It's Sexy To Write About Apple And Tesla But The Real Story This Year Might Be Rail -- May 2, 2021

When I went back to proofread this article, I changed the subject line slightly and then recalled that this week, April 30, 2021, President Biden wanted to pour $80 billion into rail during his tenure, most of it going to Amtrak in its northeast corridor. And then, of course, we still have the Bullet Train in California which might get another lease on life under this administration. Yes, the real story this year might just be rail. 

I can see the tagline now: "Rail is real. Invest for the future."

Original Post

When I think of Berkshire Hathaway, I think of a three-legged stool:

• Apple, Inc.: 42% of its equity portfolio (?)
  
• BNSF: rail transport comprised only 9% of Berkshire's total revenue, but it generated over 25% of total EBT (see below)
  
• all the rest;
  

Of course, over time, the legs may change. 

It's difficult to "sort out" how BNSF is doing now that Berkshire Hathaway owns it but yesterday, Saturday, May 1, 2021, at the Buffett & Munger show, the former mentioned that UNP performed better than BNSF but was "hoping" (?) that BNSF would improve.

Now this, sent to me by a reader, thank you very much:

BNSF says it can handle more crude-by-rail if the DAPL is shut down. From Reuters.

Now, add in this: the surging agricultural exports to China. Corn doesn't get to China by itself. 

I could be wrong but I think the export terminals in Washington and Oregon have a  lot of capacity. 

Pre-pandemic, May 16, 2019: BNSF breathes new life into Portland terminal. 

UNP is less well-positioned than BNSF for both oil and agricultural commodities when taking a simplistic look at the map.

• UNP: includes Kansas City intermodal trackage;
• BNSF:

Back to the linked Reuters article regarding CBR. I haven't read it. Let's read it together. The important number to look for: 400,000.

Four-hundred-thousand bbls per day is the current DAPL capacity (if allowed, it will expand).

BNSF, the railroad unit of Warren Buffett's Berkshire Hathaway Inc, is prepared to handle any increase in rail traffic if the Dakota Access oil pipeline (DAPL) is shut due to an ongoing legal dispute, the company told Reuters.

The operators of the 570,000 barrel-per-day line, led by Energy Transfer LP, have been locked in a battle to keep the line open after a federal judge last year scrapped a key permit and ordered an environmental review of the line.

A U.S. District Court could issue a ruling as early as May on whether the line can stay open during the review.

Any closure of the line would divert most crude production in the region onto railcars and create transportation bottlenecks.

BNSF operates the greatest number of route-miles in North Dakota, the second-biggest oil producing state in the country and leading producer of agricultural products such as wheat and canola.

In 2014, BNSF invested more than $1 billion toward maintenance and expansion projects in that region, where the railway serves agricultural and energy customers, to alleviate congestion.

"A shutdown of the pipeline would be easily accommodated and would not adversely affect the movement of other products that move on our railroad," Kent said. 

BNSF did not provide any numbers, unfortunately.

BNSF is tracked here but there has been little point in updating that site in the last several years. 

Pipeline overbuild in the Bakken? RBN Energy.

From an earlier post:

Buffett:

• BNSF? Best buy ever? How Berkshire Hathaway makes money, Investopedia; 
• BNSF Railway Berkshire's freight rail transportation business operates one of the largest systems in North America. BNSF Railway ships coal as well as consumer, industrial, and agricultural products.
• BNSF Railway's revenue fell 11.3% in 2020 to $20.9 billion as EBT fell 6.3% to $6.8 billion. Rail transport comprised only 9% of Berkshire's total revenue, but it generated over 25% of total EBT.
  

Something to think about:

• in the big scheme of things, BNSF and Union Pacific are two peas in a pod, as they say
• Berkshire Hathaway's EBITDA for the three months ended in December, 2020, was $49,364 million; its EBITDA for the trailing twelve months (TTM) ended in December, 2020, was $70,372 million
• 25% of $70 billion is $17.5 billion
  
• Union Pacific EBITDA for the quarter ending December 31, 2020 was $2.563B, a 3.61% decline year-over-year. Union Pacific EBITDA for the twelve months ending December 31, 2020, was $10.044B, a 6.74% decline year-over-year.

Bottom line: this is going to be an exciting year for Warren Buffett and Charlie Munger. It's sexy for the mainstream media to write about Apple and Tesla, but the real story this year might be rail. 

But there's more. Things are moving so fast, that "things" announced in 2020 (that was only last year -- only five months ago) seem like an eternity.

Exhibit A.

How many folks remember this story?

How big was this deal? Those who know this story know that this took decades to play out. 

So, here's the story from AGWeek, published November 23, 2020, less than six months ago:

The intermodal “ramp” in Minot, N.D., now moving containers with specialy agricultural specialty products, offers a new effort with BNSF-supported ownership to get something off the ground that had sputtered in an earlier attempt.

They’re ramping up the intermodal “ramp” at Minot, N.D., a key piece of what could become very important as an international launching pad for specialty crop growers and exporters.

Greg Oberting is chief owner and executive officer of Rail Modal Group, which operates throughout the U.S. It has an "independent affiliate," RMG Minot LLC.

Intermodal service refers to moving goods by two or more means of transportation. For instance, an intermodal container could be carried by truck across North Dakota to pick up a load of specialty crops, then taken back to Minot to be loaded on rail and taken to a port where the entire container will be moved off the rail and shipped to international destinations.

RMG launched the service in late October and shipped out its first train on Oct. 30. The concept had been worked on at Minot for many years, but no one previously has successfully done it.

Potential customers will typically be within 150 miles of the facility in north-central North Dakota, perhaps as far away as eastern Montana.

Farther than that, the customer will have choices at competing ramps. Those are located at Regina, Saskatchewan, 250 miles; Minneapolis, Minn., 500 miles; or Omaha, Neb., 650 miles.

The “vast majority” of the exports from Minot are likely to be agricultural, Oberting said. Products include distillers grains from Blue Flint Ethanol at Underwood, N.D., or pea flour from AGT Foods of Minot. They’ll load specialty grains — like peas or pulses — from large and small merchandisers. They’ve talked with Bobcat and others about moving some of their products.

For a state with only 800,000 folks or so, it certainly has a huge carbon footprint.  

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Berkshire Hathaway

In response to a reader's comment (see below), an interesting graphic from Yahoo!Finance: 

The graphic above comes from a Yahoo!Finance article as linked above. From that article, near the end;

Over the years, the two men have built an empire with a focus on the insurance business, and, more recently, a $36 billion investment in Apple (AAPL).

I would consider that a meme -- built an empire with a focus on the insurance business -- that may have been true years ago, but it lost it's "accuracy" after BRK bought BNSF. 

The graphic above is misleading in the fact that it is only the companies that BRK owns outright. For example, I don't see Apple in the graphic above and yet the Yahoo!Finance article mixes apples with oranges, when writing "built an empire with a focus on the insurance business, and, more recently, a $36 billion investment in Apple (AAPL)." 

Berkshire owns a number of insurance companies outright but does not own Apple, Inc (yet). This seems to be "sloppy" writing.