At the Western Canadian Wheat Growers 45th convention in early 2015, the convention theme, ‘Moving Forward’ saw some real forward and practical thinking from Barb Haertling, general director, Agricultural Commodities, of the BNSF railroad company, who lives in Texas.
With 52,000 kilometres of railroad track in 28 states, over 7,000 locomotives, over 46,000 employees, adding 6,000 of those in 2014, this railroad company means business, all kinds of business. It is the largest network in any of the railroads in North America.
Five years ago, Warren Buffett thought buying the railway company, and he thinks railroads underpin the U.S. economy, would be a good add to his portfolio.
“You have to have pretty deep pockets to buy a company as big as BNSF and things keep moving forward,” says Haertling. “I think as you will see, Warren is very open to investing in the company going forward and just really feels railroads underpin the U.S. company and that is where he wants to put his money.”
In a Bloomberg business report earlier last year, it says Buffett felt initially, his $26.5 billion buyout of railroad BNSF, was a steep price to own a business that would benefit his company, Berkshire Hathaway, over the next century.
Bloomberg says five years later, that assessment rings a bit hollow. Buoyed by an onshore oil boom, BNSF has become a cash machine for Buffett and the business is on pace to return all the cash Buffett spent taking it private by the end of 2014.
However, the intriguing and interesting content of the speech Haertling gave to the Wheat Growers had to do with the stark contrast to how the Canadian railroads operate.
“We actually go into three provinces as an American railroad,” she says.
They go into Vancouver, Northgate, SK, and from Noise, Mn to Winnipeg.
“You are aware of your problems last winter, and we had similar problems on the American side too,” she says. “We are spending a lot of money to upgrade our network to address those problems. We have many employees and keep hiring many more.”
Haertling says when hiring new employees, they concentrated on in the areas where they need them the most, but many in areas where it is kind of hard to hire because of the oil industry competing for the same employee pool.
“With the drop in oil prices, it is slackening off and we will just have to wait to see how that plays out,” she adds.
Where people watching the situation in Canada and what the Canadian railways do to hopefully improve rail transportation ripping up track, getting rid of locomotives and railcars, and laying off employees to appease the bottom line and ultimately shareholders, BNSF is doing the opposite.
“We do a lot of planning to be ready for things moving forward because many things have to fall into place to make it happen and satisfy the customer,” says Haertling. “We need six months notice to be be able to get crews in place, locomotives, and any capital expenditures we need to make, and for tracking construction, it takes even longer.”
In 2014, Warren Buffett, who isn’t hands on by any stretch of the imagination, but respects the decisions of his management team, invested $5.5 billion dollars to improve efficiencies and fix the problems that saw the big rail snags of 2013 and part of 2014. The budget calls for another investment of $6 billion for 2015.
Haertling, while not making any excuses, a number of things coming together in 2013 caused the big snags on their side of the border and the handle of the products for their customers.
No one saw the big boom in crude oil requiring not only moving oil out but supplies in. No one foresaw the skyrocketing of natural gas prices, making coal much more attractive and requiring moving that coal to destinations.
Then the big crop of 2013, surpassing all guesstimates, and throwing in the worst winter in 35 years, snags and snarl ups occurred.
Yet, BNSF, didn’t sit around and whine nor make excuses, but determined in April 2014, this would not happen again. While not catching up totally yet, being 17,000 cars behind at that time, through strategic investments, providing incentives to load faster, allowing the free marketing system to work, things are looking much better, and Buffett will have paid off his buyout investment from the dividends of the railroad company he bought five years before.
One last thing, where in the CWB monopoly days and now beyond it, no one is quite sure how the railroads allocate freight, but in BNSF’s case, they let the market determine who gets the freight.
“What an original idea,” quipped former Wheat Board minister, the Hon. Charlie Mayer.