Investing in railroads?

Via Smart Growth Around America:

If the king tells you to ‘jump!’ you say, ‘how high?’ And when Warren Buffett tells you to buy something you say ‘how much?’ So when Buffet, one of the kings of investing, starts putting his money into freight railroads, financial analysts take note. Michael Sivy of CNN Money correctly observes some of the competitive advantages of rail moving forward into an age of high energy costs and the need to reduce emissions and overall consumption:

Railroads are far more energy-efficient than their competition. Locomotives today get 80% more mileage from a gallon of diesel than they did in 1980. As a result, trains consume far less fuel than trucks do to move the same amount of freight. That not only saves on costs, it reduces emissions of greenhouse gases. In fact, the Environmental Protection Agency calculates that for distances of more than 1,000 miles, using trains rather than trucks alone reduces fuel consumption and greenhouse gas emissions by 65%.

This amplifies the trend that the Wall Street Journal covered at length a few weeks ago (covered in this entry) about the increasing use of rail for freight nationally. A downside of more railway freight can be more competition for track space, which is shared with passenger rail in most places.

As airways and airports become more and more congested, with reliable on-time travel becoming a thing of the past, I wonder when we might see the same sort of renaissance of passenger rail. Whether moving goods or moving people, it takes a fraction of the fuel and resulting emissions to move a load of people from D.C. to New York on a train compared with a jetliner.

A respected investor who predicted the internet bubble bursting sees investments in rail to be a smart proposition. Eric Janszen spoke with Wired about transitioning from an economy based on the traditional models of finance, insurance, and real estate —  all currently slowing down or crashing in front of our eyes — and into massive investments in ‘clean tech:’

Janszen: … You could create a process that gradually forced a lot of relatively painless transition without wrecking the economy.

Wired: What types of infrastructure changes would be part of that transition?

Janszen: Transportation. The big capital-intensive effort is high-speed rail. You need government to get its act together to pull something off.  I’m also proposing public-private corporations that have the deep pockets of government but the obligations to shareholders of a private corporation. There are going to be market mechanisms, so you don’t end up years late and billions of dollars over budget.

-> Share or email this story "

Comments

[Josh Strupp]

I don't think that I would put too much stock (stock, get it) into Mr. Buffet's interest in commercial rail companies. Although i'm sure that Buffett knows what he's doing, rail freight, as it exists today, is a terribly inefficient method of transporting freight from point A to B. Put something on a train today and watch your cargo sit on a rail siding for weeks on end until the rail company gets around to it. Good luck telling your customer that his cargo will get there, "whenever Canadian Pacific get around to it". In this day and age of "just in time delivery" commercial rail is the stagecoach. If your are looking for a more fuel efficient method of transportation, fine. But I would find it a bit of a stretch to use Buffett's interest in commercial freight companies as an example of a shift in transportation methods.

[John Michlig]

Josh, I would be interested to know the basis for your "terribly inefficient method" theory. That may be true in AMERICA, but look at railroad (for people and products) in almost any other developed country where the oil lobby doesn't set policy.

I hope you aren't looking at this the way Milwaukee looks at bus service: We strangled it, so now it's unworthy of improvement.

[Zach W.]

I'm torn on this, because while I have to acknowledge Warren Buffett's genius when it comes to investing, American rail has typically lagged behind its counterparts in other parts of the world - Europe, for instance - and I'm just not sure if I buy what Warren Buffett's selling.

[Oh my Gosh]

Not knowing Josh's own (first person?) experience it's hard to question it.

As a regular customer of rail service my experience has been quite the opposite. There may be some stickiness at times but it is usually coming out of Long Beach and has more to do with port logisitics and capacity.

Rail is certainly positioned to make a major comeback for long hauls and companies with a multimodal capability should do very nicely.