Wednesday, October 10, 2007

Keep On Truckin’

Conventional wisdom says the only way to invest in transportation these days is via the railroads. With Berkshire Hathaway buying Burlington Northern (BNI) shares by the trainload, who am I to argue? Warren Buffett obviously sees railroads as a “toll bridge”. There are only a handful of competitors and a host of nearly captive customers. If you want to ship coal, you’ll need a railroad and the choices are limited.

By contrast, the trucking industry is an extremely fragmented industry. Customers have almost unlimited choices from large integrated carriers to a guy in a pickup. The industry has often been characterized by excess capacity and irrational pricing. Let’s not forget that rising fuel costs disproportionately penalize truckers. Combine that with worries about the global economy and you have an industry that investors avoid.

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