Mazor'sEdge

(BRK.A), (BRK.B)

While much has been written about BNSF’s booming oil transport business in the Bakken formation in North Dakota, Berkshire Hathaway’s wholly-owned railroad is also looking south of the border for growth opportunities.

Of particular focus is expanded businesses with Mexican railroad Ferromex to haul automobiles and trucks assembled in Mexico north to Chicago. The vehicles leave from Mazda and Honda assembly plants that recently opened in Silao in Guanajuato state and flow through access points in El Paso, Texas, owned by BNSF.

Ferromex, a subsidiary of Grupo Mexico, is Mexico’s largest cargo carrier, and hauls 17% of Mexico’s total cargo.

Ferromex recently expanded its FXE Silao Intermodal Facility inside the Inland Port of Guanajuato in Silao, Guanajuato.

According to BNSF, the route offers “a centrally located intermodal hub within 100 highway miles of the Bajio’s major manufacturing centers of Leon, Irapuato, Celaya, Salamanca, Queretaro and Aguascalientes.”

A Lucrative Market

The move cuts BNSF in on the lucrative business that is primarily going to Kansas City Southern and Union Pacific Corp. through Laredo, Texas.

BNSF’s access point in El Paso, Texas, has the downside of some 360 miles of extra travel when heading east to Chicago, as El Paso is roughly 600 miles west of Laredo. However, BNSF’s intermodal transport has the advantage for goods moving west to Los Angeles.

Bloomberg reports that cargo hauled both to and from Mexico by rail is booming, with $69.8 billion in goods hauled annually.

“Our partnership with Ferromex to launch this service from Chicago to Silao means that automakers and manufacturers in the U.S. and Mexico will now have direct access to the advantages of intermodal rail in the Bajio region,” said Steve Bobb, BNSF executive vice president and chief marketing officer. “This service offers Mexico’s fast growing manufacturing sector in the Bajio region a simple way to reduce trucking costs and delays.”

BNSF also notes that moving goods by rail has a distinct advantage over trucks when crossing the border because it avoids congested highway bridges.

© 2014 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

It’s back to the drawing board for BNSF’s plan to reduce labor costs. The Sheet Metal, Air, Rail and Transportation Workers union voted “no,” defeating a proposed new contract that would have allowed BNSF to employ one-person crews over roughly 60-percent of its routes.

The one-person crews would have been allowed instead of the standard two-person crews, provided that a remote-site-based Master Conductor is using monitoring technology known as Positive Train Control (PTC).

The trains would have had a locomotive engineer but no other onboard crew.

Declining Crew Costs

Even without the change crew costs for railroads have been steadily dropping over the past four decades. As recently as the 1970s, various states mandated as many as six employees per train.

BNFS had proposed union concessions that would have diminished at least a portion of its expected savings through increases in the pay of conductors and ground service workers.

© 2014 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.