Berkshire Hathaway
BNI - The Railroad that Became a Moat?

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By Goofyhoofy
November 4, 2009

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The "hidden asset" is "moat". It is simply impossible to replicate a rail infrastructure the size and scope of BNI today. BNI basically has a duopoly in the west and controls access to several major ports. They did this by dint of the original acts of Congress in the 1800's which ceded land to encourage the railroads to expand, and then by the consolidation which happened about 40 (?) years ago when the railroads were in such trouble and facing increasing competition from trucks (partly due to the "completion" [ha!] of the Interstate Highway System.)

So BNI ends up being a major player in one of the three or four transportation infrastructures in the country. That's moat with a capital M. And each time fuel prices increase, the advantage to railroads goes up by a factor (it's already twice as efficient to ship by rail [long haul, heavy loads, exceptions apply], although the so-called "last mile" still belongs to the truckers). If you see fuel prices continuing to escalate, that means rail will only get better, although I doubt that's a significant calculation for Warren in this deal.

A hidden gem, also unlikely to be a deal-maker or breaker in my view, is the rights-of-way along their trackage. Boone Pickens just spent several millions trying to assemble a right-of-way project for energy (and water, actually) and came up empty. BNI already has over 20,000 miles of RoW just sitting, waiting for the day when the electric grid need to get robusted (not really a word, I know), and then it's another rent to receive, basically for doing nothing but being a survivor from the pack that began laying track 150 years ago.

As a business railroads sucked for many years, but not lately, and I am pretty sure that this purchase validates the view that those days are behind the industry: competition is decreasing and opportunity increasing, and no one can ever again assemble a serious competitive challenge to the trackage already on the ground. What's not to like?