Top of the News: Warren Buffet’s acquisition of the Burlington Northern Santa Fe railroad is freighted with the history and future of the Puget Sound. The company is made up of several storied railroads, including the Great Northern and Northern Pacific which helped build Seattle and Tacoma. Now its a major player at both ports and has a key role in whether they will remain competitive.
Buffet said the $34 billion deal is “an all-in wager on the economic future of the United States.” Most analysis has focused on the solid profitability of BNSF, along with the strong results railroads showed mid-decade and their likelihood of an early rebound in a recovery.
I hope, however, Buffett is also talking about the future, where discontinuity once again comes into play. For example, energy costs and environmental concerns should give railroads a much greater role in hauling freight, as well as providing right-of-way for enhanced passenger service.
One key question is what Buffet will do with his railroad? In recent years, rival CSX Corp. was in a nasty fight with a major shareholder. The issue: Management wanted to upgrade lines to meet current and future demand, while the shareholder wanted to squeeze the railroad for higher short-term profitability, even if it meant CSX fell behind.
This is especially not an idle question here. The ports have been working with railroads to enhance service, keep rates competitive and especially make sure the track capacity kept Seattle and Tacoma in the shipping game as West Coast ports come under more pressure. It will come from widened Suez and Panama canals, as well as from Prince Rupert, B.C. and its Canadian National railroad connection. Canadian Pacific is trying to lure more American importers to use Vancouver.
A big unknown is how freight traffic patterns and the railroad industry might change with the big reset. Indebted American consumers will be buying less stuff on credit from China. That may mean less container traffic headed east. For example, BNSF has already idled its Stampede Pass line in Washington state because of less traffic.
On the other hand, if American exports could find greater footholds in Asia, those west-bound containers might haul more than the scrap metal of demolished American factories.
Today’s Econ Haiku:
Not when half of U.S. kids
Will eat with food stamps