Warren Buffett has made a huge bet on global economic growth by purchasing the remaining stock he does not own in the Burlington Northern Santa Fe (BNSF) for $26 billion. BNSF, the nation's second-largest railroad, is the biggest hauler of food products for export such as corn, and coal for electricity, making it a key indicator of the country's economic health. The railroad also ships a large amount of consumer goods — including items imported from Asia — from big Western ports like Los Angeles and Seattle. Buffett says in interviews that this is a long term bet on the strength of the US economy, as well as a play on energy prices, as railroads move freight at a much lower energy cost per ton-mile than trucks.
But just how long term is the bet? One can gain some insights from a fascinating article on the ghost fleets of Malaysia, recently published in the UK's Daily Mail. Hundreds of ships from every nation-tankers, container ships, dry bulk and specialty carriers sit idle just east of Singapore. It will be years before global trade returns to the pre-crash levels. With over 12% of the world's container fleet idle, it will take some mighty fast growth in Europe and the US to return many of these behemoths to the trades. And many may never return to service. If consumption growth picks up in Asia and India, which governments are encouraging, the ships will never be needed to move goods within domestic markets. You can also bet those consumers will not be buying a lot of US and European products any time soon, based on iPhones pitiful recent sales in China, among other indicators.
So Warren better plan on living another decade or so to see this investment pay off. Even our grain and coal exports--major traffic flows on the BNSF--are seeing major competition from Australia and South America, putting further pressure on potential commodity trade growth out of the US. All in all, Warren may have made a savvy buy for the long term, but owners of A&B shares in Berkshire Hathaway should not expect a lot of near term returns from this investment. Let's hope it is not another ill-timed foray by Warren into the transportation sector, like the US Airways bet. If it does turn out to be a poor investment, then we may be all in for an extended period of poor growth....not a fun thought.
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