4 ms·

my guess is it comes down to two things: 1. The capital expenditures of railroad companies are changing. Most of them have pretty much laid track everywhere ne

by jakarta 17y ago

my guess is it comes down to two things: 1. The capital expenditures of railroad companies are changing. Most of them have pretty much laid track everywhere needed. If expansion isn't necessary, CapEx will go to maintenance for the most part, this means a ton in "owners earnings" to go up to BRK-Parent 2. Railroads > Trucking when oil shoots up. Could be his view that this is likely. For bonus, I know there is a lot of talk about BNI having a competitive advantage at getting access to shipping Chinese goods because of their west-coast track network, apparently they are better developed than others for this.

jyothi 17y ago
My first thought was exactly the same - it would be for oil. It would also serve as a great investment for biofuel transportation.
DrJokepu 17y ago
Could you explain the "Railroads > Trucking when oil shoots up" in more detail? I would assume that the fuel costs of diesel locomotives are just as tied to oil prices than fuel costs of trucks. The operating costs of electric locomotives would get equally more expensive as well as electricity prices are not independent of oil prices (and electricity is always more expensive than oil).
- tedunangst 17y ago
  Assume trains are more fuel efficient, but less convenient because of fixed routes and the cost of loading and unloading the cargo onto trucks at the endpoints. As fuel savings increase, trains become more attractive.
- jakarta 17y ago
  the costs b/w trucks and freights differ after a certain price point and it becomes cheaper to have goods travel by freight than by truck. So, if you go back and look at when oil was at its high, railroads were performing better than trucks
- thingie 17y ago
  Possibly, if price of the fuel is, say (it's just a random number, really), 1/3 of all expenses for the railroads, and 1/2 for trucks, then rising cost of oil will hurt trucks more (even if also those 2/3 of other expenses sees some increase). (Electric engines are out of the question for BNSF. Insanely high cost to electrify the network.)
- eru 17y ago
  > as electricity prices are not independent of oil prices (and electricity is always more expensive than oil). Oil isn't used to generate electricity. At least not much. Look for coal, nuclear power, some natural gas. In general electricity is much cheaper than oil based forms of energy. The reason why cars run on gasoline and Diesel is, that those have a much higher energy density than current batteries.
  - DrJokepu 17y ago
    Electricity is a lot more expensive than oil based energy. In 2009, the industrial price of electricity in California is around $0.10 / kWh. That's $0.028 / MJ. The current price of diesel oil is $2.801 / gallon, which is $0.616 / litre which is $0.016 /MJ (assuming 38.6 MJ/l as the heat of combustion of diesel oil). So diesel oil is $0.016 / MJ while electricity is $0.028. As you can see, electricity is a _lot_ more expensive in ideal circumstances (all the energy is converted to useful work). Now obviously, not all of the heat in the combustion engine can be converted to mechanical energy so there's quite a loss there while electrical engines have very good energy efficieny ratios, but still, oil is a lot cheaper than electricity, and that is the main reason it is used as the primary energy source. EDIT: I have made a huge (100x) mistake, thanks for eru for spotting it, it's corrected now. Still, my point stands.
    - eru 17y ago
      Thanks for the numbers. I guess I will have to run some numbers on my own, to see if that turn out. In principal electricity should be at least as cheap as Diesel in terms of usable energy --- because if it was more expensive you could use Diesel to generate electricity (arbitrage opportunity). Also the efficency of moving Diesel engines is not that good. Less than 30% or so. And they can't get much better without raising their working temperature, because the theoretic maximum (Carnot Engine) isn't that much higher. Moving engines have to be quiet compact --- on trains less so than in cars. The big stationary engines in the power plants do not have to conform to this limitation. (But there is some loss in transmiting the electrity through the power lines, too.) I'll come back with some numbers soon. Edit: I don't know why someone downvoted you. If your numbers are wrong, they should they so. If not, there's no reason to downvote.
- eserorg 17y ago
  Freight rail efficiency is measured in "labor-cost-per-revenue-ton-mile". The cost of trucking is dominated by the fuel-cost-per-ton-mile. Whereas the cost of moving 1 ton of goods over rail is dominated by the cost of labor, the cost of moving 1 ton of goods via truck is dominated by the cost of fuel. In point of fact, rail freight gets ~436 ton miles per gallon. The only mode of transport that gets more ton-miles-per-gallon is water transport (DSO, dry bulk shipping, oil and gas tankers, panamax, river barges, etc...) The edge case is liquid and gaseous hydrocarbons, which can be transported via pipeline. It's no surprise that Buffet has been buying up oil and gas pipelines over the past several years. The only catch here is that waterway transport inside the United States has sub-optimal efficiency due to the Jones Act.
CaptainZapp 17y ago
"1. The capital expenditures of railroad companies are changing. Most of them have pretty much laid track everywhere needed." While this is true, rail networks are phenominally expensive to maintain. Just look how it went down the gutter in the UK.
- jrockway 17y ago
  I think the UK is an odd case. The railroads were apparently so unprofitable that even the government didn't want the liability. BNSF, OTOH, is profitable. I assume they even make money from their passenger service. (A commuter line in Chicago with 100+ trains per day.)
  - gaius 17y ago
    The oddness in the UK is that train operating companies (TOCs) aren't allowed to own track. Instead there is a separate entity called the Strategic Rail Authority (SRA) that owns and maintains the infrastructure. Joe TOC can't really say "London to Edinburgh is our strategic route so we'll happily pay to upgrade it" because Jane Rival TOC running on the same SRA track has zero incentive to contribute. So it's a mess. At the time, however, this was deemed to be better than allowing Joe TOC a monopoly on route A and Jane TOC a monopoly on route B. In practice these are State companies still to all intents and purposes. The staff are all members of featherbedded unions and the government will be crucified by the voters if the TOCs screw up too badly, and everyone knows it.
- potatolicious 17y ago
  IMHO though, rail passenger travel is going to see a resurgence in the USA in the coming years. Air travel is in shambles, costs are going through the roof and service level is dropping precipitously. For short to mid-range runs I think rail is going to take over again. This would involve un-screwing Amtrak somehow, but if the demand exists, someone will fulfill it. I took the Amtrak train from Vancouver BC to Seattle WA last night - it was very nice. Price was reasonable (about 1/3 the cost of flying), seats huge, I got cell reception the whole way, power plug in the seats, and even a lounge car with snacks and drinks. There's really no better way to travel.

by jakarta 17y ago

jyothi 17y ago

My first thought was exactly the same - it would be for oil. It would also serve as a great investment for biofuel transportation.

DrJokepu 17y ago

Could you explain the "Railroads > Trucking when oil shoots up" in more detail? I would assume that the fuel costs of diesel locomotives are just as tied to oil prices than fuel costs of trucks. The operating costs of electric locomotives would get equally more expensive as well as electricity prices are not independent of oil prices (and electricity is always more expensive than oil).

tedunangst 17y ago
Assume trains are more fuel efficient, but less convenient because of fixed routes and the cost of loading and unloading the cargo onto trucks at the endpoints. As fuel savings increase, trains become more attractive.
jakarta 17y ago
the costs b/w trucks and freights differ after a certain price point and it becomes cheaper to have goods travel by freight than by truck. So, if you go back and look at when oil was at its high, railroads were performing better than trucks
thingie 17y ago
Possibly, if price of the fuel is, say (it's just a random number, really), 1/3 of all expenses for the railroads, and 1/2 for trucks, then rising cost of oil will hurt trucks more (even if also those 2/3 of other expenses sees some increase). (Electric engines are out of the question for BNSF. Insanely high cost to electrify the network.)
eru 17y ago
> as electricity prices are not independent of oil prices (and electricity is always more expensive than oil). Oil isn't used to generate electricity. At least not much. Look for coal, nuclear power, some natural gas. In general electricity is much cheaper than oil based forms of energy. The reason why cars run on gasoline and Diesel is, that those have a much higher energy density than current batteries.
- DrJokepu 17y ago
  Electricity is a lot more expensive than oil based energy. In 2009, the industrial price of electricity in California is around $0.10 / kWh. That's $0.028 / MJ. The current price of diesel oil is $2.801 / gallon, which is $0.616 / litre which is $0.016 /MJ (assuming 38.6 MJ/l as the heat of combustion of diesel oil). So diesel oil is $0.016 / MJ while electricity is $0.028. As you can see, electricity is a _lot_ more expensive in ideal circumstances (all the energy is converted to useful work). Now obviously, not all of the heat in the combustion engine can be converted to mechanical energy so there's quite a loss there while electrical engines have very good energy efficieny ratios, but still, oil is a lot cheaper than electricity, and that is the main reason it is used as the primary energy source. EDIT: I have made a huge (100x) mistake, thanks for eru for spotting it, it's corrected now. Still, my point stands.
  - eru 17y ago
    Thanks for the numbers. I guess I will have to run some numbers on my own, to see if that turn out. In principal electricity should be at least as cheap as Diesel in terms of usable energy --- because if it was more expensive you could use Diesel to generate electricity (arbitrage opportunity). Also the efficency of moving Diesel engines is not that good. Less than 30% or so. And they can't get much better without raising their working temperature, because the theoretic maximum (Carnot Engine) isn't that much higher. Moving engines have to be quiet compact --- on trains less so than in cars. The big stationary engines in the power plants do not have to conform to this limitation. (But there is some loss in transmiting the electrity through the power lines, too.) I'll come back with some numbers soon. Edit: I don't know why someone downvoted you. If your numbers are wrong, they should they so. If not, there's no reason to downvote.
eserorg 17y ago
Freight rail efficiency is measured in "labor-cost-per-revenue-ton-mile". The cost of trucking is dominated by the fuel-cost-per-ton-mile. Whereas the cost of moving 1 ton of goods over rail is dominated by the cost of labor, the cost of moving 1 ton of goods via truck is dominated by the cost of fuel. In point of fact, rail freight gets ~436 ton miles per gallon. The only mode of transport that gets more ton-miles-per-gallon is water transport (DSO, dry bulk shipping, oil and gas tankers, panamax, river barges, etc...) The edge case is liquid and gaseous hydrocarbons, which can be transported via pipeline. It's no surprise that Buffet has been buying up oil and gas pipelines over the past several years. The only catch here is that waterway transport inside the United States has sub-optimal efficiency due to the Jones Act.

CaptainZapp 17y ago

"1. The capital expenditures of railroad companies are changing. Most of them have pretty much laid track everywhere needed." While this is true, rail networks are phenominally expensive to maintain. Just look how it went down the gutter in the UK.

jrockway 17y ago
I think the UK is an odd case. The railroads were apparently so unprofitable that even the government didn't want the liability. BNSF, OTOH, is profitable. I assume they even make money from their passenger service. (A commuter line in Chicago with 100+ trains per day.)
- gaius 17y ago
  The oddness in the UK is that train operating companies (TOCs) aren't allowed to own track. Instead there is a separate entity called the Strategic Rail Authority (SRA) that owns and maintains the infrastructure. Joe TOC can't really say "London to Edinburgh is our strategic route so we'll happily pay to upgrade it" because Jane Rival TOC running on the same SRA track has zero incentive to contribute. So it's a mess. At the time, however, this was deemed to be better than allowing Joe TOC a monopoly on route A and Jane TOC a monopoly on route B. In practice these are State companies still to all intents and purposes. The staff are all members of featherbedded unions and the government will be crucified by the voters if the TOCs screw up too badly, and everyone knows it.
potatolicious 17y ago
IMHO though, rail passenger travel is going to see a resurgence in the USA in the coming years. Air travel is in shambles, costs are going through the roof and service level is dropping precipitously. For short to mid-range runs I think rail is going to take over again. This would involve un-screwing Amtrak somehow, but if the demand exists, someone will fulfill it. I took the Amtrak train from Vancouver BC to Seattle WA last night - it was very nice. Price was reasonable (about 1/3 the cost of flying), seats huge, I got cell reception the whole way, power plug in the seats, and even a lounge car with snacks and drinks. There's really no better way to travel.