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Facts Still Do Not Justify Warren Buffett Fiction; Carloads Down 13.7% YoY, 18.2% Compared To 2007

Tyler Durden's picture




 

The latest AAR data is out and it is far from justifying Buffett's optimism in railroad traffic. Carloads this week were down 13.7% over one year, and 18.2% lower compared to 2007. In the ever important western section (so conveniently served by Burlington Northern) the decline is even more pronounced at 14.3% YoY. Year to Date total carloads are down an expected 18%. Maybe Warren's thinking is comparable to Steve Liesman's: from here things can only get better. Of course, unless they don't.

The full weekly report from AAR, which provides the cutest attempt at optimistic spin in its subtitle.

 

AAR Reports Rail Traffic Remains Down
Increases Seen in Four of 19 Commodity Groups

 

WASHINGTON, D.C., Nov. 5, 2009 — The
Association of American Railroads today said that freight rail traffic
remains down for the week ended Oct. 31, 2009. U.S. railroads reported
originating 275,439 carloads for the week, down 13.7 percent compared
with the same week in 2008 and down 18.2 percent from 2007. In order to
offer a complete picture of the progress in rail traffic, AAR will be
reporting 2009 weekly rail traffic with year over comparisons for both
2008 and 2007 going forward.

 

In the West, carloads were down 14.3 percent compared with the same week last year, and 18.3 percent compared with 2007. In the East, carloads were down 12.9 percent compared with 2008, and 18.0 percent compared with the same week in 2007.

 

Intermodal traffic totaled 203,860 trailers and containers, down 11.1 percent from a year ago and 15.5 percent
from 2007. Compared with the same week in 2008, container volume fell
5.4 percent and trailer volume dropped 32.3 percent. Compared with the
same week in 2007, container volume fell 8.9 percent and trailer volume
dropped 38.6 percent.

 

While 15 of the 19 carload freight commodity groups were down
compared with the same week last year, increases were seen in grain
mill products (9.9 percent), chemicals (3.6 percent), and waste and
scrap metal (.7 percent and nonmetallic minerals (.3 percent). Declines
in commodity groups ranged from 2.2 percent for the all other carloads
category to 55.6 percent for metallic ores.

 

Total volume on U.S. railroads for the week ending Oct. 31, 2009
was estimated at 31 billion ton-miles, down 12.7 percent compared with
the same week last year and 13.2 percent from 2007.

 

 

 

For the first 43 weeks of 2009, U.S. railroads reported
cumulative volume of 11,482,619 carloads, down 17.9 percent from 2008
and 18.3 percent from 2007; 8,173,640 trailers or containers, down 16.2
percent from 2008 and 18.6 percent from 2007, and total volume of an
estimated 1.23 trillion ton-miles, down 17 percent from 2008 and 17.1
percent from 2007.

 

Canadian railroads reported volume of 71,023 cars for the week,
down 8.7 percent from last year, and 42,869 trailers or containers,
down 12.2 percent from 2008. For the first 43 weeks of 2009, Canadian
railroads reported cumulative volume of 2,656,713 carloads, down 21.1
percent from last year, and 1,763,759 trailers or containers, down 15.8
percent.

 

Mexican railroads reported originated volume of 12,952 cars,
down 17.2 percent from the same week last year, and 7,087 trailers or
containers, down .5 percent. Cumulative volume on Mexican railroads for
the first 43 weeks of 2009 was reported as 494,437 carloads, down 11.9
percent from last year; and 231,525 trailers or containers, down 17.2
percent.

 

Combined North American rail volume for the first 43 weeks of
2009 on 13 reporting U.S., Canadian and Mexican railroads totaled
14,633,769 carloads, down 18.3 percent from last year, and 10,168,924
trailers and containers, down 16.2 percent from last year.


 

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Thu, 11/05/2009 - 21:03 | 121612 waterdog
waterdog's picture

Warren Buffet intends to be the sole carrier of western coal to the east coast beginning in 2012.

Fri, 11/06/2009 - 00:50 | 121847 Keyser Soze
Keyser Soze's picture

I think it's a bet on road transport becoming more expensive. What can replace rail? It's going to be boats and rail from here on.

Fri, 11/06/2009 - 04:47 | 121965 -273
-273's picture

Exactly, given the last 2 year's accelerating oil import decline, with year over year oil imports down 9.6% into America, this could turn out to be a very smart move by Buffett. He invested in a business that will certainly survive, and thrive, in an Oil starved America

Thu, 11/05/2009 - 21:03 | 121613 HEHEHE
HEHEHE's picture

Buffet = rail traffic as China exports = BDI

Thu, 11/05/2009 - 21:04 | 121614 LoneStarHog
LoneStarHog's picture

From Denninger's Forum Posted From Another Forum & Quite Interesting:

I couldn’t help but shake my head when I listened to the Muppets bay and croon over Buffett’s $100 per share bid for Burlington Northern. When Buffett stated that he was "buying America", he wasn’t being cute. The Wall Street media spin machine took it as a bullish omen but I will explain what Buffett’s purchase really means. I have told the story many many times how "one can never underestimate the replacement power of equities in an inflationary spiral" but the reality was that when I was taught that in the Inflationary late 70’s, the example used was actually none other than Burlington Northern. Railroads as a group are huge hidden asset plays because those rail lines have enormous land value and in many cases huge depots including highly-strategic real estate are located in major urban centres across the U.S.. If you add all the plant, equipment and other assets, what one actually buys is the ultimate inflation hedge. The "replacement value" is many times the $100/share offered by Buffett and if one is expecting an inflationary spiral, $100 looks cheap. Try replacing all that steel with 18% inflation and a collapsing currency.

Stated another way, does anyone think Buffett bought this R.R. in expectation of a disinflationary/deflationary outcome? If they do, I have a bank you can buy.

Thu, 11/05/2009 - 21:48 | 121673 reading
reading's picture

Geez, I think that's like almost what they said when Becky was oohing Warren on the phone all morning yesterday...NOT.  However, good points and definitely worth considering.  I guess that means we should all go all in on something...I'm heading for one of those hot robo plays.

Thu, 11/05/2009 - 23:58 | 121795 rekfhardy
rekfhardy's picture

You are dead on LoneStar, Buffett must expect the dollar to get cut in half over succeeding years, hopefullu 4 or more so few notice, which will make US coal, wheat, corn quite competitive to foreign buyers, what better way to move it to coast than BNI. This is a statement of belief that a weak dollar is the only way America can remain solvent, and BNI is a great way to play that. Be sure to bone up on Jim Rickards work in that regard..dh

Fri, 11/06/2009 - 00:40 | 121835 Anonymous
Anonymous's picture

Oil supply shock. Large gov't contracts. War materiel transport. Get out of us $. Hedge imminent inflation. Make fast purchase to dump currency ahead of instant devaluation?

All great reasons. Buying at premium means he has come to some knowledge that make sudden haste very necessary.

Otherwise buy on weakness, or another crash, or 6 months ago.

Buying at a perceived peak on strength? Came into some inside knowledge that makes it an offer to good to refuse.

Fri, 11/06/2009 - 00:57 | 121852 dhengineer
dhengineer's picture

In addition,  consider that the Weimar Republic in 1924 valued the new Mark based on land holdings (and gold), as did all of the former Soviet states when communism collapsed.  If the currency goes to essentially zero, and they have to come up with a new currency, ole Warren will be at the head of the line exchanging old scrip for new, based on all of this fabulous new real estate.

Thu, 11/05/2009 - 21:18 | 121633 KeyserSöze
KeyserSöze's picture

 Tyler Buffet bought to get "out of cash"...he knows the big reverse repo that will stick the tax payer with crap and then default on it when the crash comes...stealing from the people 101...the best thing the fed has been able to do since 1913...hang on folks it is going to get bumpy

Thu, 11/05/2009 - 21:27 | 121646 Anonymous
Anonymous's picture

RR are the poor mans mode of transport. Buffet wants to cover all his angle. He's just positioning himself to profit from Americans that it be inflation or deflation.

Thu, 11/05/2009 - 23:48 | 121787 Anonymous
Anonymous's picture

Burlington Northern has no passenger rail

Thu, 11/05/2009 - 21:40 | 121661 wstrub
wstrub's picture

He wants the assets (trading at a discount even here)  before the coming currency devaluation.  Cash is not king when purchasing power is getting eroded.

Thu, 11/05/2009 - 21:49 | 121674 Anonymous
Anonymous's picture

buffet's known for buying co's (under the cover of folksy 'wisdom') then jacking up prices drastically.

all those rails are just so many squid tentacles over which he'll charge whatever toll he chooses.

and over those tentacles he'll be leasing fiber optic and power distribution easements.

and yeah, cash is trash.

i wouldn't bet against him.

Thu, 11/05/2009 - 21:53 | 121680 mgarrett84
mgarrett84's picture

I get the investment on the timeframe he operates on.  The course of policy action is in part aimed at devaluing the currency.  The thoughts and hopes being this forcing a balancing in global trade.  Which means the US manufactures more and becomes more reliant on domestic energy supply. Agricultural exports pick up.  This would cause more use of rail.  Put that into  a view that 20 years from now corporations will still exist and the US economy will be functioning in some way  (the US won't look like it did in the 18th century and if it does so what if you made a bad investment).  With the dollar falling in the L-T, assets especially what is essentially a utility will become more valuable.   

 

Now the timing (price paid) and financing of the deal and its impact on BRK in the near-term may be a totally different story.  I won't even attempt to take a look into BRK's balance sheet.   

Thu, 11/05/2009 - 21:54 | 121682 lsbumblebee
lsbumblebee's picture

Sounds to me like he's betting on peak oil. I'm no fan of Buffet but I know he doesn't throw money away.

Thu, 11/05/2009 - 21:59 | 121685 Shiznit Diggity
Shiznit Diggity's picture

Rails are a peak oil play. In 10 years Buffet's ostensibly pricey purchase will look quite savvy.

Thu, 11/05/2009 - 22:49 | 121732 Anonymous
Anonymous's picture

As someone said elsewhere about Government Sachs, don't bet against Buffet. He may know something the unwashed don't, that is where Sitmulus 2.0 is likely to go. Don't be surprised to see a big public committment to railroad infrastructure, freight and hi-speed passenger. It makes practical sense for flexible energy modes, including electrical from any generation source, but don't discount Buffet's elite connectivity to the levers of power. After all that's what capitalism is all about right?

Fri, 11/06/2009 - 09:11 | 122024 HEHEHE
HEHEHE's picture

They bailed his @ss out on the American Express getting TARP funds.  People in this country need to wake up.  Berkshire and Goldman are two of the biggest stewards of the wealthy's wealth.  Who buys off Congress?  The wealthy.  Who does Congress protect?  The wealthy.

Thu, 11/05/2009 - 22:53 | 121734 Gordon_Gekko
Gordon_Gekko's picture

Look at it this way - at least the iron in the railroad cars will be worth more than the dollars he paid for them (sometime in the near future).

Thu, 11/05/2009 - 22:53 | 121735 Anonymous
Anonymous's picture

Why does Warren Buffet invest massive billions in rail? The pundits are at a loss. Well, here is the answer obvious to the student of history. Warren Buffet has been acting as an agent of the US government for decades. There can be only one reason for this massive investment: PREPARATION FOR WAR. But not a word from the press nor any media outlet. Like sheeple. these wall street gangsters and obama have stlolen 25 trillion. Now they will send the american sheeple to war.

Thu, 11/05/2009 - 22:56 | 121740 Anonymous
Anonymous's picture

Why does Warren Buffet invest massive billions in rail? The pundits are at a loss. Well, here is the answer obvious to the student of history. Warren Buffet has been acting as an agent of the US government for decades. There can be only one reason for this massive investment: PREPARATION FOR WAR. But not a word from the press nor any media outlet. Like sheeple. these wall street gangsters and obama have stlolen 25 trillion. Now they will send the american sheeple to war.

Thu, 11/05/2009 - 22:59 | 121745 omi
omi's picture

Economy walked off the cliff and the car loads down only almost 20%?

Give me a break.

Thu, 11/05/2009 - 23:07 | 121752 putbuyer
putbuyer's picture

There is an Obama connection to this that we do not know. Buffet is a dirty player and he has bit the apple. In time he will be remembered as a nobody.

Thu, 11/05/2009 - 23:13 | 121758 Anonymous
Anonymous's picture

Buffet is thinking 10 years down the line. The fact that business is so bad for the railroads right now is exactly why he's buying it. Car loadings are Buffet's favorite economic indicator, so I'm sure he's acquainted with the numbers. He's betting that a decade from now, the fundamentals will be better and his price will look cheap.

Thu, 11/05/2009 - 23:27 | 121761 Apocalypse Now
Apocalypse Now's picture

Coal is rumored to be the biggest beneficiary of the new cap and trade system.

I know that sounds crazy, since coal is not the normal alternative energy we think of that should be promoted.  Unfortunately the coal companies were the strongest lobby, natural gas was slow to engage the for hire representatives but are now trying to show up late and impact the legislation.

Why hasn't anyone mentioned which industries benefit the most from cap & trade.

This is a bet on cap and trade.  Perhaps it would include government subsidy benefits for new energy efficient GE locomotives that use coal with very little pollution emissions (little cost for new capital and very cheap travel costs)  So far, I think the war footing argument related to potential spikes in oil costs along with peak oil are the strongest arguments.  I don't think deflation/inflation are as relevant but the strategic land argument and involvement in power generation and optic cables along rail lines makes sense.  If you wanted to buy land (one of the best long term investments), this is a great play on strategic land that is not dependent on the weather (agricultural land).  What do you think on the cap & trade angle, I would like to get others thoughts on this?

Thu, 11/05/2009 - 23:56 | 121793 lsbumblebee
Fri, 11/06/2009 - 00:48 | 121846 3greenlights
3greenlights's picture

Maybe he just wanted his NetJets pilots to become train engineers...

Thu, 11/05/2009 - 23:27 | 121766 vreporter
vreporter's picture

This deal is not about Buffet's view on the railway business, at least for the medium term. This is about his legacy many years from now, when he departs.

He likes these kinds of "iron" businesses and there are very few opportunities to own them. By then he will look like a departing superstar.

Cap and Trade won't hurt!

Thu, 11/05/2009 - 23:35 | 121775 Anonymous
Anonymous's picture

Old men prefer quick thrills. That's my thought on timing...
-4yeah4

Thu, 11/05/2009 - 23:49 | 121788 jimbo
jimbo's picture
not sure this deal will play out with a uge roi, at least in his lifetime.   i can buy into the asset play, moat concept, etc. besides bnsf is a great organization, with excellent management, and infrastructure. you should see their ops center in texas. next century sci fi stuff. it makes nasa look like sesame street.   for sure, export traffic will post y-o-y increases in volume, maybe, with luck, and pricing power, even in dollar/mile revs, as well..   import traffic will be flat, perhaps lower. in this type of scenario, it will be difficult to raise dollar/mile revs on import side, regardless of pricing power. and, given that imports outweigh exports, y-o-y rev increases will not be that great till the usa starts consuming a lot more.   their intermodal business is strong, but it really is not much cheaper than trucking. they have a finite number of intermodal hubs, which necessitate substantial use of local trucking services to haul hubs to end user facilities. these short hauls are high cost per mile, negating much of the rail savings.   their primary container import clients are the major steam ship lines. don't think for a minute there will not be large scale bankruptcies here over the coming couple of years. they are all bleeding money. more govt handouts for them is a question mark. without it, will they survive? if not, think of the haircut bnsf/up will take on the writeoff.   also, their pension/union issues are a big unknown.....   to me, he made the expensive deal, only because it is 60/40% cash/stock, and with him owning 22-23% already, he keep 100% of their free cash flow for an effective 38% cost of market cap. gambling that the earnings accretion, reset of depreciation writeoffs, and any other strategic issues (coal, etc) will offset brk dilutuion.   i genuinely believe the old geezer when he said 100/sh was his max..maybe even a stretch for him.....this is not going to be a grand slam for him. with luck, an extra base hit.

 

Fri, 11/06/2009 - 02:52 | 121920 Anonymous
Anonymous's picture

If Panama canal shuts down, Buffet will be become the first trillionaere.

Fri, 11/06/2009 - 03:27 | 121935 morphizm
morphizm's picture

When it comes to Buffet, you have to think long-term not short-term gain. And this is a no-brainer: Kunstler has been talking over at Clusterfuck about the sad state of the rails during our Hummergasm, and how the foot will be on the other shoe after peak oil hits. All the other stuff is just frosting on the cake.

Fri, 11/06/2009 - 07:24 | 121989 Anonymous
Anonymous's picture

Railroads are lot like land....

There isn't but so much of it....

The only time a smart individual would buy a RR
is when the economy is obviously down....

One would be a fool to buy a RR when the economy is strong....

Buffett wins again....

Those that buy when the econ is strong have
efficiency in mind....ie innovation....

Diesel trains are going to be around....

Fri, 11/06/2009 - 11:27 | 122223 Anonymous
Anonymous's picture

The shut-down of the Panama canal would confirm my thesis that this is a bet on militarism and war. Only full spectrum militarism could justify buffets wager. Nothing else. If the economy grows at 5 % the next 10 years, his bet is still a loss. Preparation for war is the ONLY explanation. WW3 is near. General Suvonov, the premier USSr analysts, notes that Stalin mobilized nearly 1 million cargo loads in 1940 to prepare for his invasion and annihilation of europe. So we still have time to prepare for the onslaught.

Fri, 11/06/2009 - 11:41 | 122238 Anonymous
Anonymous's picture

The current numbers totally justify why this was a really intelligent purchase. Economists expect U.S. freight tonnage to rise 26% by 2020. Truck demand will increase more than rail, but intermodal is expected to see the largest growth of any surface transport segment.

Fri, 11/06/2009 - 15:47 | 122656 Anonymous
Anonymous's picture

Warren Buffet bought it because he KNOWS

Fri, 11/06/2009 - 15:48 | 122660 Anonymous
Anonymous's picture

Warren Buffet bought it because he KNOWS the gvt. is going to do something hugely beneficial for the company. What is that? We do not know yet. But we will know soon enough.

Fri, 11/06/2009 - 16:09 | 122694 Anonymous
Anonymous's picture

Check this article out that sums up Buffetts purchase.

http://www.marketoracle.co.uk/Article14793.html

Diversification and risk aversion is what it looks like. The above article paints even more worrisome picture. If things are so bad why did buffett buy railroad. Looks like somebody knows things are going to get nasty.

Fri, 11/06/2009 - 16:11 | 122697 Anonymous
Anonymous's picture

Check this article out that sums up Buffetts purchase.

http://www.marketoracle.co.uk/Article14793.html

Diversification and risk aversion is what it looks like. The above article paints even more worrisome picture. If things are so bad why did buffett buy railroad. Looks like somebody knows things are going to get nasty.

Fri, 11/06/2009 - 19:12 | 122972 Anonymous
Anonymous's picture

When old men party, it's for the quick thrill. After all, how long could his time horizon possibly be?
-u4yeah

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