Challenges The Railroad Sector Faces

Summary

  • Railroads are considered the pulse of the economy and are essential in transporting goods across the continent.
  • Some challenges the sector faces are unique and will eventually be overcome as the economy evolves.
  • But some challenges will always persist, and industry consolidation is on the horizon to overcome them.

Railroads are considered the pulse of the economy. They transport goods across continents and are an essential lifeline for economic systems. It is no wonder that super-investors, such as Warren Buffett and Bill Gates, are big fans of the industry. While the bullish aspect is highlighted in most articles, and I personally remain bullish overall, I wanted to explore and highlight the challenges the industry faces.

In the past, I have compiled individual, detailed stock analyses of the major railroad operators in North America, including Union Pacific Corp. (NYSE:UNP), Canadian National Railway Co. (NYSE:CNI), CSX Corp. (NYSE:CSX), Canadian Pacific Railway Ltd. (NYSE:CP), Norfolk Southern Corp. (NYSE:NSC), and Kansas City Southern Inc. (NYSE:KSU). In addition, there is Burlington Northern Santa Fe, which previously traded under the stock ticker BNSF, but the company was acquired and taken private by Buffett’s Berkshire Hathaway (BRK.A, BRK.B).

Caveat: Before I get into the details of this sector’s challenges, I would like to highlight that this is by no means a recommendation to short these stocks. Remember, every investment carries risk, and all I am trying to do with this article is highlight the existing risks amidst current market conditions, during this part of the economic cycle. These conditions may disappear in due time as the economy goes through its ups and downs.

My detailed stock analyses for each of the aforementioned companies can be found here: