2014: Why did Union Pacific outpeform BNSF?

JONATHAN BRANDT: The BNSF has done very well since Berkshire acquired it in 2010.

But its western competition of Union Pacific has actually grown its earnings more. And at the moment, the UP seems to be operating more smoothly for its customers.

Could you shed some light on the service challenges Burlington has experienced recently and perhaps discuss any differences between the two railroads in end markets, geography, and strategy that may have led to the divergent result?

Would it be fair to say that, in trying to aggressively sign up new business volume last year, that the railroad did not allow for a sufficient margin of safety in terms of what its capacity could handle, should there be a harsher than normal winter or other adverse circumstances?

WARREN BUFFETT: Yeah. It — we’ve handled more volume, actually, than in the past. I mean, in 2006, we had a peak of 219,000 carloads. That was in the late fall.

But no question that we’ve had a lot of service problems, particularly on our northern route.

We have been spending more money than Union Pacific, and they spend a lot, in terms of attempting to anticipate the kind of problems that can occur when you get a big increase in volume, on that one route particularly, from the boom in the — particularly the Bakken shale oil.

We’ve got a lot of unit trains that are running over those lines that weren’t running five years ago.

I think I’ve got Matt Rose here — right — I think somewhere in the front. And he might address some of the problems of cold weather. I mean, want to get — there were a lot of days where it was 15 below or worse.

And in terms of sending people out to work on problems, under those circumstances, it can be really — it can be life threatening.

But Matt, do you have — oh, there he is. OK. Could you shine a light down on him, please, too? So he’s right here in the front. In the front.

MATT ROSE: Warren. So last year, the industry grew at about 820,000 units. BNSF handled 53 percent of all those units.

And it’s not what we wanted to take or what we didn’t want to take. Quite frankly, it’s the geographic nature of our franchise. And the oil came a lot faster than we were expecting and we’ve been spending money at a rapid clip to try and build into it.

The second issue was, you know, I had previously, prior to this past year, been in the CEO role for 13 years, and I have never seen a weather — a winter weather — like that.

We had 83 inches of snow in Chicago. We had multiple days, over 30 days, where it didn’t get to zero in the Minnesota area.

So, you know, we know this is an outdoor sport. We get it, on the weather. But quite frankly, when we get to about 0 to 10 degrees below, things just don’t work.

The weather’s getting better. Last week, we handled 206,000 units. No other railroad has ever handled 205,000 units.

So the railroad’s coming back. And we’re making the significant investments to be able to handle all the business that’s out there.

WARREN BUFFETT: Thanks, Matt. (Applause)

We will spend $5 billion on the railroad this year. No railroad’s ever spent that kind of money, or even very close to it.

But I got a call — or I got a letter — from a fellow in North Dakota. And they were having a problem getting fertilizer. And I called and talked to him. And they sent it down to Matt.

But we’ve now put on — I think we’re going to have 52 unit trains of fertilizer. And they will get there in time for the planting. And that’s important. I mean, we take it seriously.

But cold in winter or floods in the summer, I mean, we’re now really functioning a lot better and our earnings will be, in my view, are very likely to be a lot better.

But the thing that could disrupt that is, if for some reason, you had incredible floods. You’re dealing with 22,000 miles of track. And if you get weak links, one of which, always, for all four big railroads, is Chicago, because that’s where things get interchanged and that’s where a lot of bottlenecks have been this year, and that’s where weather was tough as well.

But you’re right, Jon, in the comparative financials in recent months. And believe me, Matt’s paying a lot of attention to them and Carl’s paying a lot of attention to them, and I even pay a little attention to them.

So I have a feeling that they will be getting better over the remainder of the year.