Endpoint: Warren Buffett's purchase of the BNSF railroad: will it impact the chemical industry?

Let the train take the strain

16 November 2009 00:00  [Source: ICB]

So a gazillionaire fulfills a childhood dream and a railroad has a new owner; what does that really mean?

UPON MY initial hearing that super-investor Warren Buffett was buying a railroad, I got really excited, thinking he was investing in commercial passenger travel rather than hauling freight - but I was wrong:


 Rex Features

Buffett's conglomerate, Berkshire Hathaway, is paying roughly $26bn (€17.3bn) for the 77.4% of the US-based Burlington Northern Santa Fe (BNSF) that it doesn't already own, according to The New York Times(NYT).

Buffett says he's always wanted to have a railroad: "This is all happening because my father didn't buy me a train set as a kid," the billionaire told NYT.

While this means nothing for my future travel and sightseeing plans, what will this mean for the chemical industry?

In 2008, rail moved roughly 170m tonnes of chemicals and chemical-related products in the US, the second-largest railroad commodity in terms of volume after coal, says the American Chemistry Council (ACC).

BNSF, meanwhile, is one of the handful of railroads that control about 90% of the freight shipped by rail in North America.

In November 2008, Chris Jahn, president of the National Association of Chemical Distributors, told ICIS Chemical Business: "Basically, two-thirds of the chemical industry is a captive shipper - when a chemical manufacturer or distributor has only one railroad serving its facility, that's a monopoly."

In a survey spanning 2003-2007, the ACC found that several of the largest railroads overcharged chemical industry customers by $6.4bn. The Railroad Antitrust Enforcement Act of 2009 is supposed to help change that, by empowering the Federal Trade Commission to regulate and engage in rail antitrust enforcement regarding collective rate agreements. But as of the first week in November, the website govtrack.us says, "Sometimes the text of one bill is incorporated into another bill, and in those cases the original bill, as it would appear here, would seem to be abandoned."

Will Buffett's ownership change things? Probably not, but with this very well-known, quite public figure as the face of a railroad, it may become easier to bring grievances to BNSF that it was before.

Read and comment on the Endpoint blog

By: Ivan Lerner
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