(The following story by Melissa Lafsky appeared at Infrastructurist.com on January 7, 2010.)
When Warren Buffett buys one of the largest freight railway companies in the country, it can only mean good things for the industry. Still, as the LA Times reports, the comeback of freight rail in the U.S. has been underway since far before the King of Wichita made his $34 billion deal.
The past decade has brought some substantial changes for the industry. In 2002 there was the completion of the Alameda Corridor, a 20-mile freight rail expressway leading out of L.A.’s ports. The $3.4-billion public-private partnership includes a 10-mile dedicated underground tunnel that allows BNSF and its West Coast rival, Union Pacific, to avoid L.A. traffic and speed their cargo to the rest of the country. There’s also the hundreds of millions of dollars BNSF has invested in recent years to beef up its Southern California operations, in an effort to nab more of the huge stash (40% of the nation’s total) of overseas goods that enter the U.S. through L.A. and Long Beach, and must then be transported to retailers across the country.
Of course, as with all U.S. industries, freight rail’s re-ascendance isn’t without its potential perils:
Activity has slowed with the global downturn. U.S. freight rail traffic in 2009 was down about 16% from 2008. Traffic in the Alameda Corridor was down 20% in the first 11 months of 2009 compared with the same period in 2008. Some of that business might not return even when imports rebound [since] seaports in Mexico and Canada are becoming less expensive than Los Angeles and Long Beach, analysts said. A project to deepen the Panama Canal, expected to be completed in 2014, could make it more economical for massive ships from Asia to head directly to ports on the East Coast.
Other factors could hurt too. A bill pending in Congress seeks to partially re-regulate railroads. California’s tough environmental restrictions could add to operating costs. And if the U.S. weans itself off coal for electricity production, railroads would lose a big chunk of their revenue because they haul much of that fuel to the nation’s power plants.
Still, with Buffett on your side, the odds are always better than average.