Union Pacific Corporation (UNP), CSX Corporation (CSX): Will Buffett’s Big Bet on Railroads Pay off?

For instance, fourth-quarter coal volumes at CSX Corporation (NYSE:CSX) and Norfolk Southern Corp. (NYSE:NSC) declined 19% and 13.2%, respectively, from year-ago levels, dragging coal revenues down 18% at CSX Corporation (NYSE:CSX)and 23% at Norfolk Southern Corp. (NYSE:NSC).

Potential threats and final thoughts
While some suggest that the massive pipeline build out currently under way in the U.S. poses a threat to railways’ crude shipment volumes, executives at Union Pacific Corporation (NYSE:UNP) and BNSF remain largely undeterred.

Union Pacific Corporation (NYSE:UNP)’s CEO John Koraleski expressed confidence that energy companies would continue to rely on rail even after new pipelines become operational, citing rail’s flexibility, consistency, reliability, and speed to market as driving factors. Indeed, several U.S. refiners have already invested heavily in new rail terminals and tank cars.

For instance, Phillips 66 last year ordered 2,000 rail cars to ship crude from North Dakota’s Bakken Shale to its refineries along the U.S. east and west coasts. And last week, the company announced plans to build a crude oil unloading facility at its Ferndale, Wash., refinery, which will allow the plant to receive oil shipped via rail.

Similarly, Valero Energy Corporation (NYSE:VLO) announced earlier this year that it is planning to purchase 2,000 railcars to boost rail shipments to its refineries. It also unveiled plans to construct a new crude oil “topper” unit at its 90,000 barrels-per-day Houston refinery, which will help it process more light crude oil.

Judging by the millions of dollars these and other refiners have ploughed into new rail-unloading facilities and tank cars, they almost certainly share Union Pacific Corporation (NYSE:UNP) and BNSF’s optimism about the future of crude transport via rail. Pipelines be warned: Rail’s not going down without a fight.

The article Will Buffett’s Big Bet on Railroads Pay off? originally appeared on Fool.com.

Motley Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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