So a gazillionaire fulfills a childhood dream and a railroad has a new owner; what does that really mean for the chemical industry?
ONE OF the best movies I've ever seen was out the window of the Tokyo to Kyoto shinkansen, the "bullet train," when I gazed out the window semi-exhausted after four days vacationing in Tokyo, with my iPod set on random. I like rail travel, when it's done right, much like the Japanese and much of Europe have achieved: not opulence, but decent service both on the train and in scheduling. I am one of many who heap scorn on Amtrak.
So when I heard that super-investor Warren Buffett was buying a railroad, I got really excited, thinking he was investing in commercial travel rather than freight hauling - but I was wrong:
Buffett's conglomerate, Berkshire Hathaway (BH), is paying roughly $26bn (€17.3bn) for the 77.4% of Burlington Northern Santa Fe (BNSF) it doesn't already own, says The New York Times.
But Fox Business Network says BH is paying a premium of 31.5% over BNSF's November 2 closing stock price, valuing the railroad at $34bn, 18 times estimated 2010 earnings.
Buffett says he's always wanted to have a railroad: "This is all happening because my father didn't buy me a train set as a kid," the billionaire told The New York Times.
While this means nothing, zilch, bupkiss, for my future travel and sightseeing plans, what will this mean for the chemical industry?
In 2008, rail moved roughly 170m tonnes of chemicals and chemical-related products, the second-largest railroad commodity in terms of volume after coal, says the American Chemistry Council (ACC).
BNSF is one of the handful of railroads that control about 90% of the freight shipped by rail in North America, and in November 2008, Chris Jahn, president of the National Association of Chemical Distributors (NACD), told ICIS Chemical Business: "Basically, two-thirds of the chemical industry is a captive shipper - when a chemical manufacturer or distributor has only one railroad serving its facility, that's a monopoly."
In a survey of 2003-2007, the ACC found that several of the largest railroads overcharged chemical industry customers by $6.4bn (€5.12bn).
The Railroad Antitrust Enforcement Act of 2009 is supposed to help change that, by empowering the Federal Trade Commission to regulate and engage in rail antitrust enforcement regarding collective rate agreements.
But as of the first week in November, the website govtrack.us says, "sometimes the text of one bill is incorporated into another bill, and in those cases the original bill, as it would appear here, would seem to be abandoned."
Will Buffett's ownership change things? Probably not, but with this very well known, quite public figure as the face of a railroad, it may become easier to bring grievances to BNSF that it was before.
