The U.S. Surface Transportation Board (STB) is embroiled in a contentious debate over whether rail freight rates contain hidden "unreasonable premiums." At the heart of the controversy lies Berkshire Hathaway's 2010 acquisition of BNSF Railway Company, with stakeholders questioning whether the $8.1 billion acquisition premium should be factored into BNSF's cost basis—potentially inflating shipping rates for customers.
The Acquisition: A Corporate Marriage and Its Controversial Legacy
In February 2010, investment giant Berkshire Hathaway completed its $43 billion acquisition of BNSF, one of America's largest railroads. While this marked a landmark infrastructure investment by Warren Buffett's conglomerate, the deal's aftermath has sparked lasting disputes. After reevaluating BNSF's assets, Berkshire recorded an $8.1 billion acquisition premium—a figure reflecting BNSF's perceived market value exceeding its book value. Rail shippers now argue this premium could artificially raise BNSF's operational costs, leading to unjustified rate hikes.
Core Dispute: Acquisition Premiums and the URCS System
The controversy centers on whether BNSF should incorporate this premium into its Uniform Railroad Costing System (URCS)—the STB's framework for calculating freight rates. The Western Coal Traffic League (WCTL), representing coal consumers, filed a petition urging the STB to adjust BNSF's URCS, arguing that including the premium would distort cost structures and enable excessive pricing. Shippers contend that relying on Generally Accepted Accounting Principles (GAAP) for regulatory rate-setting is flawed, citing Buffett's own criticism that "managers actively use GAAP to deceive and defraud."
Hearing Showdown: Clashing Perspectives
At STB hearings, Senator Al Franken (D-MN) vehemently opposed allowing the premium in BNSF's asset base, warning it would signal railroads can artificially inflate costs while leaving shippers powerless. "This is a David-versus-Goliath battle," Franken testified, noting most shippers lack bargaining power or means to challenge rates under STB's stringent 180% revenue-to-variable-cost litigation threshold.
The Consumers United for Rail Equity (CURE) echoed these concerns, stressing that "captive shippers"—those reliant on a single railroad—would bear disproportionate cost increases for transporting goods like fuel and crops if the premium stands.
BNSF's Defense: Market Forces vs. Regulation
BNSF counters that its rates reflect market conditions, not costs, with the premium affecting fewer than 2% of customers. Analyst Anthony Hatch of ABH Consulting noted BNSF uniquely values assets at market prices—a "regulatory relic" he argues would best be resolved by deregulating the industry entirely. Hatch emphasized railroads continue major capital investments despite economic uncertainty, requiring rate adjustments to sustain returns.
Broader Implications: The STB's Pivotal Decision
The STB's ruling will reverberate across the freight industry. Rejecting the premium could force BNSF to lower rates, while approval may encourage similar accounting practices industrywide—potentially escalating tensions over rail competition and fair pricing.
This case underscores deeper questions about balancing railroad profitability with shipper protections, and whether decades-old regulatory frameworks remain fit for today's market realities. As stakeholders await the decision, the outcome may reshape how America's rail network finances its future.