There is so much speculation on what kind of play this is for Buffett. Some say it is a coal/energy play, some think it is a play to expand our commuter service and develop a high speed passenger service. On T.V. I witnessed them criticizing the move as too "America Only" based, and doesn't focus enough on the new global economy. Well, to put it bluntly, they are all wrong!
Why would Buffett spend $44 billion dollars on a railroad????? I'll explain why.
1. I don't think Buffett is calling the bottom of the recession. but he understands that the recovery is looming, and transportation is the first indicator that it is turning around. The only way to rebuild inventories is to either transport raw materials in to build it, or to transport it in from other regions or other countries.
2. There is no question about the good relations Buffett has with China businesses. Much of the earlier speculation was that BNSF would be purchased by a Chinese Railway, ramroded by Buffett himself. Well, that didn't happen, but it would not surprise me to see a China influence or Chinese financing before it is all said and done. One word ties this all together. INTERMODAL. This is an international play that is all based around the import and export trade. The majority of this is done through the Intermodal network that BNSF has established and dominated at.
3. BNSF does have the diversity to weather even the worst of recessions. 2009 is a perfect example. Import intermodal traffic is down, industrial products such as lumber, cement, and other building materials are down, yet net revenue is only modestly down from the record 2008 year. This is because BNSF also has a Coal and Grain network that is unmatched.
4. BNSF is the best of the best when it comes to service, efficiency, network leverage. I agree that transportation is a good long-term investment. When you consider we are in the shadow of another huge energy (oil) run-up, rail is the most efficient form of transportation out there, point blank! That being said, BNSF is the leader when it comes to the rail industry. After saying all that, is it no wonder Buffet picked BNSF vs. his home town team (Union Pacific).
And just a side note to all of you that think that high speed passenger service is coming soon, IT'S NOT!!!! For the time being, railroads in the United States are for transporting goods, not people. With Amtrak losing millions of dollars a year, and totally reliant on government subsidies, it's not happening any time soon.
