Shippers on Thursday got their shot to tell the Surface Transportation Board that it’s unfair for them to pay higher rates to BNSF Railway because of the $8.1 billion premium Berkshire Hathaway paid to acquire the railroad in 2010.
The premium, part of the Warren Buffett-led company’s $43 billion purchase of BNSF, is used to determine the railroad’s cost base for captive shippers, or customers transporting bulk commodities who only have access to one rail service.
The Western Coal Traffic League’s petition to the STB is one of the most concerted shipper-driven efforts in years and signals their increased frustration with the railroad’s strong pricing power.
“I’d hate for this case to be seen as if we go BNSF’s way, they make more money (and) if we go (for the) shippers, BNSF makes less money. BNSF makes more money either way,” said John Cutler, an attorney with the Alliance for Rail Competition.
The premium will increase a captive grain shippers’ cost by 40 cents per ton for a 1,200-mile haul, and a coal shipper’s cost will rise 50 cents a ton for a 1,000-mile move, said Thomas Crowley, president of L.E. Peabody & Associates, which provides economic consulting to the WCTL. The group, which represents the Western Fuels Association and the Arizona Electric Power Cooperative, estimates the premium will result in 2 to 3 percent higher rates for captive shippers.
Thomas Hund, BNSF’s executive vice president and chief financial officer, rejected shippers’ criticism that the premium would translate into higher rates. “BNSF’s policy and practice is to set rates on market conditions and market demands for services, not cost,” he said. “A significant portion of BNSF’s rates are not regulated by the board. BNSF competes vigorously for this business, and as a result, these rates are based on market forces.”
Hund said BNSF uses the same practices when determining rates the STB oversees. Of the 9 million annual moves the railroad makes, less than 2 percent would be affected by the premium and the impact would be negligible, he said.
BNSF has cut rates for coal shippers, including those that don’t have access to a competing line, as demand has slowed.
Rob Jenkins, an attorney assisting BNSF, said shippers haven’t provided a reason why STB should do away with the generally accepted accounting principles that have been used for the last 25 years. Rebutting shippers’ claims that such premiums were burgeoning, he said the percentage of premiums in relation to total asset costs have been shrinking in recent years.