Warren Buffet buys BNSF, US media suddenly notices railroads are everywhere
Warren Buffet’s recent purchase of the BNSF railroad was great news for the US for a whole bunch of reasons. First off, it was a strong endorsement of the railroad industry and its place in the US transportation network. It was also good news for the nation’s railroad system as a whole. One of the great challenges for freight railroad operators in the US is balancing the enormous demand for capital expenditures with the demands from shareholders for dividends and share buybacks. There is only so much cash to go around and railroads are one of the most capital intensive businesses in the US for the simple reason that they own and maintain almost all of the their own infrastructure. So BNSF moving from public to private ownership means that there will be less of a demand to pay out dividends and more of a focus on making long term investments that will pay off down the road. Basically the focus shifts from the short term to the long term. Now it is unlikely that the other major US railroads will be privatized anytime soon, but with BNSF in private hands it will force the other major railroads to focus more on the long term to keep up with BNSF.
Another reason to cheer and laugh out loud is how the US media landscape tried to make sense out of the deal. Railroads are generally ignored unless there is a major accident or spill of some kind. And so, as articles have been written all over the country from newspapers to magazines, it is comical to watch as reporters try to make sense of why the ultimate savvy investor Warren Buffet bought the second largest railroad when most people think railroads are irrelevant and outdated. Articles, like the link to the ones below from the LATimes and the NYTimes, have been written explaining how railroads are suddenly a growth business again and how they are retaking market share from trucks because they are more fuel efficient, amongst other reasons. What’s amusing is that as far as these writers are concerned, this all just happened yesterday. But thats ok. Because the education of the public and the press about the importance of railroads in our national freight transportation system desperately needed to happen. And so, if all it took was Warren’s stamp of approval, its just too bad it took so long to happen. A point by the way, that was not lost on Buffet: Buffett has said he realized a few years late that railroads had become an appealing investment.
http://www.latimes.com/business/la-fi-rail3-2010jan03,0,27378.story
http://www.nytimes.com/2009/11/04/business/04deal.html
