The New Iron Horse

An oil crisis is also an opportunity. Perhaps Warren Buffett recognized that last November when he bought the Burlington Northern Santa Fe Railroad. When teaching a course titled, “History of American Transportation” at Emory University's Osher Center, I would introduce myself as a “ferroequinologist,” a student of the iron horse. Teaching takes a lot of research, and recent research has been quite revealing. We have long known that the United States is behind the rest of the world in passenger rail transportation. The exception might be in the Northeast — where there are numerous commuter lines and even the Acela high-speed Amtrak trains — and perhaps in California and Oregon, where the public supports environmentally cleaner processes that include use of new streetcar or “light-rail” systems and new commuter train services. In Portland, they even build their own streetcars.

But outside the Boston-Washington-Harrisburg corridor and a few isolated mining operations out west, America's seven or eight major railroads are totally dieselized. They run on oil. Much of that oil is burned delivering coal to power plants across the nation to produce electricity. The coal is burned, adding to the CO₂ in the atmosphere, thus making the environmental situation worse. In fact, it is a real crisis.

Being a crisis, it is also an opportunity. Let's look at the rest of the world: In Russia, manufacturers are shipping products from the Baltic Sea port of St. Petersburg, the Black Sea port of Odessa, and the Pacific Ocean port at Vladivostok, and marketing their goods all over the world. It is 5,771 miles from Moscow to Vladivostok on the Trans-Siberian Railway, and freight trains are running in both directions on 15 minute intervals. Every inch of the Trans-Siberian Railway is electrified. In fact, 48 percent of Russia's railroads are electrified, with power from hydroelectric dams. Russia has 53,000 railroad route miles, compared to the 140,000 in the U.S. China is third, with 15,000 miles under electric wires, nearly a third of their total 46,772 miles of railways.

Electric is perhaps the most efficient type of rail traction locomotion. (In diesel locomotives, the diesel engines simply produce electricity to run the motors that actually run the train.) In the U.S., there is a total of 1,011 miles of electrified railroad, and that includes 159 miles of those isolated mining railroads out west, such as the Black Mesa and Lake Powell in Arizona, which doesn't even connect to any other railroad.

Opportunity Is Calling

Anyone who has been to Europe knows that most of their rail lines, except for a few rural and mountain lines, are electrified and travel at speeds up to 250 miles per hour. Some 68 percent of Sweden's rails are electric. Even China has a high-speed maglev (magnetic levitation) line out of Shanghai to its airport. Many of our major cities still lack any rail service to their airports. Those that do find them very advantageous.

“Although capital improvements have been scaled back [by U.S. railroads during the Recession], the long-term outlook for rail forecasts substantial growth,” wrote Scott Lothes in the November 2009 issue of Trains. “Oil supplies will continue to decline and environmental concerns will continue to grow. Rail offers numerous advantages, but will require substantial improvements and radical new thinking, especially to reclaim short-haul, small-volume freight shipments from trucking.”

Warren Buffett obviously agrees. He noted that his new purchase, Burlington Northern Santa Fe (BNSF), has just opened a new 30-mile line in Montana to the Signal Peak Coal Mine near Roundup.

On Top of Gold Mines

A company for which I worked (and still do some contract work) built a new home office building in 1978. As the foundation was being prepared, they discovered that a Civil War-era gold mine had once existed on the property. The miner had followed a vein of gold-bearing quartz down into the ground. Then the vein stopped, and so did the miner. Had he moved over a few feet, the vein continued, discovered by the modern digging equipment. So the company really was sitting atop a gold mine.

Well, opportunity is banging on adjusters' doors again. There must be a dozen good ways to produce electricity aside from burning coal or oil. The oil may soon become scarce and too expensive to import. There's still plenty of coal, but a means of burning it cleanly needs to be found. There is wind power and solar power and hydroelectric, and folks are talking about tidal surge production. We've got scads of universities where our own and our imported geniuses are trying to find still other ways to make electricity. Ethanol is a great idea, but it takes almost as much energy to make it as it produces in energy, and in turn raises the cost of corn. Chemists are now fiddling around with algae as an option.

A Role for Adjusters

The new industries will also create new insurable exposures. The successful adjuster will need to be able to adjust to those “new” industries that were once the economic engine that pulled the American train. There will be a need for metal to build the electric transmission towers and the electric cables from rural — or underwater — electricity source to the cities. There will be a need for steel to build the “catenary” (the steel supports and wire) for electrified railroads.

There will also be a need for concrete for overpasses and underpasses and tunnels to keep the high-speed trains away from roadways. In addition, in urban and suburban areas, light rail will again share the boulevard with those new electric automobiles. There will be a need for new types of ceramics. Perhaps your 2018 Ford will be made of china rather than in China. After all, they make spacecraft heat shields from the stuff. Why not automobiles, or perhaps farm equipment?

What the new types of claims will involve remain to be seen. All of these changes will still be subject to the whims of nature. Damage may result from volcanic eruptions, earthquakes, tsunamis, hurricanes, tornados, blizzards, or floods, the same as they do now. However, unless the environmentalists convince us that we may already be too late to act, each of these disasters may be more severe than in the past. Think in terms of a Katrina every other year instead of just as a rare situation. What if the volcano that is Yellowstone National Park actually did explode again this century? After all, “volcanic eruption” is now a covered peril under most homeowners' forms. Do you know how to handle one of those claims? I'm not sure I do, and I write the textbooks on how to handle claims.

If there are fewer auto-accident claims to adjust, then adjusters must find other types of claims to resolve. More public transportation means more slip-and-fall claims. All the necessary construction for the new projects means more workers' compensation claims. Let's consider, for example, the number of injuries and lives lost in the building of Hoover Dam in the early 1930s.

Another new industry will involve relocation of water resources. That could necessitate pipelines or canals leading from where there is too much water to where there is not enough. But that may also mean transporting hazardous waste and chemicals that get on or into our food supply, so there is another potential source of claims. Somebody is out there right now handling all of those food product liability claims, and there's no reason it shouldn't be the 21st century adjuster.

One factor Warren Buffett may or may not have thought about in his railroad purchase was hazardous materials. The Union Pacific Railroad, one of our nation's oldest, has recently tried to get the Surface Transportation Board to allow it to pass the liability for handling tank cars of methyl-ethyl-god-knows-what to the shippers, because their liability, in the event of a train wreck and explosion or leakage of a poisonous gas, is horrific.

Golden Opportunities

To make matters worse, although many such tank cars pass through major cities with exposure to thousands, most of the travel is in rural areas served by only volunteer fire departments. According to Firehouse Magazine, volunteer fire departments are having difficulty recruiting new members, and the old ones are leaving. When it comes down to one old guy driving the fire truck to the scene of a burning truck or train wreck to watch it burn — the nearest hazmat team a hundred miles away — things are going to get bad. Remember that war mentioned at the beginning? Many of those volunteer firemen are also volunteer National Guard or Army Reservists, all of whom we need here.

If Russia can ship from Vladivostok, then we can ship to Vladivostok just as easily. So there's a new potential industry: more ships. We already build the world's best aircraft (no offense to Airbus intended), and the world has ever greater demand for those aircraft. We, however, gave up building ships when we sent our merchant marine industry packing. Let's bring it back. Opportunity requires it.