An Open Letter to Warren Buffett

By: Michael Sussman, President & Founder, OnTrackAmerica, Inc.

Mr. Buffet, congratulations on your purchase of the BNSF Railway. It is a significant and welcome investment in North America’s rail transportation system. It also provides a timely opening to address a systemic, long-standing problem—the incongruence between our investment of capital, energy, and land for freight and passenger transportation and the inherent value of railroads to any well-functioning modern society.

Only by understanding this shortcoming and seizing the opportunity to transform its causes can we bring North America out of its economic malaise and environmental jeopardy. If we act wisely, your acquisition will become a watershed moment.

But first we must evolve beyond moving money simply to where the investor receives the highest return on investment, and adopt a new principle—moving capital into an industry, system, or region in a way that maximizes the benefit of that capital to that system. Out of that shared benefit, the investor receives their return.

Just a few more words, but they make all the difference in the depth of thinking, the sustainability of the system, and the long-term profitability of serving that market.

Even while new capital enters the rail industry, our network of freight lines is shrinking. Much like with the deforestation of the Amazon rainforest, rational justifications abound for this depletion of resources. Every year, the U.S. abandons enough rail lines to stretch from Boston, MA, to Richmond, VA. Since 1990, 20% of our system has vanished.

Branch line segments are deemed “uneconomic” after years of downward pressure from too narrow an economic lens and an incomplete policy perspective. The wider view of the larger system and the longer term is missing.

Your own reflections about the BNSF purchase have been well publicized. Your commitment to the country, to the environment, and to the shareholders of BNSF and Berkshire Hathaway has come shining through. One remark, however, while completely understandable for its business logic, speaks to what is driving investment capital toward a diminished contribution to society. The New York Times quoted you as saying, “From my standpoint, it’s a lot easier to make one $32 billion investment than ten $3 billion investments.”

Yes, it is easier to move capital in larger quantities, but the world’s small and midsized businesses and communities need access to capital (and access to railroads) if we are going to sustain the systems that warrant the larger transactions. Unfortunately, in the everyday world of business and finance, it is still said that “it takes as much effort to do a small deal as it does to do a large deal, so why do the small ones?” While there are many facets to the decrease in urban and rural freight and passenger rail systems over the last century, this maxim is one of the least examined. The resulting gap in capital and attention is a primary contributor to our continuing abandonment of rail lines, leaving more and more cities, towns, and rural populations with a major challenge to revitalization, congestion relief, and job creation.

Much of the energy within the logistics industry and major railroads is directed toward the consolidation of freight between major terminals along high-volume corridors. While this contributes to transportation efficiency, it nonetheless fosters a devastating increase in regional truck traffic where we can least afford it—on the local roads and highways of small towns and large metropolitan regions across the continent that are increasingly suffering from congestion and air pollution.

Pennsylvania, my state, has become a hotbed of warehousing and distribution facilities built, alarmingly, not only “truck out” to cover the Baltimore-to-Boston market, but also “truck in.” Consequently, more and more goods carried long-haul by the railroads are unloaded in large intermodal terminals in small towns, instead of being delivered directly via branch line railroads.

Just last week, in your home state of Nebraska, two articles in The Chadron Record showcased yet another version of this problem. One described a bulk loading facility for grain being built to consolidate shipments from small-town elevators around the region. Volume pricing is designed to redirect the grain movements from existing rail lines onto trucks traveling on local roads. The second article relates county residents’ complaints about deplorable road and bridge conditions causing serious vehicle breakdowns, with the county out of funding for gravel and road repair. $14.5 million for the new grain facility is being provided by federal stimulus funding, while the county’s budget struggles deepen. This can’t be what the American public expects from its tax dollars.

We are facing a systemwide drive toward consolidation fueled by the largest logistics and transportation providers—as well as by the financial community—which all thrive on bigger transactions. As a result, many more branch lines are about to be pushed into abandonment, even while state and local governments spend millions in futile attempts to preserve them. This is not a healthy prescription for America’s long-term economic vitality.

As C.K. Prahalad documents in Fortune at the Bottom of the Pyramid, those companies around the world that serve the large market of smaller individual customers contribute to thriving communities and enjoy significant profits. Intermodal and unit train movements of high-volume freight can serve the continent well if parallel attention is dedicated to local, carload, short-haul, and direct rail service to small and large shippers alike.

Mr. Buffet, we invite you to study our work at OnTrackAmerica and to collaborate with us toward building a more profitable rail system that supports the best interests of the continent by serving businesses of all sizes and as many communities as possible.

About Michael Sussman and OnTrackAmerica

OnTrackAmerica, a 501c3 nonprofit transportation consultancy, is founded on fifteen years of research and dialogue with stakeholders throughout industry, government, and academia. We have promoted a bold, yet pragmatic vision for advancing transportation efficiency through thousands of individual conversations and numerous multi-stakeholder summits. During this time, founder Michael Sussman through his company Strategic Rail Finance has coordinated financing in 23 states, particularly for branch railroads that previously suffered from underinvestment. Mr. Sussman's commitment to maximizing the transportation industry's contribution to economic vitality and livable communities has led to the creation of OnTrackAmerica. Visit www.ontrackamerica.org for more information.