2015: How would a large railroad accident affect Berkshire?

BECKY QUICK: This question is a follow-up to the one that Jonathan Brandt just asked. It’s an appropriate follow-up for that, though.

It comes from Mark Blakley in Tulsa, Oklahoma, who says that one risk to Berkshire and BNSF appears to be a large railroad accident.

“It appears many recent accidents have occurred in rural areas. However, how would a worst-case scenario, perhaps one in a more urban area or a BP-type accident, impact BNSF and Berkshire Hathaway? And is the company insured or protected against such losses?

WARREN BUFFETT: Our insurance — reinsurance — unit actually went to the four major railroads offering very high limits. I think we — this is from memory, I could be off on this somewhat, but I think we offered something like $5 or $6 billion, excess — or maybe a billion and-a-half or something like that that the railroad retained.

So we — there’s no question about it. If you had the exact wrong circumstances, you know, a train with a lot of ammonia or chlorine or something, you know, right in some terrible urban area, the possibility always exists that that can happen.

It can happen — you know, you can have plane crashes. There are things that are very small probabilities.

But if we run trains millions and millions of miles, year after year, something will happen just like, you know, they happen in every other possible accident way.

So you minimize it. You obviously — you run trains slower in urban areas. They’ve already instituted that with crude. I think they’ve brought it down to 35 miles an hour in towns of 100,000. That’s the maximum.

So you’re always working to be safer; you’ll never be perfectly safe.

We do not — we have some insurance at Burlington Northern, but we don’t need insurance at Berkshire. You know, we’ve got the capability to take any loss that comes along. So we actually would be more likely to be offering that insurance, and we did offer that insurance, and the railroad industry didn’t like our rates, which is understandable, and so they haven’t bought it. But that doesn’t mean they won’t at some time in the future.

I should add one thing that I forgot to say to Jonathan. The — I don’t think we will be buying the 5,000 railcars. I think — I don’t know that for sure, but, you know, there’s going to be a lot going on in terms of retrofitting.

Our Marmon operation has actually taken on a new facility that will be working very hard — once we know what the retrofit requires — we will be, I’m sure, working three shifts on retrofitting cars, probably our own, probably some other people’s. We’ll be building new cars. The industry has been waiting to see what the requirements would be before moving ahead.

The first quarter of 2015, there were practically no tank cars ordered. There’s a backlog, but there’s — no tank cars were ordered, because we need to see what the regulations are.

But we’ll be very active in retrofitting and in manufacturing new cars, but I don’t think we’ll be — historically the railroads have never really owned tank cars. That goes back to the Rockefeller days.

And I think the present method of having car lessors, such as the one we own, I think will continue in the future rather than having the railroads own them.