If railroads are the arteries of the U.S. economy, BNSF Railway undoubtedly serves as one of its critical lifelines. Yet this vital corridor now faces regulatory scrutiny as federal officials examine whether Warren Buffett's 2010 acquisition could ultimately translate into higher freight costs for American businesses.
The Acquisition and Rising Concerns
In February 2010, Berkshire Hathaway completed its $43 billion purchase of BNSF Railway, including an $8.1 billion premium above book value. This accounting treatment has become the focal point of recent hearings before the Surface Transportation Board (STB), where shippers argue the premium could artificially inflate BNSF's cost basis and justify rate increases.
Multiple shipper groups filed pre-hearing objections, calling the accounting approach "objectionable in multiple respects." Their primary concern centers on the STB's Uniform Railroad Costing System (URCS), the methodology used to calculate railroad operating costs that directly influences rate determinations.
Regulatory Showdown
During heated hearings, Senator Al Franken (D-MN) challenged Berkshire's premium payment, noting that while STB historically permitted premium inclusion during railroad mergers, the BNSF transaction represented a capital investment rather than an efficiency-generating combination.
"Allowing this premium into the rate base sends exactly the wrong message," Franken testified. "It tells railroads they can artificially inflate assets to circumvent regulation, while telling shippers the Board doesn't care about their vulnerability to rate hikes."
Glenn English of Consumers United for Rail Equity (CURE) emphasized that captive shippers—those served by only one railroad—would disproportionately bear the burden. "Berkshire can pay whatever price it chooses, but shippers shouldn't fund that acquisition through inflated rates," English stated.
BNSF's Defense and Industry Perspectives
BNSF countered that its pricing reflects market conditions rather than costs, with less than 2% of customers potentially affected. Transportation analyst Anthony Hatch noted BNSF's unique position as the only Class I railroad permitted to value assets at market rates, calling this "a regulatory anomaly that should be resolved by eliminating all such constraints."
Hatch observed that despite flat traffic volumes, railroads continue making significant capital investments, requiring rate adjustments to maintain returns. "The industry faces a delicate balance between infrastructure needs and customer affordability," he added.
Broader Implications
The STB's eventual ruling could reshape industry accounting practices. Approval might encourage similar premium treatments in future transactions, while rejection could establish safeguards against cost-based rate inflation.
The debate underscores fundamental questions about railroad competition, particularly regarding captive shippers' limited bargaining power. Potential solutions include network access reforms, enhanced inter-railroad coordination, and improved dispute resolution mechanisms.
With U.S. rail freight generating $80 billion annually—15% of total freight movement—the outcome carries significant economic consequences. BNSF alone handles approximately 50% of western U.S. rail traffic, making its pricing policies particularly impactful for agricultural, manufacturing, and energy sectors where transport costs often exceed 10% of total expenses.