the industry news you need.

Email Newsletter

Get the newest photos, videos, stories, and more from brands. Sign-up for email today!

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.

18 thoughts on “Buffett says BNSF has improved profitability without adopting PSR NEWSWIRE

  1. I got a question if PSR is suppose to be the answer then why has CSX,s stock price taken such a nose dive , it went from $70.00 a share where as this morning its $48.00 a share , yea PSR is a BUST. You can make longer trains which take longer to put together and don’t fit in train yards , strain engines to their limits with 200-300 car length trains, block numerous R/R crossings with slow moving trains , in which people will get mad and or go around xings knowing the train is going to take for ever. Go back to the way it was smaller trains but faster time and speed and not as much man power to put the trains together.

  2. Jim Squires,Lance Fritz,James Foote,Keith Creel.Claude Mongeau,Ruest,Ottensmeyer, Are you paying attention?Do not let this rush to fad & some fool dead man tell you how to run your own business.Matt Rose,the liberal Buffet & Carl Ice are not

  3. Warren Buffet is a lot smarter then the pencil pushers sitting up in their penthouse offices in the other class one railroads, he knows how to make money without costing people their jobs , the ones in the field who actually run the railroads simple put !

  4. Big Question: is BNSF taking business from UP? Follow-up: is PSR driving away business? That’s two for the statisticians and other number-crunchers.

  5. Walter Rittle, your suggestion makes little sense. It would require using electric locomotives for that stretch only, and swapping power sets on each train as it enters and leaves that territory. And wind and solar power are far less efficient than diesel, and expensive to install and maintain.

  6. Ms. Harding… Welcome to the world of Modern American Business! Where the “customer” is considered to be little more than a nuisance to be tolerated, at best! Now we see why Richard Anderson (an alumnus of Delta Air Lines) is at home in the railroad industry, with Amtrak…

  7. The roads which embrace PSR to the extent of telling their customers “My way or the highway” might get just what they have asked for.

    Many railroads have lost sight of the fact that they sell a service, and that the customers are the reason for the railroad, the railroad is not the reason for the customers.

    If the railroads abuse (or continue to abuse) their customers they will switch to trucks. And if that happens, if history is any guide, they won’t be back.

    The above comments are generic in nature and do not form the basis for an attorney/client relationship. They do not constitute legal advice. I am not your attorney. Six days on the road and I’m gonna make it home tonight.

  8. CURTIS – Some railfans are like sportsfans – they like some teams and don’t like other teams, for no particular logic, just being fans or not fans. A lot of people around the country love the Green Bay Packers and hate the Dallas Cowboys. Even as players come and go and the teams all recruit from the same gene pool.

    Me, I’m an Orioles and Maple Leafs fan, though I’ve never lived near Baltimore and have never lived anywhere in Canada. No particular logic. I’ve always disliked UPRR for no particular reason while being a fan of ATSF, C&O, CPR and NYC.

    Now, CURTIS, I do have a reason, I do have a rational choice. UP now has earned my dislike and now it’s the product of intelligent thought, not random emotion.

  9. It will be an interesting business case study in which is better over all BNSF way (traditional) or UP way (PSR).

  10. I am so glad that Warren Buffet has kept the BNSF the way he has. It gives the rest of the industry a reference to measure against.

  11. PSR itself isn’t the the wolf at the door, and within reason was needed to force managers to look more closely at gains in operational efficiency.

    However, it has also developed in a tool for certain investment group to strip out assets and pass the proceeds to stockholders. Without careful consideration and a strong management, the pressure for “profits NOW” can cost assets and relationships to a point beyond sustainability – but by that time the capital groups have realized their dividends and capital gains and have left the building.

  12. BNSF has by reports I’ve seen from observers adopted some PSR principles, notably longer carload and international IM trains and doubling up empty unit coal trains, all in effect reducing train starts. And I think also running some unit train traffic in the manifest network. The helpful non intrusive stuff in other words.

    But they haven’t closed hump yards (though they had fewer per route mile than UP did) or started turning away traffic with higher rates or lousy service. And most importantly haven’t messed with the domestic intermodal franchise.

  13. BNSF becoming more profitable and doing more business without adopting PSR? The ghost of EHH and those more focused on short term gain might not be pleased.

  14. Anyone wondering about BNSF versus UP should read Frailey’s blog here,”Whatever Happened to UP?” UP train starts have collapsed.
    Rumor has it that one of Buffett’s supposed successors, Abel, is a fan of PSR and was the reason Matt Rose retired early.

  15. As a previous BNSF shareholder and current UNP and BRK-B shareholder I prefer BNSF’s approach. I just hope that when Warren Buffet retires his replacement won’t fall into the operating ratio trap of going after a low OR instead of increasing net profit by keeping existing customers and getting new ones.

    Since Berkshire Hathaway also owns NV Energy it should consider investing in electrifying the ex-Santa Fe BNSF line between LA and Clovis, NM and powering it with wind and solar power from NV Energy. This could save a lot of expense on diesel fuel and reduce maintenance expense since electric locomotives require less maintenance than diesels. It would also probably generate some environmental credits too.

You must login to submit a comment