News Article | 11/4/2009

With BNSF purchase, Buffett bets on growth in container traffic

Warren Buffett says his railroad buy is an investment in America, but it’s also a bet on a recovery in global trade.

Burlington Northern Santa Fe Corp. is the nation’s top railroad in intermodal transportation, in which container cargoes move from ships to rail cars to trucks and back again. The nation’s biggest container ports are in Southern California, where BNSF trains load up millions of containers of Asian goods each year for inland markets like Dallas-Fort Worth.

Terrance Pohlen, director of the Center for Logistics Education and Research at the University of North Texas, said intermodal is the future.

“Looking down the road a few years, with everybody’s views on what’s likely to happen with fuel prices and congestion, intermodal is the long-term solution,” Pohlen said.

Container traffic has plunged during this recession. The ports of Los Angeles and Long Beach recently reported their worst September in nine years. That’s slowed business for BNSF. It’s also slowed traffic for inland ports like Hillwood Properties’ Alliance Texas north of Fort Worth, where the rail line delivers many of its containers.

Alliance, BNSF and, evidently, Warren Buffett expect the container business to revive and keep on growing.

“It seems like it’s bottomed out, and in the long run, Alliance is in a 40-year master plan, and we are only in year 20, so there’s a lot of positive to grow,” said Steve Boecking, a vice president with Hillwood Properties.

Boecking said Alliance Texas and BNSF have an “almost symbiotic” relationship.

“They’ve invested a lot in their intermodal hub here,” Boecking said. “BNSF provides an excellent service into Alliance, which translates into excellent service for our customers.”

In the last year, BNSF upgraded its screening and processing at Alliance so that trucks are moved in and out within 30 minutes.

Much of the work at Alliance Texas involves handling containers of Asian imports. That’s created 28,000 jobs since Alliance opened in 1990.

Developers are creating an inland port in southern Dallas, and BNSF bought 198 acres there last year with an eye toward building an intermodal hub. Union Pacific Railroad already operates an intermodal hub at what’s called the International Inland Port of Dallas.

“If you look at the BNSF network, they are really looking at growth of inland ports in the future, such as what we have in North Texas,” Pohlen said. “It just makes sense to move by rail.”

Boecking and Pohlen said Buffett’s railroad investment should not be viewed as a forecast that the U.S. economy will return to a buy-and-borrow relationship with China.

Americans imported $337.8 billion of goods from China last year, and the U.S. trade deficit with China was $266.3 billion.

Over the last decade, China has used its trade surpluses to lend the U.S. government more than $2 trillion. Some analysts say this flood of capital encouraged banks to make reckless mortgages.

U.S. imports from China this year are on a much slower pace, but are expected to recover.

This time, though, U.S. companies will import more components and fewer finished goods. Already, several companies are assembling and packaging products at Alliance Texas with parts imported from China, including laptop computers.

“Globalism is here to stay,” Pohlen said. “Whether we import from China, India or Southeast Asia, we’re going to have to move goods using intermodal.”

Boecking said “it would be fantastic” if the containers arriving via BNSF from Asia were returned full of U.S.-made goods, but “it’s just not that economical to manufacture most of the products we want to buy here in the United States.”