Can local investors help rejuvenate the railway industry by thinking like American billionaire, Warren Buffet?
Infamous American philanthropist and business mogul, Warren Edward Buffett, is considered one of the most successful investors of our time. He has a net worth of approximately USD87.5 billion, making him one of the wealthiest people in the world. However, many might not recognise that nearly a decade ago, Buffet took a big bet on freight rail. A greatly beneficial decision as Chairman and CEO of Berkshire Hathaway (BH), contributing over 20% of its income annually.
In 2009, Berkshire paid around USD26 billion to purchase Burlington Northern Santa Fe (BNSF) Railways. BNSF is a vertically integrated freight railway, operating in 28 states in central and western United States and three Canadian Provinces. The purchase was strategic, the timing masterful and execution flawless.
The transaction was announced five months after the official end of the US Recession, allowing them to grow traffic steadily and optimise costs. Profitability increased, creating cash flow from operations to increase by over 110% in 2015.
An African case for change
Could local investors have a similar success story and reinvigorate one of the oldest industries in Africa? Many might not be optimistic. Unfortunately, African railways have not enjoyed favourable commentary over the past few years.
Here are the three most inhibiting shortcomings to an efficient industry:
Freight viable to be moved by rail cannot access it (poor communication platforms, legacy processes & limited booking capability)
No independent mechanism for transparent, multi-operator, demand-based rail freight rate pricing
Limited or no scheduled trains reduces comfort and predictability (not knowing when it will move impacts business planning).
The result is a fragmented industry with high incidence of rail substitution by road hauling, low rail asset utilisation, empty rail hauls, reduced schedules and limited capital available for replenishment or investment planning.
How to address these systemic shortcomings?
A digital rail freight exchange, connecting a multitude of shippers (buyers) and operators (sellers) across the region, holds much promise. An independent aggregator platform (e.g. Airbnb, Uber) will enable scalable access to rail assets efficiently, leveraging demand-based data to inform transparent pricing and scheduling, with ease of transacting securely to increase freight bookings.
Yet, this has not yet been introduced to help struggling rail operators or frustrated shippers. As founder of a Freight Open Exchange (powered by EmptyTrips), rail cargo is considered an unexplored and underestimated opportunity for digital disruption. One I’m willing to bet on.
Originally published via >> https://bizconnect.standardbank.co.za/sector-news/transport/‘uberising’-rail-should-we-think-like-warren-buffet.aspx