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Burlington Northern Santa Fe (BNI) |
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WIKI ANALYSIS| This company has recently been acquired or received a credible acquisition offer. |
In 2009, BNI was acquired by Berkshire Hathaway (BRK).[1]
Burlington Northern Santa Fe (NYSE: BNI) is the second-largest U.S. railroad company with over 6,300 locomotives and 32,000 route miles. The company ships freight, such as coal and agricultural products, throughout the western two thirds of the United States.
In recent years, Burlington has benefited from rising demand for coal energy in the US. Increasing volumes of imports from China have also increased demand for BNI services. Most imports enter the U.S. through California and have to be shipped through out the U.S. by railroad companies like Burlington.
Business Overview
BNSF primarily serves the Midwestern, Western, and Southern regions and ports of the US. BNSF transports coal and a range of consumer, industrial, and agricultural products.
The following map shows BNSF's primary routes and trackage rights - which allow BNSF to access major cities and ports in the western and southern United States as well as Canadian and Mexican traffic. BNSF also serves many smaller markets by working with over 200 shortline (short regional transportation) partners. BNSF also has an agreement with CSX (CSX), Kansas City Southern (KSU), and Canadian National Railway Company which expands the marketing reach for all 4 companies and their customers.
Trends and Forces
BNI Delivers Low Cost Coal
Demand for coal will play an important role in BNI's growth prospects, as coal accounts for 20% of its revenues. The company mostly transports coal from the Powder River Basin (PRB) of Montana/Wyoming to coal-fired utilities and industrial users. In 2006, PRB coal averaged $1.31/Million British Thermal Units (MMBtu) delivered – easily the lowest priced American coal and substantially below natural gas delivered costs of $5.00/MMBtu or more. Last year, Burlington delivered over 55% of PRB coal. Much of BNI’s coal business is based on legacy contracts that will see significant price adjustments upwards to current market rates. It is estimated that 60% of BNI’s coal contracts will be renegotiated in the next 5 years to BNI’s benefit.
Increased demand for Grains and Bio-Fuels
Agricultural products account for some 16% of BNSF revenues. Growing global food and ethanol demand has resulted in increased production of corn, soybean, wheat, and a whole host of other agricultural commodities. BNSF's rail network is well positioned to serve the grain-producing regions of the Midwest and Great Plains. This could boost this segment's freight revenue.
Competition
BNI's main competition comes from other railroads and the long-haul trucking industry. Union Pacific (UNP) is the primary railroad competitor. Many of their tracks run parallel and they service many of the same ports. UNP is the larger of the two companies and is the only railroad that services all six gateways to Mexico. However, BNI has better operational efficiency, as measured by it average operating ratio (operating expenses/operating revenue) - BNSF's average operating ratio over the past five years is about 4% lower than UNP's. In response, UNP created the Unified Plan in 2005-2006 to lower their operating ratio. It is designed to increase speed, efficiency, and improve asset utilization by changing their transportation system. The plan is new, but its impact could be noticeable over the next few years.
References
- ↑ Benjamin Clark (November 3, 2009). Why Berkshire's BNI Acquisition Is a Great Deal. Seeking Alpha.
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