Buffett bets $34B on rail renaissance

NEW YORK — Renowned billionaire Warren Buffett’s investment company Berkshire Hathaway purchased the remaining shares of railroad Burlington Northern Santa Fe this week — an indication that one the world’s most shrewd investors has faith that a major freight rebound is not far off.

Berkshire, which already owned about 23 percent of outstanding Burlington shares, paid $26 billion to acquire the remaining shares. The entire $34 billion valuation makes the deal the largest-ever investment executed by the firm.

The deal sprung forward share prices of other rail companies as well, including Canadian Pacific Railway and Canadian National Railway, which rose a modest 4.2 per cent and 2.7 per cent, respectively.

Buffett began warming up to rail prospects early last year, but industry analysts are convinced that the BNSF buy is the strongest indication yet that the rail sector’s sky is quite blue.

The economic and regulatory conditions are looking to
be more favorable to rail than trucks, analysts predict.

Although the overall confidence in a resurgent freight market also bodes well for trucking fleets treading water in anticipation of a agonizingly slow rebound, Buffett is clearly banking that the tracks will take some overall transport marketshare away from the highways.

"It’s an all-in wager on the economic future of the United States," Buffett told international business media. “I love these bets."
Much of the buoyant outlook for rail is based on the expectation that on-road diesel prices will rise significantly once more; that road infrastructure can’t keep up with congestion levels; and that environmental pressures and impending legislation will cost road transport disproportionately more than rail.

Recent surveys involving Canadian shippers also indicate that rail is in prime position to make a sharp turnaround.

"While the rails and less-than-truckload carriers are managing their capacities fairly well," reports a National Bank Financial study, "truckload carriers are facing more difficult conditions, given overcapacity and low barriers to entry. As a result, the rails are expected to retain the greatest pricing power upon recovery."