In the transportation business, the primary concern has been fuel costs for the past two years. This fate has changed. With a renewed focus on volume strength (level of material shipped around the country) in this depleting macroeconomic environment, many of the same rails that saw buying momentum from the 2008 commodity spike are being absolutely de-railed by renewed concerns amid collapsing volumes. While the major railroad companies have been able to beat expectations for the year, is there any reason to be optimistic going forward?

Every week, the Association of American Railroads (AAR) releases updated volume trends in the form of a weekly carload report. While many of the readings have been sporadic (to say the least), the overall theme is of disappointment. Most recently, on December 11th, the AAR announced that carload freight was down 8.5 percent from the same week in 2007, with intermodal shipments bucking the downward trend at 9.8 percent in the red. This comes somewhat as a surprise from companies that were, for the most part, bullish on the future of volumes from just under a month ago. Clearly, the global slowdown is putting downward pressure on carloads… but let’s not panic; to this date, shipments are only down 1.5 percent from last year’s period.

Warren Buffett’s Big Bet

With new positions from Berkshire Hathaway revealed on Monday, December 15th, the stock that has gotten a large share of Warren Buffet’s attention continues to be in the rails with Burlington Northern (BNI: 76.47, 0.00 (0.00%)). Last week, Buffett used the weakness as an opportunity to add an extra 2.2 million shares through fresh put option contracts. After this most recent spree, Berkshire owns about 20% of Burlington, on top of strong positions in competing rails Union Pacific (UNP: 48.79, 0.00 (0.00%)) and Norfolk Southern (NSC: 47.95, 0.00 (0.00%)). Perhaps the stock market guru senses a future opportunity that other investors are simply not accounting for to this date.

Is the Volume Crash Over-Hyped?

With the shares of leading railroad firms trading at multi-year lows, it would seem that these companies have been unjustifiably brought down by a commodity crash and intensifying production fears.