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Rail Charges Spark Alarm

by Matthew Weaver
Capital Press, April 5, 2012

Wheat growers blame rising costs on Berkshire Hathaway's acquisition of firm

The National Association of Wheat Growers wants the Surface Transportation Board to protect farmers against higher rail rates.

Wayne Hurst, a Burley, Idaho, wheat farmer and past president of NAWG, recently told the board about his worries over increased rail rates on the Burlington Northern-Santa Fe Railway.

Warren Buffett-run Berkshire Hathaway paid a premium when it purchased the rail line in 2010, Hurst said. The company paid $44 billion, or $100 per share, for

Burlington Northern, which had been trading at around $77 per share. Buffett is one of the wealthiest men in the world.

"The railroad didn't incur those costs, the new owners did, and now they have inserted that increased premium into the calculated cost of operating the railroad," he said.

Burlington Northern and others are predicting a 5 to 10 percent increase in costs, Hurst said.

In the long term, that likely will mean higher rates for shipping grain, he said. The railroad ships more than 1 million railcars of grain a year. Its total operating revenue last year was $19.5 billion, according to the company website.

Farmers bear the cost of transportation, and the railroad sets the rates, Hurst said.

"Farmers have very little leverage; we just pay what we're required to pay," he said.

The board is mandated by Congress to ensure railroads are profitable and protect shippers, Hurst said.

"The railroads have proven they can make money," he said. "We are not asking for anything less than reasonable rates. We are willing to pay our fair price. It's just that most of us are paying in excess of what's been determined to be reasonable by Congress."

Hurst expects a ruling from the board in the next few months. The three-member board is charged with resolving railroad rate and service disputes and reviewing proposed railroad mergers.

NAWG is also working on legislation to give farmers more leverage when negotiating freight rates, he said.

Suann Lundsberg, director of media relations for Burlington Northern, said the railroad sets rates based on market conditions and demand, not regulatory costs. Lundsberg also said every railroad merger or acquisition in the past two decades has involved an acquisition premium.

Hurst is also worried about a possible precedent being set. Previous railroad mergers or acquisitions were allowed by the board because customers would benefit from increased efficiencies, improved service and lower costs, he said. No such improvements are expected with Berkshire Hathaway's purchase.

"What's to prevent another wealthy investor from coming in, paying higher-than-market prices and then just passing those costs on to the captive shippers?" he said.

Related Pages:
Shock: PacifiCorp Pushes Up Rates by Mateusz Perkowski, Capital Press, 3/22/12

Matthew Weaver
Rail Charges Spark Alarm
Capital Press, April 5, 2012

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