Warren Buffett’s Berkshire Hathaway Inc. plans $5 billion in capital investment at BNSF Railway Co. this year, positioning the carrier to extend a lead in spending over its biggest rival.
The budget marks an increase of about 25 percent from the target set a year earlier, Fort Worth, Texas-based BNSF said this week. BNSF’s program includes $2.3 billion for its rail network and $1.6 billion for equipment, including locomotives and railcars.
Buffett’s railroad outspent Omaha-based Union Pacific Corp., its direct competitor in the Western United States, by about $700 million in 2013, a gap that may widen. With a boost from hauling crude oil, cargo shipments at BNSF rose about 4.5 percent last year, compared with a 0.3 percent decline for Union Pacific, according to estimates by Jason Seidl, a New York-based analyst with Cowen & Co.
“BNSF grew volumes a little bit faster,” Seidl said. “It needs to make sure it has the locomotives and freight cars in place to continue to handle that type of growth.”
Union Pacific finished 2012 as the largest U.S. railroad by sales, and BNSF was No. 2, based on the latest year for which full industry data are available. Both operate networks concentrated west of the Mississippi River.
BNSF set an initial goal of about $4.1 billion in capital spending last year, then boosted the total to about $4.3 billion. Union Pacific said its spending was $3.6 billion, down from $3.7 billion in 2012.
U.P’s capital spending will rise in 2014. The company’s board on Thursday approved a capital spending plan of approximately $3.9 billion, up about $300 million, driven primarily by the acquisition of 200 locomotives (compared with 100 locomotives purchased in 2013), and somewhat higher capacity investments. Spending on Positive Train Control is also expected to increase to $450 million, up from $420 million in 2013.
“Our capital investments serve a critical role in supporting future cash generation and returns,” said Rob Knight, U.P.’s chief financial officer. “The increased capital spending plan for 2014 also highlights our expectation of future volume growth across a wide range of markets in 2014 and beyond.”
Spending at each railroad was $3.1 billion in 2008, and BNSF’s advantage in 2009 was about $200 million, according to company filings. After Buffett acquired BNSF in February 2010, the spending gap widened.
BNSF said that its 2014 expansion in rail capacity will focus on infrastructure in the company’s northern corridor to help meet customer service expectations, including Amtrak’s.
Part of the 2014 investment will go toward handling more crude oil hauled by train, which helped drive an 11 percent volume increase in industrial products volumes last year, BNSF said. Domestic units of so-called intermodal shipments, which can move by a combination of rail, road and sea, rose 8 percent.
This year’s spending includes $900 million for terminal and intermodal expansion. Also included is $200 million for positive train control technology, a centralized electronic communication system that is intended to keep trains from speeding or running into each other.
The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.