BNSF: Profits Surge as Volume Grows and Costs Fall

BNSF Railway, a subsidiary of Berkshire Hathaway, reported strong financial results for the third quarter of 2024, with profits, revenue, and volume all increasing. The railroad's operating income surged 13.4% to $2 billion, while revenue grew 2.8% to $5.9 billion. Expenses declined by 2% for the quarter, leading to a 3.4-point improvement in the operating ratio to 65%.


The growth in BNSF's financial performance can be attributed to increased volumes in intermodal and agricultural shipments. Consumer products volume, which includes intermodal and automotive traffic, surged 16.7% due to higher intermodal shipments from west coast imports and volumes from a new intermodal customer. Agricultural products shipments surged 14.1% due to increased grain shipments.


However, coal volume declined 12.5% in the quarter, primarily due to lower prices for natural gas, which displaced coal as a fuel used to generate electricity. This trend is expected to continue as the United States moves towards more sustainable and renewable energy sources, reducing the demand for coal.

BNSF's commitment to reducing greenhouse gas emissions and improving fuel efficiency has significantly impacted its operational costs and competitive position. By implementing energy management systems like Trip Optimizer and Automatic Engine Stop/Start, BNSF has increased its fuel efficiency by 5% over the last decade. This has led to a 30% reduction in greenhouse gas emissions by 2030 compared to 2018 levels. Additionally, BNSF is testing higher blends of biodiesel and renewable diesel, which could further reduce emissions and lower operational costs.


BNSF's diversification strategy has significantly contributed to its financial performance. In Q3 2024, consumer products volume surged 16.7%, driven by higher intermodal shipments from west coast imports and volumes from a new intermodal customer. This growth, coupled with a 14.1% increase in agricultural products shipments, offset a 1.9% decline in industrial products volume. By expanding its customer base and revenue streams, BNSF has mitigated risks associated with relying on a single industry or commodity, such as coal.


In conclusion, BNSF's strong financial performance, driven by increased volumes in intermodal and agricultural shipments, positions the company well for future growth. Its commitment to reducing emissions and improving fuel efficiency, coupled with its diversification strategy, has enabled BNSF to maintain a competitive edge in the railroad industry. As the United States continues to transition towards more sustainable energy sources, BNSF's long-term prospects remain robust, making it an attractive investment opportunity for those seeking exposure to the rail industry.