Buffett: Railroads Are in a Better Competitive Position

Berkshire Hathaway has invested in three major railroads--Burlington Northern Santa Fe Corp., Union Pacific Corp. and Norfolk Southern Corp. As a result, the stock of all three companies is trading at 52-week highs. Associated Press business writer Josh Funk wrote about this latest move by Buffett in a May 22, 2007 article. One reason cited for this move is that railroads are nearly monopolistic because it is so expensive for a new company to build its own railroad network. Thus, it is relatively easy for existing railroad companies to maintain profitability.

Additionally, railroads provide transportation for a wide variety of goods. If demand for one type of good suddenly falls off, locomotives can easily move to other parts of the country to transport other goods. Furthermore, rising diesel prices might make train transportation cheaper than movement of goods by truck. A train with double-stacked containers is the equivalent of 220 semitrailer trucks. Because of all of these traits, Buffett believes the train industry is a better business than it used to be.

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