Berkshire Hathaway, the holding company that owns BNSF Railway, welcomed a new CEO this past January as Greg Abel stepped up to succeed the legendary Warren Buffett in his role helming the company.
Thus, it was his turn to write the annual letter to shareholders, which opens Berkshire’s 153-page marathon of an annual report. From a railroad angle, it’s mostly pretty uninteresting, but there are a few exceptions pertaining to BNSF.
There are, of course, the routine updates on equity and cash flows, reaffirmations about how safe operations, reliable service, and a competitive cost structure are the keys to our success and so on.
However, one line in particular did turn some heads in the rail industry press. On page twelve, in a paragraph laying out what the company needs to do better, the letter reads:
“[Improved services] are not enough; more progress is needed to translate operational improvements into stronger financial results. We view operating margin (the inverse of the industry’s operating ratio) as the best measure of performance. In 2025, BNSF’s operating margin improved to 34.5% from 32.0% in 2024. It remained only modestly above its five-year average.”
Essentially, “Our railroad is doing well and is incredibly profitable, but it’s just not quite making enough money.” Specifically, the complaint is that the company’s operating ratio, calculated by dividing operating expenses by total revenue, isn’t good enough. This introduces some problems.
Because if your system is running safely and efficiently, shipments are moving through the network at a speed “faster than in nearly any year in the company’s history,” and your metrics for success are showing gloom, it either means you’ve taken the wrong measurements or you have the wrong standard for what “success” looks like.
Saying the Class I railroads obsess over their operating ratios to a fault is not a novel observation, even from within the industry. In fact, at a September 2025 conference, former CSX CEO Joe Hinrichs spoke against such a focus on the operating ratio.
“You can see all that activist activity and all of the things that went on to drive that obsession with [operating ratio] improvement, which again, unto itself, is not bad [...] But there wasn’t, at the same time, the same drive to grow volume,” Hinrichs said.
Two weeks after that conference, he was out of a job, dismissed from his position as CEO. A decision that was largely credited to pressure on the company from activist investor Ancora Holdings, who had previously criticized Hinrichs.
In a statement on the firing, Ancora said they regretted having to push for leadership change so publicly but that “This should be a cautionary tale for all corporate leaders who consider putting their own agenda ahead of shareholders’ best interests.”
Financially speaking, BNSF is steaming along just fine. Operating earnings increased 7.8%, net earnings increased 8.8%, and the railroad’s operating expenses declined 3.7% between 2024 and 2025. It produced a healthy $8.1 billion in net cash flows last year and returned $4.4 billion in dividends alone, but it’s still not enough to satisfy the demands of the operating ratio.
The letter goes on, “Each one-percentage-point improvement in operating margin generates approximately $230 million of incremental operating cash flow for our owners.” Even for a Class I, giving a dollar figure for how much cash investors can expect based on each percentage point they can scrape off the railroad is egregious.
But it’s a known cycle, a constant push for less and less spending to drive the operating ratio further and further down and the stock price further and further up. A cycle of corporate starvation that will, over time, become fatal.
A healthier corporation, one steering based on more reasonable metrics, would turn its actions and financial resources towards other issues.
Such as how BNSF has only managed to gain 0.3% overall traffic volume in the last year, and that more broadly, the American freight rail industry saw an 11% total decline in traffic between 2014 and 2024 as trucking takes on more and more of the industry’s modal share, according to TD Cowen analysts.
Maybe BNSF would have looked toward reducing its GHG emissions by more than the 30% they claim to be shooting for before 2030. Something it claims it will do through renewable diesel fuel initiatives and what it calls “long-term solutions” in developing still unproven battery-electric and hydrogen locomotives.
For a comparison on the emissions point, in the five-year time period between 2019 and 2023, the very different but similarly massive Indian Railway network managed to electrify close to 19,000 miles of track (the entire BNSF system totals 23,000 route miles), achieving a 99.4% electrification rate by December 2025, almost completely eliminating tailpipe emissions from one of the largest rail systems on earth.
$4.4 billion is far too large a number of dollars to leave sitting idle for a company and industry losing both market share and the race to net zero, instead of putting it to work by fueling the system that made it.
So what does a diesel-chugging, coal-traffic-reliant company really need to stay competitive?
It needs to start by investing in itself, breathing life back into a languishing industry, and pursuing the true goal of a railroad as a piece of infrastructure: to move as much stuff as possible in as efficient a way as possible, or surrender stewardship of the rails to someone who can.