2019: Should BNSF adopt precision railroading?

JONATHAN BRANDT (RESEARCH ANALYST, RUANE, CUNNIFF & GOLDFARB): Hi, Warren and Charlie. Thanks for having me, as always.

Every major North American railroad other than Burlington Northern has adopted at least some aspects of precision-scheduled railroading, generally to good effect to their bottom line.

Some believe that point-to-point schedule service and minimal in-transit switching is good for both returns on capital and customer service.

Others believe precision railroading has done little for on-time performance, and its rigidity has jeopardized the compact that railroads have had with both regulators and customers.

Do you and current BNSF management believe that it’s now a good idea for BNSF to adopt precision railroading playbook? Or do you agree with its critics?

WARREN BUFFETT: Yeah, precision railroading, as it’s labeled, was probably invented by a fellow named Hunter Harrison. I think maybe he was at the Illinois Central Railroad at the time; there’s a book that came out about Hunter, who died maybe a year ago or thereabouts. And it describes the — his procedure toward railroading. It’s an interesting read if you’re interested in railroading.

And he took that to Canadian National, CN. There are six big railroads in North America, and he took that to CN, and he was very successful.

And actually, Bill Gates is probably the largest holder of CN, and I think he’s done very well with that stock.

And then later, Canadian Pacific was the subject of an activist, and when they — as they proceeded, they got Hunter to join them and brought in an associate, Keith Creel, who — and they instituted a somewhat similar program. Now the same thing has happened at CSX.

And all of those companies dramatically improved their profit margins, and they had varying degrees of difficulty with customer service in the implementing of it.

But I would say that we watch very carefully — Union Pacific is doing a somewhat modified version. But the — we are not above copying anything that is successful. And I think that there’s been a good deal that’s been learned by watching these four railroads, and we will — if we think we can serve our customers well and get more efficient in the process, we will adopt whatever we observe.

But we don’t have to do it today or tomorrow, but we do have to find something that gets at least equal, and hopefully better, customer satisfaction and that makes our railroad more efficient. And there’s been growing evidence that — from the actions of these other four railroads — there’s been growing evidence that we can learn something from what they do. Charlie?

CHARLIE MUNGER: Well, I doubt that anybody is very interested in un-precision in railroading. (Laughter)

WARREN BUFFETT: Well, Jonny, has Charlie answered your question? (Laughter)

JONATHAN BRANDT: Yes, thank you.