(BRK.A), (BRK.B)
Union Pacific Corp has followed BNSF’s Railway in having a higher price for hauling older DOT-111 tank cars. Union Pacific is charging $1,200 per DOT-111 tank car, and BNSF began adding $1,000 per tank car in January.
BNSF’s price change brought an immediate lawsuit from the American Fuel & Petrochemical Manufacturers (AFPM), the trade group of the U.S.’s petroleum refiners.
Surcharge or Discount?
BNSF is disputing that they are adding a surcharge. They are calling the price change a new rate for older tank cars with a discount for tank cars that meet the new DOT-117 standards.
As common carriers, Union Pacific and BNSF can’t refuse to haul DOT-111 tank cars. The big question is whether they can have different rates for different tank cars.
Replacing the Entire Fleet
The pricing difference will go away in a few years as DOT-111s are phased out. Under the Enhanced Standards for New and Existing Tank Cars for use in an HHFT—New tank cars constructed after October 1, 2015, are required to meet the new DOT Specification 117 design or performance criteria. The standards will require replacing the entire fleet of DOT-111 tank cars for Packing Group I, which covers most crude shipped by rail, within three years and all non-jacketed CPC-1232s, in the same service, within approximately five years.
The total new DOT 117/TC-117 tank cars that will ultimately be hitting the rails will be around 160,000 units.
Millions of Dollars a Day
Currently, both Union Pacific and BNSF are collecting over $100,000 additional per oil train, and with the number of trains they run, it amounts to millions of dollars a day. The cost to the refiners is roughly an additional $1.20 per barrel of oil, and eventually a court will decide whether the railroads have to give it back.
© 2015 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.