Railroad Play Burlington Northern Hauling Gains for Warren Buffett ...

Tag : Trains & Railroads

The reason for the change of hear can be attributed to threefactors, says Burlington Northern’s Rose.
“ I refer to it as a ‘three-legged’ stool ,” Rose told BusinessWeek . “Fuel, congestion on highways, and carbon.” Burlington Northern On Track
Diesel prices have more than doubled in the past five years, andtrains use only just a quarter of the fuel that trucks do. Evenwith the recent decline in oil prices, Rose says railway transitwill maintain an advantage over trucking as long as crude staysabove $25 a barrel.
Just to be on the safe side, Rose acquired 200 fuel-efficientlocomotives from General Electric Co. ( GE ). The engines burn 20% less fuel than their predecessors, BusinessWeek reported. Additionally, Burlington Northern next year will becomethe first company in the industry to deploy a hydrogen-poweredlocomotive.
More fuel efficiency not only shields Burlington Northern from highoil prices, it also gives Rose an extra bargaining chip when itcomes to dealing with more environmentally conscious businesses. For years now, Burlington has provided potential customers withdata showing exactly how much more carbon-friendly their haulswould be if they used trains instead of trucks.
For instance, a train carrying 100 tons over 1,000 miles produces45% less pollution than a long-haul truck does, according toBurlington.
In addition to being more fuel-efficient, Rose makes the argumentthat trains are simply more efficient – period.
While it takes just two train employees to drive a 9,000-foot,300-car train, it would take 300 truck drivers to move the sameamount of freight. That is, in part, because of new regulationsenacted in the trucking industry that cap the total number of hoursa driver can spend behind the wheel.
And unlike trucks, trains don’t get stuck in traffic –accounting for the third and final leg of Rose’s“three-legged stool” – traffic congestion.
“Congestion costs the industry $8 billion a year,” saidRay Kuntz, president of the American Trucking Association . “And it’s growing at 8% to 10% per year.”
No doubt, Burlington Northern is exceptionally well positioned.
The company controls approximately 32,000 miles of railway trackthroughout the United States and Canada. Burlington’s railscover two thirds of the continental United States and its abundanceof West Coast rail terminals and make it a vital artery inAmerica’s Asian trade network. In fact, many containerscoming into U.S. ports are delivered to shore and then placeddirectly onto Burlington Northern flatbed cars.
Over the past five years, U.S.-China trade has increased by 114%,reaching $386.7 billion.
Burlington has expanded its operations in lockstep. Rose spent $2.6billion, or 16% of the company’s $15.8 billion in 2007 sales,to expand and improve the company’s rail network, BusinessWeek reported.
“Railroads – now, that’s an example of changingour minds,” Berkshire’s Munger said. “We threwout our paradigms, but did it too late. We should have done it twoyears ago, but we were too stupid to do it at the most idealtime.”
Berkshire may have been a little late, but the train stillhasn’t left the station. Shares of Burlington Northern closedat $89.06 Friday, up $2.47 – or 2.85% – each.
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