The Burlington Northern deal goes right to the heart of shipping
If some boring insurance or hedge fund had paid $34 billion for Burlington Northern railroad, the world would have yawned and taken no notice. Instead, the name Warren Buffett is again swirling around the cosmos and experts are in a frenzy as to what it means.
Amid all the rah rah over the takeover, the implications for shipping and ports have been overlooked. BNSF has contracts for exports and imports with container carriers , among them Hyundai Merchant Marine, Yang Ming and Orient Overseas Container Line. In 2008, that business accounted for $3 billion in revenues, -- almost half of its consumer products income, which includes domestic intermodal and automotive business.
And, in the third quarter this year, consumer goods were the biggest sector in financial terms of its business, accounting for 30 percent. (BNSF overall suffered just as much as the rest of the economy in the third quarter, with consumer product revenue falling 36 percent to $1.1 billion.)
While the arguments rage about the financial implications of the deal, opinion is unanimous that the Sage of Omaha will get on the case, jack up the railroad's efficiency and ensure it has a long-term future. In the short run, coal will continue to be the mainstay -- comprising 60 percent of all freight – but intermodal is a bigger beacon of the future.
Already, rail economists are predicting the introduction of high-speed trains and other modern marvels.
Mr. Buffett, reinforcing his reputation for being an American economy patriot, calls the deal "an all-in wager on the economic future of the United States." Which means that he will do his darndest to boost the use of intermodal transportation and draw traffic away from the Panama Canal to the West Coast.
It all points to intense scrutiny of the economics and efficiency of the links with the West Coast – and frequent visits to Southern California by his lieutenants. And this could be just the spark to save the ports from a slow but sure decline, regardless of Clean Trucks and other worthy ecological causes.
It also means that pressure is going to be put on the ports to hold up their end of the bargain and whack in some hefty productivity improvements of their own.
But speculation is going beyond just railroads, as anti-trust laws mean he has reached the end of the line in buying Class 1 railroads. Whispers could soon be heard that Mr. Buffett is interested in shipping. Given that he invests only in US enterprises, that narrows the field to Jones Act carriers – specifically Horizon and Matson.
It might be wild speculation but perhaps the Burlington Northern deal will be the renaissance of US shipping.