I put the last name Buffett out there, detached from the remainder of the title for good reason; it’s a very special last name. Buffett is arguably the greatest investor the world has ever seen. I’m not the guy who’d like to bet the future of rail isn’t brighter than trucking in the first place but I must admit, I’m among the masses that would have a really tough time trying to take an opposite stance against Buffett’s gamble. With the sustained and unprecedented success of Berkshire Hathaway, one may even want to reconsider calling any decision he makes a “gamble”. As a note of interest, $1 invested in Berkshire Hathaway in 1965 is now worth $400,863, the S&P a mere $6,840.
When Warren Buffett bought out BNSF at a premium, he sent the world a very strong message, one of conviction. It is considered his biggest investment ever. He told the world he’s bullish on the growth of rail, not just due to an economic recovery, but also as a means of replacing some of tonnage that now moves on trucks. He’s a believer that freight will be moving from the highway to the railway. Some of his reasoning:
- Fuel prices continue to soar and the volatility is expected infinitely
- Rail moves a ton of cargo 500 miles on 1 gallon of diesel; a truck is well over 3 times that and climbing.
- 1 railcar can hold 100 tons, it takes 5 trucks/trailers to move the same
- Rail is already built out completely, no more tracks are being added while highways are crumbling and need constant improvements.
- With the fuel savings one must note the “green effect”. The carbon emissions that are being eliminated make the rails extremely attractive.
There’s a myriad of other reasons BNSF was purchased for a total of $44 billion, but what the purchase said is that transportation may be undergoing radical changes. The part of rail that has made it less than attractive for logisticians is the lack of traceability and flexibility. It has always been supported by inferior technology and has been less easy to deal with considering the equipment needed to handle railcars. The advantages that are now benefiting rail over truck are undoubtedly going to make investments in rail resources a sure thing. These are investments that will push rail into new areas such as LTL (less-than-truckload) and new commodities that weren’t as prevalent in the past. Technology will be pacing this expected surge of growth in rail.
The ATA believes truck and rail is only competitive in about 8% of tonnage, maybe so, but not stating the future expectancies is one that I feel shows a tremendous opportunity to provide a valuable forecast. Virtually every economist and analyst will agree that rail will grow quicker than truck over the next few years, recovery or not. In my opinion, I simply cannot see why the buzz isn’t greater, added resources for rail are a sure thing and there’s little doubt in my mind that they will take freight off the highway when the resources are developed, refined and put in place. My bet is that Warren Buffett didn’t make the biggest investment of his life for a mediocre return, I’m betting strongly that he’s right on track!