COMPANIES & INDUSTRIES May 12, 2011, 5:00PM EST
Warren Buffett's Ride on the Rails Is Paying Off
By Mark Clothier
A little more than a year ago, Berkshire Hathaway (BRK.A) Chairman Warren E. Buffett made his famous "all-
Yet in only 15 months the Burlington investment has played out better than even Buffett says he expected. The recovery from the recession, which ended in late 2009, continues to strengthen, unemployment has dipped, and even the unforeseen jump in oil prices has worked to railroads' advantage. All that's buoyed Buffett's financial return: In the first 13 months since the buyout, Burlington paid out $2.25 billion in dividends to its new parent, Berkshire, and
will fork over another $1 billion this month. "It's worked out really well, and I'm surprised at how fast," says Bruce Allen, president of Bruce G. Allen Investments in Denver.
Burlington Chief Executive Officer Matthew K. Rose is determined to take advantage of the industry's improved climate and the flexibility he gets by having only one shareholder—Buffett. This year, Rose is boosting capital spending by 31 percent, triple the increase of other major rails. He's buying about 200 locomotives and building more huge transfer facilities where rail freight containers are switched to and from trucks before and after their transport by train. Rose's goal: to bolster the second-
Rose estimates companies spend $10 billion in the western U.S. to truck freight that could move less expensively by rail. That gap only widens with higher pump prices—up 31 percent in the past year—since locomotives are more fuel-
About $500 billion is spent each year to haul U.S. freight by rail or highway. More than half—$300 billion—is spent on shipments between cities. Rails today get only about 13 percent of that business, Rose says.
To expand rail's share, he pitches trains' greater fuel efficiency—railroads can carry a ton of freight two to four times as efficiently as trucks—and improved reliability, in part owing to heavy capital spending in recent years. A shortage of drivers and rising emissions standards are also eroding truckers' advantages, as is growing congestion on roads. "People need to know that the trains are going to run on time," says Chris Ferrell, a logistics consultant with Tompkins Associates. "They don't mind that you're a day and a half slower, they just want to make sure that you're a day and a half slower every time."
So far, Rose has received the hands-
Lately, that's meant expanding the intermodal business, part of the consumer-
At the Haslet facility, three workers at computer terminals in a control tower coordinate the arrivals and departures of 17 trains in and out each day. A crane, guided by a worker on the ground and controlled by one in the cab, takes about 45 seconds to pluck a 6,500-
Railroads still battle perceptions of delayed departures and cable-
Rail's sweet spot is for hauls longer than 750 miles. It would be $1,002 cheaper to transport a freight container by rail the 2,020 miles from Los Angeles to Chicago, with half the carbon emissions, says Burlington. Landing a sale can take two years, says Chief Marketing Officer John P. Lanigan Jr. "In some cases, you're overcoming long-
One recent win was FedEx (FDX
Ferrell says shippers don't make such changes quickly or lightly. "Once they're convinced service levels will not suffer, then it's Finance 101: Am I going to be decreasing my costs? If the answer is lower, you do it." Rose—and Buffett—certainly hope so.
The bottom line: During the recession, Warren Buffett bet more than $26 billion on a revival in railroads. A year later, business is gathering momentum.
Quelle der Information: http://www.businessweek.com/magazine/content/11_21/b4229019767635.htm?campaign_id=rss_null