'A lot to be done' with improving BNSF Railway operations, says Berkshire's Greg Abel

Yes, you did anticipate one of the questions. Let’s go to another one. This, this question comes from Vincent James in Munich, Germany. In the Chairman’s letter, Warren points out that the profit margins for BNSF have slipped relative to all five other railroads. However, Warren comments in the letter, BNSF carries more freight and spends more on capital expenditures than any of the other five major railroads and has a vast service territory second to none. Given the comments from Warren about the clear strengths of BNSF, what explains the decline in revenue and profit and in particular the profit margins relative to the other five railroads? What are the issues relative to the other railroads and what is being done to address them? Please be specific. OK And I will. Well how specific we get depends on what Greg wants to say. But Greg is that it’s Greg’s responsibility, it’s my responsibility for the purchase and for the operation up till Greg took over. But I think I’ll let Greg answer that And yeah the the Warren touched on it and the comments from the as reflected there are are very accurate. If you look at this quarter’s results or our last year’s results, they were both they’re disappointing as shareholders and disappointing in the relative relative to the other Class 1 railroads and as highlighted in the question, there’s five other Class 1 railroads. So it’s pretty easy to understand how you’re performing versus the others in it and there’s a lot of other variables, but there’s some very simple things to look at. When we look at where we’ve been on with associated with Burlington, I would I would just back up a little bit because if you go back to 2021, the Burlington team and management team in the group, we’re making excellent progress on a lot of fronts when it comes to our operating and both being efficient and effective in how we’re operating the railroad. And I remember very specific comments from myself in 2022 where I commented that that was the year there was all the supply chain issues, a lot going on in the West Coast ports. Our trains were backed up in a variety of places and we called that a reset year and I think we did need a reset year on the operational side. But as we moved into 23, the business cost level cost structure, we didn’t reset it to the underlying demand we are seeing. We anticipated more demand and the and we did not reset our cost structure and the team’s working very hard as we speak to to both reset the cost structure and allocate the cost resources where they need to be. And and when you go through something like that what we’ve recognized as an organization, yes the the demand of the rail will will drive a certain amount of the cost. But the the reality is that the rail industry if you go back many, many years it’s it’s it’s flat. There’s not a lot of growth in the industry. There’s opportunities to become more efficient, effective and our margins can go up. But the reality is the demand demand’s going to be flat, but it does move within different sectors of the rail. It can be in the consumer products, it can be an industrial, it can be an AG. But overall it’s generally going to be relatively flat. So we need to get our cost structure right and we need to get it right both for the the coming year but for the long term. And that means it’s going to be a continuous exercise. We can’t stop, we can’t say we we’ve gotten far enough because our competitors and we compete with the other rails, but we also do compete with the truck industry. We have to have a cost structure that allows us to compete both within our rail industry and within the transportation sector as a whole. So the team at Burlington’s working very hard to address the cost structure just like we have in the past. I think one thing we do recognize when the other railroads have implemented precision scheduled railroading, there’s other metrics that we have to continue to pay attention to and and challenge ourselves. If we’re not at their level, what are the things that are driving it. So we’re going to when they ask for specifics, I’ll give you a few. We have to look at our rail yards and understand how we’re, how we’re managing that. We have to look at our locomotive fleet, both the size and how we’re utilizing that and challenge ourselves. And we have to then go back to how we’re using our employee resources and allocating them across the the business. So there’s a lot to be done there. Our team’s 100% committed to driving to the right cost structure that’s consistent with the underlying demands in the business and and then we can’t stop there is the is the answer. So a lot to be done, but we have a A-Team that’s absolutely engaged and committed to it and we’ll make we’re going to make good progress in the in in this current year.