2015: How will railroad regulations affect Berkshire?

JONATHAN BRANDT: There’s been an awful lot written about what should be done to improve the safety of the crude-by-rail infrastructure. Both this week and last month, federal regulators introduced new standards. These new standards include thicker tanks, better fire protection, electronically controlled pneumatic brakes, and speed limits in more populous areas to reduce the chance of derailments near where people live.

The railroad association has complained that the brakes are too expensive, while others have complained about what they view as an overly-long timetable to switch out the old tank cars.

Given the tank car industry’s limits on manufacturing and retrofitting capacity, and the impact on overall rail network velocity from speed limits, do you think the new rules strike the right balance between efficiency and safety?

For Berkshire, what impact will these new rules have on the operations of Marmon’s Union Tank Car subsidiary and on the BNSF Railroad?

Can you also update us on the BNSF initiative to purchase up to 5,000 of its own oil tankers — oil tank cars — which is a departure from historic industry practices, and what drove that decision?

WARREN BUFFETT: Yeah. Well, you’ve asked all the questions I’ll be asking.

But I think those rules just came out, what, two days ago now? Yeah. And they’re 300 pages. And little as I have to do with this meeting and everything, I have not read those, although I have talked very briefly to Matt Rose and also Frank Ptak who runs our — the company that manufactures and leases tank cars.

You know, our interest — actually, the interest of our railroad and our tank car manufacturing and leasing operation may diverge in various ways.

Clearly, we’ve got an interest — the country has an interest — in developing safer cars, and we found that the — some cars we thought were safe have turned out to be less safe than we thought going in.

The most dangerous kinds of thing we carry, of course, are — as a common carrier, we have to carry chlorine, we have to carry ammonia, and we’re required to carry that. We’d rather not carry it.

There are dangerous products that have to get transported in the country, and they’re — it’s more logical to transport them by rail than either truck or pipeline, and some of those we’d rather not carry but we do carry.

I would say that the — probably everybody will be somewhat unhappy with the rules, but the — you know, it’s up to — it is up to Washington, and the government, to devise the rules under which something that is potentially dangerous is transported.

And transporting by pipeline has its problems. Transporting by rail has its problems.

And railroads have gotten dramatically safer over the years. Our safety figures — and Burlington Northern leads the industry in safety — but the safety figures get better and better year after year.

And — but you are — but you’re going to have derailments, and you better have very safe cars carrying that, and nothing will be perfect.

Charlie?

CHARLIE MUNGER: Yeah. Well, big companies and successful companies, like Burlington Northern and Exxon and Chevron and so on, have a lot of engineers and they have long histories of trying to be way safer than average and knowing a lot about how to do it. And none of that is going to change.

You’d be out of your mind to own these big companies and not run them with big attention to safety. And we’re not out of our minds and neither are the people who run Burlington Northern. The safety is going to be improved continuously, and should be.

WARREN BUFFETT: Yeah. And it has been consistently, but —

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: But there are new problems. For one thing, the Bakken crude has been proven to be quite a bit more volatile than most of the crude that is —

CHARLIE MUNGER: It’s not really crude. It’s condensate. I mean, it’s almost misnamed, to call it crude. It is more volatile.

WARREN BUFFETT: Yeah.

I can tell you — and I may write about this next year in the report, though — that Burlington Northern has the best safety record among the big railroads. And Berkshire Hathaway Energy, it’s extraordinary, their safety record, in terms of utilities. And every new utility we purchase at Berkshire Hathaway Energy, we’ve brought — the safety statistics, they’ve gotten far better after Greg Abel has taken over.

CHARLIE MUNGER: After they bought the Omaha pipeline, which had been mismanaged and safety had been improperly ignored, we watched those people, the Berkshire employees, just work day and night improving the safety. They didn’t want more pipeline explosions.

WARREN BUFFETT: Yeah. We went from last out of 40-some — I think it was — to either second or first. And if we were second, it was because our other pipeline was first. (Laughter)