Back to the Future

Back to the Future

“Flash: One of the most famous and respected investors of our time buys one of the biggest, most respected railroads of our time. Cornelius Vanderbilt takes in the New York Central — 1903.”

And so it goes. Is there never anything new in the history of the railroad industry?

Before the e-mails and letters to the editor start coming, no, Vanderbilt did not actually buy the New York Central. He bought a predecessor that allowed him to get his local New York City Railroad all the way to Albany and successfully compete with steamer service between Albany and New York. Merged with several other railroads over the next 20 years, this became the New York Central.

Is this also a precedent for Warren Buffett’s purchase of Burlington Northern Santa Fe? After the initial shock of this month’s announcement that the country’s most famous investor will buy one of the country’s largest railroads wears off, such questions are inevitable.

Buffett apparently is willing to pay half of the $44 billion value of the deal in cash and assume $10 billion in debt, although it is quite possible that he could have raised the funds to buy BNSF outright. And if you like the current U.S. economy and the railroad industry, and believe in the future of both enough to buy one railroad, why not buy two?

Why not make the first transcontinental railroad? Vanderbilt, after all, connected the dots to make the first single route connection between New York and Chicago. The Penn Central followed very closely thereafter.

And just look at what an astute move this is by BNSF Chairman Matthew K. Rose and the BNSF board! If your major worry for the immediate future is re-regulation, and your industry has a terrible reputation with your vocal bulk customers, why not marry yourself to one of the most popular and respected investors on the planet?

Does it not now become at least somewhat more difficult to make a case for re-regulation in the face of this new PR victory? And if you are really feeling lucky, why not use this newfound legitimacy to make a case for a transcontinental railroad, something that has been almost unthinkable since the rail merger debacles of the late 1990s?

Like Vanderbilt, Buffett is well -known as a person who plays the chessboard several moves ahead of everyone else. And so that begs the question: Why would you own a standalone regional railroad in an increasingly globalized world?

If you are Matt Rose and have been running the same railroad for a number of years without the prospect of significantly expanding your realm given the regulatory and political climate, does this not rekindle your interest and re-energize your career prospects enough to stay several more years and see it through?

It is beyond the realm of reason to believe these things have not been considered in Fort Worth, Texas, where BNSF is based, or Omaha, Neb., where Buffett and his Berkshire Hathaway business are based.

We should also recall there is another railroad in Omaha that has to be thinking some of these same thoughts, and raising some of these same questions. And after all, the last major transportation investment made by the investment wizard of Omaha was an airline called USAir, and the last major transportation purchase made by that other railroad in Omaha was a company called Overnite Transportation.

The similarities between these two investments go beyond the big losses.

So Warren Buffett’s purchase of BNSF may be entirely unique, a singular event without precedent in its scale, and one with implications that are impossible to foresee — except, of course, for the aspects of it that sound all too familiar.

A 35-year veteran of the rail, trucking and intemodal industries, Tom Finkbiner is senior chairman of the board for the Intermodal Transportation Institute at the University of Denver and executive vice president of Railex. The views expressed in this commentary are his own and are not necessarily those of those organizations. He can be contacted at tfinkbiner52@tampabay.rr.com.