Walter Morton

Why is Warren Buffett So Interested In The Railroad Industry?

Lee Johnson's analysis is correct. The last century of inexpensive liquid fuels has led us to a situation where we are just learning consumers need to do more sophisticated "energy math." The "energy cost" most Americans are familiar with is a measure like "miles per gallon" for a car, which has in a minor way influenced choices if buyers are seeking lower cost of operation, but efficient MPG has not been a "critical" factor in USA car sales for the last twenty years. Only as recently as 2006 have SUV sales "slumped" while "hybrid" sales taken off. Still, few people see that their car represents long-term energy costs of mining metals, building factories to make steel, glass, plastic, etc. People do not take the long view of infrastructure costs, they see a gallon of milk is $1.29 -- they don't think much about the cow, the farmer, or the field in the sun. Net energy theory looks at how you measure if you get "more energy out" than you "put energy in." A solar cell produces power for 25 years. But costs 3 barrels of oil (in energy equivalents) to manufacture. At what point -- if ever -- are you making a "net gain?" Cars and trucks are only an "efficient" method of transportation if gasoline is plentiful and cheap. As it becomes scarce and expensive, alternatives like rail become efficient, and will replace them. This conclusion requires a little understanding of math, physics, and free market economics, but is essentially inarguable if you look at the numbers. I'm not sure how Buffet is modeling "the numbers" for railroad's superior efficiency in moving large masses of goods, but it's pretty obvious if you've ever watched a train that it can carry a larger load from point A to point B than any truck. QED.