Earlier this month, business media noted an announcement made by Warren Buffet’s Berkshire Hathaway indicating an intent to acquire nearly a 40 percent ownership in Pilot Travel Centers, an operator of 750 truck stops and service centers across the United States. According to media reports, privately-owned Pilot Travel Centers generates upwards of $20 billion in annual revenues and holds dominant market-share in its truck services market segment.
The deal calls for Berkshire to assume an initial 38.6 percent equity interest while the Haslam family, current owners of Pilot, will hold a 50.1 stake in the services firm. Berkshire has an additional option to acquire a 41 percent stake in 2023 as the Haslam family reduces its equity interests.
At the surface, this latest Berkshire deal follows the Buffet playbook of buying into very established family-owned businesses with solid financial performance track records in established markets. But, in today’s business environment, there are often other interests at-play, those related to strategic market or industry shifts.
An obvious question on the minds of our Supply Chain Matters readers would be why invest in a truck stop operator, especially when technology is on the verge of one-day coming-up with autonomous driving trucks.
In 2009, when Berkshire acquired the Burlington Northern Sant Fe (BNSF) railroad for $26 billion, similar types of questions were raised- why invest so much in a railroad? This Editor would readily admit as to scratching the head as to why? Mr. Buffet was quite coy in responding to press interviews, not to tip his hand in what Berkshire’s real motivations had been.
The answer became rather obvious several years later as the BNSF became more strategically positioned to leverage west to east transportation needs in both inter-modal ocean containers as well as other commodities including crude oil shipments. Vast new reserves of crude oil extracted from the Bakken formation in North Dakota and Montana became the boom of the oil and gas industry in the United States. Because crude pipeline capacity was limited or non-existent in this region, suddenly there was a booming need for crude by rail shipments to supply major refineries located near Gulf of Mexico ports. In a 2013 Bloomberg article, BNSF CEO Matt Rose was quoted as indicating: “We’re the 1,000-pound gorilla in the oil markets”.
From a business perspective, taking maximum advantage of the void in moving crude by rail from the Bakken to Gulf coast refineries also offset BNSF business declines in previously moving coal. BNSF also experienced double-digit volume increases in moving chemical carloads during this same U.S. shale exploration period, which was another byproduct of the new crude oil discoveries.
Once again, readers can pose the question- why invest in truck stops when the strategic long-term prognosis on fossil-fuel powered rigs operated by thousands of truck drivers looks to be dubious?
Supply Chain Matters submits that Mr. Buffet’s associates often have strategic intent built-in to major investment decisions beyond the public explanations. For instance, autonomous operated tractor-trailer units might be deployed on long interstate highways while local delivery vehicles, operated by human assistance make deliveries to local markets and major cities. Indeed, if alternative energy fueled and operated cars and trucks take to the U.S. landscape in larger volumes, there becomes a need for a different type of roadside services, that being battery, CNG or hydrogen recharging stations, exchange depots and electronics service centers. Vehicles will require software and technology driven services. In the Tesla Motors model, cars can be serviced along the path of your journey without the need to stop at an auto or truck dealership. Service crews will have IoT enabled on-board operational performance diagnostics data with alerts as to components that will need to be serviced or replaced.
Envision the evolution of the traditional truck stop to a new form of travel plaza that serves as an electronics and alternative fuel service center for both cars and trucks. Imagine strategically placed real estate adjacent to major interstate highways serving as the virtual distribution center for timely online last-mile delivery.
Perhaps all of the above are the vision of Berkshire and the Oracle of Omaha himself, if not other investors. Only time will tell the eventual strategy.
Bob Ferrari
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