Imagine your online shopping delivery fees suddenly increasing because of a corporate acquisition that happened years ago. This seemingly improbable scenario is now playing out in the United States, where shipping companies are protesting before the Surface Transportation Board (STB) over a controversial accounting decision by one of America's largest railroads.
The Acquisition That Started It All
In 2010, Warren Buffett's Berkshire Hathaway acquired BNSF Railway, one of America's largest freight railroads, for $43 billion. While the transaction itself was routine, the $8.1 billion "acquisition premium" included in the price has become the center of a heated regulatory debate.
Understanding Acquisition Premiums
An acquisition premium represents the additional amount a buyer pays above a company's book value to complete a purchase. This premium typically reflects intangible assets like brand value, market position, and future growth potential—similar to how homebuyers might pay extra for desirable school districts or prime locations.
The Accounting Controversy
Shipping companies and industry groups argue that BNSF should not incorporate this $8.1 billion premium into its operational costs. Their concern? That these accounting practices could justify higher freight rates—essentially making customers pay for Berkshire Hathaway's investment decision.
Why Shipping Companies Are Concerned
The unique structure of U.S. rail transport gives railroads significant pricing power, particularly for commodities like coal and agricultural products where shippers often depend on a single rail provider. If regulators allow BNSF to include the acquisition premium in its cost basis, captive shippers fear they'll bear the financial burden through increased rates.
The Regulatory Battle
The STB, which oversees railroad pricing, now faces a complex decision:
- Shippers' arguments: Including the premium would lead to unjustified rate increases, disadvantage smaller operators, and distort competition
- BNSF's position: Rates are market-based, the premium's impact would affect fewer than 2% of customers, and their accounting complies with GAAP standards
- Regulatory considerations: The STB must balance shipper protections with maintaining railroad viability while evaluating whether acquisition premiums belong in the Uniform Railroad Costing System (URCS)
Expert Perspectives
Industry analysts remain divided:
- Anthony B. Hatch of ABH Consulting notes BNSF's unique position as the only railroad permitted to value assets at market rates, suggesting deregulation as a solution
- Former Senator Al Franken questioned why an investment fund's acquisition premium should factor into operational costs when no efficiency gains were expected
Broader Implications
The STB's eventual ruling could reshape U.S. freight rail economics. A decision against including acquisition premiums might pressure other railroads to reconsider pricing strategies, while approval could establish a precedent for future mergers. The case also highlights ongoing concerns about limited competition in rail shipping markets.
As Glenn English of Consumers United for Rail Equity (CURE) stated: "While Berkshire has every right to pay any price for BNSF, shippers shouldn't foot the bill for that acquisition." The STB's decision will determine whether millions in investment costs become shipping expenses—with potential ripple effects across the American economy.