all aboard with Warren
AN OTHERWISE ABYSMAL YEAR FOR THE U.S. ECONOMY
closes on a very high note for the logistics sector. For that, we can
thank none other than the country’s second wealthiest and most
successful businessman, Warren Buffett, chairman of the investment firm Berkshire Hathaway.
Last month, in what he described as an “all-in wager” on the U.S.
economy, Buffett put $26.3 billion on the table to secure the 77
percent ownership interest in the Burlington Northern Santa Fe
(BNSF) Railway that his firm didn’t already own.
If you know much about the “Oracle of Omaha” and his philosophy on investing, you know the move is vintage Buffett. Although
he undoubtedly has armies of analysts in his employ to sift
through mountains of financial data, the
Oracle is known for his common-sense
approach to investing. He often urges others
to choose investments as he himself does:
based on what he sees, what he knows, and
what makes logical sense. For example, when
the market crashed in 2008 and others went
running for cover, Buffett invested heavily in
venerable “household name” companies like
General Electric. That move has paid off
handsomely.
It appears that he now sees a similar
growth opportunity in the BNSF. Buffett is
known to be a close observer of the U.S. rail
industry, which he considers a key indicator
of the country’s economic health. The timing of his purchase suggests that Buffett believes the economic tide
is turning and a freight recovery is about to begin.
Buffett’s move is more than just a show of faith in the U.S. economy, however. It’s also a bet on the long-term future of the rails.
There’s every indication that for the railroads, it’s full steam
ahead. And it’s not just because a freight rebound may be in the
offing. Environmental considerations come into play as well.
Compared to their long-distance trucking rivals, the rails are both
cleaner and more energy efficient. For example, trains generate just
a third of the volume of greenhouse gases that trucks produce,
according to the Association of American Railroads. Not only that,
says the AAR, but a train can haul a ton of freight 436 miles on a
single gallon of fuel, nearly four times farther than a truck can.
These eco-advantages make the rails uniquely positioned to ride
the green wave that’s sweeping across American business.
Rails also have the edge over trucks when it comes to mobility.
Rising traffic volumes and the deteriorating
condition of the nation’s roads have combined
to create unprecedented highway congestion,
resulting in wasted fuel and delivery delays. For
freight that’s not particularly time sensitive, the
rails offer an attractive alternative.
While Buffett’s move has obvious advantages
for the BNSF, the entire logistics community
stands to benefit as well. His
involvement in the logistics business has the potential to raise the
visibility of a sector that accounts
for as much as 18 percent of the
country’s GDP, but still remains
largely invisible to the American
public. Now that he has billions of
dollars at stake in freight transportation, Buffett is sure to
become a high-profile advocate
for logistics interests. In the
months ahead, we can expect him
to speak out about the need for
government investment in the
nation’s freight transportation
infrastructure, including rail track and bridges.
All good things for logistics. All good things
for the broader U.S. economy. And, of course,
all good things for Berkshire Hathaway shareholders. In fact, it might be time to give Buffett
a new nickname. He’s already known as the
Oracle of Omaha. But given the present he has
delivered to our profession this holiday season,
perhaps we should be calling him Santa as well.
