Railway Innovation - Why Buffett bought railway stocks. How Rail is green & innovative again.
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ANALYSIS, Melbourne –I loved rail as a kid. That trip from the small town I lived in to the ‘big smoke’ always took a 5 hour bus and a train trip.
And there was something inspiring about the rattle of that train.
Nostalgia aside, railways now are once again are on their way to leading the innovation zeitgeist in transport.
Railways - Back-to-the-Future Innovation
In cold hard fiscal terms railways have a bright future with some caveats.
Most importantly, trains have a very long-term future mainly due to the fact that trains carry more passengers with less environmental impact than planes.
According to some statistics the impact of rail travel is 10% of the impact of air travel.
Whilst calculation methods vary, we can agree travelling by rail in most situations has less environmental impact than air.
Rail also can, in many cases, also be more pleasant for short segments of 4-8 hours.
Travel by Rail - for short land segments
A few travel segments in my Global Innovation Review tours have been completed by rail, especially inside Europe.
When the Victorian State Government from Melbourne were in Paris, they used first-class Eurostar train to travel to London. And it makes sense.
Let’s do a little analysis of air travel:
- Allow 2 hours prior to take off at airport
- Allow 1 hour after touch-down
- Allow 1 hour to get to and from airport in most major cities both ways
- Risk of loss/inconvenience/stress due to airport security measures
My London to Edinburgh flight took 6.5 hours door-to-door with BA.
A train would have taken 6 hours, less security, less hassles (I lost some valuables in Edinburgh) and I could have had 4 hours of laptop working time (not 30-50 minutes).
Of course, luggage and final destination are part of a confluence of factors to be included in a full analysis of travellers rail-travel-choice reasons.
Washington DC to NYC takes the same time door-to-door approximately by rail and plane, and rail has the advantage of being city-centre to city-centre.
A colleague who has completed the rail journey has told me the Acela experience was more pleasant than American Eagle flights I took over the same segment in the USA.
The Economic explanation
Long-run a rational (that’s an economic assumption) traveller would in the majority of cases conclude he/she is better off travelling many journeys by rail, except for some distorting factors.
There is a more complete analysis, but in short; large factors like habit, prestige and perceptions, as well as small factors like frequent flyer points are a potent distorting force in behaviour of travellers.
Long-run mostly markets work their way to a state of rational consumption. Transport is no exception.
For years, most governments and corporations in most countries have been creating incentives that favour oil-powered road and air transport. If the incentives change, eventually, so does the behaviour.
Monetary cost is one incentive, but so is the opportunity cost and time cost, amongst others.
There is not full information on travel options and benefits in the market. Only a small percentage of people are aware of the benefits of rail over air.
But information asymmetry does not last long on such topics in this information content-driven age.
Which means trains will increasingly become important methods of transport again.
In short, railways are a 3-10 year growth story
Which is why Warren Buffett bought shares in railways.
Which proves the newest technology is not the point.
Long-run the product that delivers the best combination of benefits is the point.
And with the environment a potent factor along with perceived risk, rail will become relevant for passenger transport again.
Rail will in the medium-term become the winner for most continental travel, and air will dominate trans-continental travel for the long-term.
A possible winner may be TGV and it’s related fast-train companies & suppliers.
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Take care,
Christopher
Speaker. Author. Editor-In-Chief. Executive Director of Innovation, 2thinknow.
2 Responses to “Railway Innovation - Why Buffett bought railway stocks. How Rail is green & innovative again.”
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I think you are missing some valuable points. As rail transport has a lower environmental impact than air, so does the individual automobile have less of an impact over rail (all support processes included). Most rail transport is diesel-electric powered, and even electric-powered rail has inherent supply losses from the (usually organic fuel-fired) electric generation. Also, there is the inflexibility of rail travel. There is quite a different social acceptance factor in rail travel if you add in the additional time/aggravation/environmental impacts of taxi/shuttle transport from the rail head to your final destination. There is also the argument that humans generally experience less trauma from individualized (i.e., automobile/scooter/motorcycle) transport over any mass transport and that is the reason for the rise in individual transport in those countries where mass transport has historically been well established (”Why switch if the existing method is so good?”). I believe that what might happen in the near future is a shift to dedicated commerce roadways being operated in parallel to personal transportation roadways both to alleviate the congestion that truck traffic imposes (trucks by their nature cannot start/stop as quickly as personal transports), and as a way to generate more roadway tax revenues to keep both sets of roadways in better operating conditions. Ironically, these dedicated roadways may even use existing rail right-of-ways that are currently in disuse due to the (relatively) high maintenance of rail beds.
Nov 14th, 2008 at 12:09 pm
[…] The leaders in this are Europe or Asia. Warren Buffett purchased rail stocks last year. […]