Posting in Cities
Warren Buffett has bet $44 billion on the Burlington Northern Santa Fe railroad and named the new economic boom. Efficiency.
It just happened.
Efficiency is what I like to call the low-hanging fruit of the War Against Oil.
Most attention here goes to energy production, to solar cells, wind farms and tidal engines. But you get exactly the same bottom-line impact from saving a barrel of oil as from replacing it with wind.
Buffett spent 10 days on this deal, speeding the transition of Berkshire-Hathaway from a mutual fund dependent on its CEO into a conglomerate whose unit managers drive the stock price.
The question a lot of people will be asking, however, is what a 19th century business can possibly teach the 21st century?
A great deal.
- It takes a lot less to move a ton of freight by rail than by truck. The difference grows when you use hybrid or electric engines.
- Railroads can become a lot more flexible with computer controls, picking up loads at large plants and depositing them near central cities.
- America's renewable energy resources are mismatched to its economy. Most of our geothermal and solar potential is in the West, most people in the East. What's the best way to move this energy?
- There's also that mismatch between where we draw our imports, the Pacific, and where we use them, again the East.
- Burlington managers have been effective in using their right-of-way for fiber cable, giving them an Internet footprint.
- Burlington's right of way can also handle passenger trains. Railroads have the same cost advantages with people as they do with freight, once sunk costs are taken care of.
It's true this deal has something to say about Berkshire as well as Burlington. Buffett is not just making his company a conglomerate, but one that sells stock at popular prices.
But the smart takeaway here is the new economic game, and the gains we can all generate, on our own bottom lines, by getting more efficient. A penny saved is truly a penny earned.
Nov 3, 2009
Thanks for that explanation. It was really great. As to making renewables transportable, you use the electricity of a wind farm or solar facility that's not needed by the grid (a little intelligence in the grid will tell you when this is possible) to separate water into oxygen and hydrogen, then to turn combine the hydrogen with nitrogen, creating ammonia. Ammonia is very dense, so it can go into tanker cars efficiently. And it can be used as a feedstock for fuel cells. Permeable materials soaked in ammonia leak hydrogen at a steady rate, which is then combined with oxygen in a fuel cell to produce energy and water.
It's the operations at the big ports-- the port of Seattle, the ports in the Bay area, and and especially, the ports of LA and Long Beach. Unfortunately (as the current issue of Trains magazine points out) those ports are becoming less relevant to the equation as more and more Panamax container ships are coming online and shippimg routes are being revised to deliver goods from China to Eastern Seaboard ports.
By creating efficient transport, you can use geo and solar to power plants which manufacture goods in the west and transport them to the east. The transportation of goods manufactured by renewable energy plants located in the west would still be better than manufacturing them with non-renewable energy in the east. So trains help us use geo and solar to benefit the entire nation, not just the west. All it takes is a tiny step "outside the box" to see this connection and many others.
Speaking of fiber, I'd love to see somebody like Buffet or Gates create a company that runs fiber to all households, bypassing all of the crappy monopoly telecommunications companies we currently have. That aside, trains are still one of the most efficient forms of transportation, despite over a century of technological advancement. How sad is that? How pathetic are we that we haven't been able to come up with something better in all that time?
Sounds like the California ports have some catching up to do; Seattle and Portland have been hard at work improving rail access to their ports. Containers are being unloaded from ships directly onto rail cars.
First, I have absolutely no idea how BNSF could be relevant to "transporting" Geothermal and Solar power, unless BNSF wants to get involved in the electric grid. But separate from that complaint, BNSF does have enormous opportunities, and these opportunities are incredibly complex. But it has nothing to do with "the press", and almost nothing to do with the transport of people. It's the operations at the big ports-- the port of Seattle, the ports in the Bay area, and and especially, the ports of LA and Long Beach. The upgrades won't be mere $Billions, by the time it's over, more than a $Trillion (maybe much more) will have been invested-- and it's multi-modal problem. I'll describe in detail. Every second which ships spend in one of the very few Port docks, being loaded or unloaded, costs a fortune. The path for each container from ship to crane to truck, truck to crane to yard, and yard to crane to train, WITH security, is tortuous. (And those containers must be placed within just a few inches; and they're stacked several layers high, because there's so little space.) Every minute they sit stacked in the yard costs $$$, because it's so hard to figure out where to put the next one. And of course, every container move on a crane costs $$$$$. It's an amazing process, but it's got to be upgraded. There's not capacity, and there's no room to add any more capacity, and what they've got is at the breaking point-- just a single tire going flat tire on a truck, in the wrong place, creates complete chaos. It's only going to get worse. So, to reduce pollution, and to increase capacity, Long Beach has asked companies to propose ideas for a new way to get the containers inland to the trains, and to bring them back from the trains to the ships. (We export Coke, a coal product, which China uses in vast quantities to create the steel in the products they export back to us. There's also a lot of grain, wood, and other raw materials.) Among the bids which have been submitted for a preliminary "Give us your ideas, please!" RFP from the Long Beach Port Authority are least two MagLev companies. Bombardier (the big aircraft firm) made a response, although I don't know what technology they're proposing, and there's some other firms I can't describe by merely looking at their names. Ultimately, the Port Authorities, and the Chinese shipping companies, and the Crane operators, and the Trucking Companies, and the Trucking Unions, and the EPA, and the Railroads, and all the companies which make new technology-- and Wall Street, they will all be involved. It's a fact of life, a $45B company doesn't have enough cash on the balance sheet to even begin any of the upgrade without help from Wall Street. That's why the Wizard is needed, and also why he's going to love putting it together. If he can do it, the ports will be able to handle a lot more containers at much lower fees. BNSF and Santa Fe get more volume, at lower fees, with an even greater price advantage over truck freight built in to their costs. The company grows, and Warren Buffet makes a huge profit. Good for him, good for us, good for the air quality to. He'll have earned it, bravo! Better engine technology is only a secondary issue. And at today's costs for jet fuel, passenger trains are utterly irrelevant to the BNSF/Santa Fe route map, except along the LA-Frisco corridor. (Possibly extending to San Diego, or to Sacramento.) Their other distances are far too long, with volumes far too small, to support high-speed passenger service. I could be wrong, of course.
I think the railroads do need to get into the 21st century, not in the way the train itself works but how the routes are worked. I would very much appreciate a mode of transportation that is less expensive than flying and doesn't require me to drive the long distances. I don't think I want a multiday trip but it sure would be nice to be able to go from Dallas to Kansas City and back during civilized hours.
Was it? Or did Buffett make an "offer they couldn't refuse?" Either way, it's about time the efficiency of rail got any press. It's too bad so much trackage was torn up during the 70's and 80's. I always figured our future would live to regret it.