Warren Buffett: Bullish on Trains

Warren Buffett is buying rail companies and betting on higher oil prices. Image courtesy of OilPrice.net.

The financial world is abuzz with the Sage of Omaha’s latest investment strategy: buy railroads.

“From long-term passion for model trains to stake-building of several years,” OilPrice.net reports, “Warren Buffett, the billionaire investor, has decided to acquire one of United States’ largest freight railway firms, Burlington Northern Santa Fe (BNSF), for $34 bn.”

As the article puts it, Buffett started in the insurance industry, and his investment strategy is still about buying companies that deal well with the risks of the coming economy.

America’s once world-class passenger rail system may today be the envy of Romania, but our freight system is the most extensive in the world, and Buffett knows that rail could become king again once the price of oil rises to a level that makes air and road transportation uncompetitive.

The article’s handy chart shows that, today, while a ton of freight can travel by air for 82 cents a mile and by truck for 26 cents a mile, that same ton goes for the bargain-basement price of only 2.9 cents a mile by rail.

As the article puts it, rather starkly:

Railways made the industrial revolution happen 150 years ago. Trains brought us the modern world as we know it before there were cars and trucks. When cars and trucks are not suitable anymore our civilization will revert to the last known modern means of tranportation, the train. As peak oil sends everyone scrambling for new energy sources, coal which once powered trains will rise again as a suitable fuel for heating and power generation. BNSF virtually has all the coal it needs in its own backyard: the Powder River Basin in the Rockies. 1/5th of all US coal is already being hauled by BNSF, representing 25% of the company’s revenue.

If the world’s most respected investor is bullish on trains because of oil depletion, then it’s time for Virginia to start a breakneck program to modernize our rail system.

Yes, the state is facing record reductions in revenue and big cuts across the board. But now more than ever, it would not be too radical to propose by moving all funds for building new roads into a fund to build modern rail instead.

With oil depletion and high prices looming, we cannot afford to pour millions more in scarce state funds into new road infrastructure that may soon be devalued. We need to start now to build the transportation network we will need to prosper in the next 20 years.