Buffett wants to untie the Chicago rail knot

By Laurie Bennett

February 10, 2010 at 1:17pm

In the network that is America’s rail freight system, Chicago is a chokepoint.

As Bloomberg notes today: “Chicago, whose railroads made it hog butcher for the world a century ago, is a tangle of bottlenecks where a quarter of the nation’s rail freight stalls while trying to navigate the city.”

The Wall Street Journal reported last year that rail traffic through Chicago was so congested that freight was sometimes unloaded from trains on one side of the city, driven across town on trucks and reloaded on other trains.

Warren Buffett obviously believes there’s an answer to the problem, or he wouldn’t be bidding $26 billion for Burlington Northern Santa Fe Corp. His offer is up for shareholder approval tomorrow.

Chicago rail hub
Chicago rail hub

Bloomberg notes that the California Public Employees’ Retirement System may provide a partial solution, by investing in two or three rail yards outside the city. The first, a Burlington Northern facility, opened in 2002. The second, a Union Pacific yard, is set to begin operations in September. Calpers is negotiating a possible third yard.

Buffett toured the new Burlington Northern yard before making his purchase offer for the company.

He and good buddy Bill Gates are both believers in railroads. The Gates Foundation and Gates’ personal investment arm, Cascade Investment, are investors in Canadian National.

Burlington Northern and Canadian National’s U.S. operations, along with other Class 1 railroads, account for 93 percent of the freight revenues in the American rail freight industry. Also included in this group:

  • CSX Transportation
  • Norfolk Southern
  • Union Pacific
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