It’s been a rough couple of years for ag shippers. Truck and driver shortages, port delays in the U.S. and Asia and spotty service from railroads. The list goes on.
Except for one thing. While the supply chain has always been subject to longshore union slowdowns or other factors, the ability of railroads to provide adequate, on-time and consistent service had been suspect long before the COVID pandemic or other supply chain problems happened.
This year, an American Farm Bureau analysis showed the seven Class I railroads, which handle 94% of the nation’s freight, had 137,000 unfilled orders for grain cars in the first three months of this year.
This is not an isolated incident. In the first three months of last year, 93,000 orders were unfilled and other orders were 11 or more days overdue, resulting in lost contracts, flour and feed mill closures and other fallout, according to the analysis.
That’s not all. The railroads’ performance is so inconsistent that some customers can count on them only to be late.
“If our expectation is that they’re 10 days late, but they’re consistently 10 days late, we can plan,” Paul Katovich, general manager of Highline Grain Growers in Waterville, Wash., told Capital Press reporter Matthew Weaver. “If we think it’s going to be 10 days late, but then it’s 40 days late, that’s a big problem.”
You bet it is.
Berkshire Hathaway, a rich conglomerate that owns PacifiCorp, Geico Insurance and a bushel basket of other corporations, bought BNSF Railway — then known as Burlington Northern Santa Fe Corp. — in 2009 for $44 billion. At the time, it was Berkshire’s largest acquisition, but within five years the railroad’s profits had more than covered the cost of the purchase, according to a Business Insider article headlined, “Warren Buffett Made A Deal In 2009 That Was So Good You Could Say He Stole It.”
Berkshire is managed by Buffett, one of the richest men on the planet. Early on, he spoke at length about investing billions of dollars in BNSF to improve it.
However, in his annual letter to Berkshire shareholders in 2018, he conceded that he and his managers had come up short.
“During the year, BNSF disappointed many of its customers,” the Berkshire CEO wrote. “These shippers depend on us, and service failures can badly hurt their businesses.”
Now, four years later, it’s the same old story, even as BNSF continues to rack up profits as one of Berkshire’s cash cows.
Last year, BNSF had net income of almost $6 billion. To its credit, BNSF plans to spend $3.55 billion this year on maintenance and upgrades.
But what about other railroads? Union Pacific also serves much of the West. A publicly traded company, Union Pacific reported net revenue last year of $6.5 billion. It also spent $7.3 billion to buy back shares from investors, according to Zacks Equity Research.
At the same time, railroads have cut their payrolls “to the barebones in order to reduce costs,” according to Martin Oberman, chairman of the Surface Transportation Board, the federal agency investigating the performance of the nation’s railroads. That’s 45,000 employees laid off in the past four years, or 29% of the total workforce.
While both BNSF and Union Pacific have been investing in improvements, they still fall short of providing adequate, on-time service.
The Surface Transportation Board, which oversees railroads, has a big job on its hands.
It not only has to coax well-heeled railroads to do a better job serving their customers, but it has to make up for the years in the past the board itself let service deteriorate.
At stake is the U.S. economy as a whole — and the financial well-being of every farmer, rancher and food processor in the nation.