Comments on: Buffett’s Bet on Rail: What Does It Mean for Transport and Energy?

By: jjones444

jjones444 — Thu, 06 Jan 2011 18:13:09 +0000

Can you even comprehend what that $34 billion dollars feels like? I can’t even fathom one million dollars, let alone 34 billion. What has happened with the railroad since Warren Buffet purchased it? Has it helped the economy or the transportation and energy industries at all?

By: John

John — Fri, 06 Nov 2009 22:55:56 +0000

Interesting. Berkshire Hathaway also owns GEICO insurance. I was picking up my son from school one day. I was in the school zone and a car with a GEICO logo blew my doors off, but slowed down enough to give me the finger and to show me with his beet-red face and screaming that he didn’t appreciate me slowing him down. I contacted GEICO about this and was told flat out school zones are speed traps and revenue generators. They do nothing for safety. The driver did nothing wrong. And he closed with a philosophical musing about people today not minding their own business.

This was my second very bad dealing with that insurance company. The first was when a GEICO customer hit me and the claims adjuster called a “fat mouthed liar”.

Of course I’m sort of ranting here and this has little to do with rail. I guess my point being I don’t think this move by Buffett is all that significant and I doubt it’ll do anything to improve rail service in North America.

By: Ric Tan

Ric Tan — Fri, 06 Nov 2009 16:50:12 +0000

I’m not saying that O’Donnell is wrong, but I do think that Buffet has a lot of flexibility. I agree w/ Zane above, and he beat me to it- With the acquisition, Buffet has flexibility to add energy transmission lines which may help his alternative energy stakes and hopefully down the line- all of us. In the end, I may just like the man.

By: Zane Selvans

Zane Selvans — Fri, 06 Nov 2009 01:39:00 +0000

Something I haven’t heard much mention of is the rail rights-of-way that come along with this purchase. They would be almost impossible to replace nowadays, and would be valuable in the context of additional transmission lines from distributed generation facilities in the west (solar, wind), which would also play well with Buffet’s stake in MidAmerican energy. Dunno. Just a thought.

By: hapa

hapa — Wed, 04 Nov 2009 23:35:32 +0000

he makes money either way here. ports, coal. what we don’t know is how fast the US shifts from interstate trucking.

it seems to me this investment is consistent with ‘plan b’ http://tr.im/readplanb and such fast-switch proposals.

it’d be so much fun if that company then advocates electrifying freight rail.

By: Dean

Dean — Wed, 04 Nov 2009 20:20:04 +0000

In addition to transporting goods efficiently, rail companies own a large amount of prime real-estate in and between major cities. Significant profit will be made as cities increase rail use in their transit mix and find all the good routes are already owned by rail companies.

By: Ian Turner

Ian Turner — Wed, 04 Nov 2009 15:16:28 +0000

Steven,

Buffett makes money on his bets because he selects companies that make money, not the other way around. He’s actually quite open about his investment strategy and you can follow it too if you are so inclined. Convincing him to invest in e.g. bicycles isn’t going to automatically make that industry more profitable, any more than buying government bonds would result in frugal government operations.

Cheers,

–Ian

By: Steven Vance

Steven Vance — Wed, 04 Nov 2009 06:27:51 +0000

Whatever kind of bet you think it is, it’s really a bet that Buffett will make more money. So how can we convince Warren to make some “bets” about active transportation, improving transit, and increasing street safety? Because if viable businesses can be built around doing this, more people will make monetary bets on the things that will build livable cities.

By: cochon

cochon — Tue, 03 Nov 2009 21:49:50 +0000

regarding the coal aspect, a significant and increasing portion of the coal that travels on bnsf’s rails goes straight from the rockies to chicago and then onto boat to europe.

europe has made it a priority to to wean itself off of russia’s natural gas after the recent incidents of them turning the tap off and leaving europe in the lurch. the coal from the rockies is highly sought after by europe for being “cleaner” than the coal dug up from other regions, which is bizarre because we are selling our “clean” coal overseas while using “dirty” coal.

http://www.eia.doe.gov/cneaf/coal/page/special/exports_imports.html

anyway, i don’t see this as an affirmation of coal use in the u.s., as some are arguing but for coal use in the rest of the world.

also, of any railroad that amtrak uses to carry it’s passengers on, it has one of the best working relationships with bnsf and has for years at a time when amtrak is expanding it’s reach into other areas served by bnsf. i’ve travelled cross country via amtrak at least 15 times and have talked with numerous people working for railroads on this. this is a good thing.

dude has made billions off the railroads, whether directly or indirectly. he is well known for using heavy rail traffic data as his own set of economic indicators and uses this to influence his multi-billion dollar decisions. he is, for all intents and purposes, mr. railroad and for him to buy bnsf seems pretty natural and innocuous to me.

By: Aaron M. Renn

Aaron M. Renn — Tue, 03 Nov 2009 21:45:07 +0000

It’s also potentially a play on the HSR/passenger rail upsurge. He’d be in a strong position to leverage compensation and/or money to upgrade his rails. This guy knows how to drive a hard bargain and I’m sure he could profit handsomely courtesy of Uncle Sam.

By: vnm

vnm — Tue, 03 Nov 2009 21:13:40 +0000

This is a peak oil bet.

If oil prices rise goods shipment will shift from trucks to trains. BNSF wins, environment wins.

If oil prices rise electricity generation will rely more heavily on coal. BNSF wins, environment loses.

By: jass

jass — Tue, 03 Nov 2009 20:21:55 +0000

I disagree. While coal is a large portion, they do haul everything. If oil prices spike again (and they will), trains have a very big advantage over trucks.

By: JK

JK — Tue, 03 Nov 2009 20:06:33 +0000

The story is that Buffet bought a railroad that hauls coal to the coal fired power plants he owns. This really isn’t about transportation or infrastructure. Per Charlie and others, it’s Buffet betting that electricity use powered by coal will continue to rise. Buffet has concluded that the U.S. will not take measures to reduce electricity use or coal use in. In other words, the Copenhagen talks will fail. The only infrastructure angle is that he may also be betting on higher gas taxes to help pay for T4. Either way, hydrogen engines pulling coal trains are eyewash.

By: Charles Komanoff

Charles Komanoff — Tue, 03 Nov 2009 19:54:19 +0000

O’Donnell of Clean Air Watch is right. My first thought when I learned of Buffett’s Burlington-Northern buy was that it was a bet that Congress will fail to implement a meaningful carbon price and therefore that nothing will dislodge coal from its dominant role in U.S. electricity. Maybe Buffett also has a side bet going that petroleum products like diesel will come in for a tax at some point to discourage oil imports, which would favor rail over rubber-tire freight hauling. But mostly it’s a coal play.