- Rick Wilking/Reuters
Railroads are having a tough go of it, and Warren Buffett doesn’t think it’s going to get any better.
“Car-loadings throughout the industry are down this year,” said Buffett at his company Berkshire Hathaway’s annual meeting Saturday.
Buffett went on to say that the industry is facing a tough time and probably won’t recover for “the balance of the year.”
Buffett has called total carloads his “desert island” indicator of how the total economy is doing, but based on this the US economic outlook is rough.
Carloads, or the number of individual cars moved along the tracks, have been tumbling for over a year as production of materials that railroads usually ship have been curtailed.
Buffett’s Berkshire Hathaway is the owner of Burlington Northern Santa Fe railroad, which it purchased in total for $26 billion in 2009. BNSF is one of the largest railroad networks in the US.
The biggest of these has been coal, which makes up roughly a fifth of all carloads. The decline in coal shipments has been precipitous and it doesn’t appear to be turning around any time soon. Additionally other energy materials, including oil, and have hit the railroads big time.
Buffett later acknowledged that the coal shift, which he said made up “about 20% of revenues”, is “secular” and probably won’t be coming back. He also expects BNSF is never going to make as much from coal again.
Total carloads, as measured by the American Association of Railroads, is also off to its worst start to the year since at least 2013. The measure is down 14.3% for the first 16 weeks of the year from the same period in 2015.
- American Association of Railroads
Additionally, Buffett said he does not expect BNSF to make as much this year as last, but said it is still a sound investment that he is glad to own.
Add all that up and it looks grim for Buffett’s favorite indicator.