Is Buffett making the right bet on trucking?

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His investment in Pilot Flying J indicates his belief in the future of drivers

Commentary

The concept of driverless trucks has recently jostled the transportation industry, as employees from all sectors debate potential economic turmoil in the foreseeable future.  However, truck drivers everywhere may be relieved to discover that world-renowned business tycoon, Warren Buffett, is betting a fortune on their livelihoods, and sees no need to worry about an impending AI driver revolution.

We hope he is correct, as Buffett and his legendary holding company, Berkshire Hathaway, recently acquired a 38.6% stake in North America’s largest truck stop chain, Pilot Flying J.  Furthermore, Buffett and his associates drove home their confidence in the popular rest stop chain by committing to acquire another 41.4% in company ownership by 2023. 

In addition to his holdings in Pilot Flying J, Buffett made a major $35 billion acquisition in Burlington Northern Santa Fe Corp. Railroad in 2009, and Berkshire Hathaway has wholly owned GEICO for quite some time.  Through these investments, Buffett has made it clear that he does not envision profits in driverless transport any time soon.

Despite all the hype surrounding the forthcoming transformation of the transport industry through driverless technology, Buffett believes that people’s fears, hopes and concerns are just that – unfounded hyperbole. In Buffett’s mind, driverless trucks are a long way from being market ready, and the economic, legal, infrastructure, and political roadblocks presented by such technology are far greater than analysts will lend credence to. In the meantime, he believes in the vast profits that are still attainable in traditional transportation services, and their affiliated service-based businesses. 

This is a bold prediction on Buffett’s part as the advent of AI drivers, which he is betting so heavily against, could spell financial disaster for him. Such a paradigm shift in the industry, at this point in time, would undermine Berkshire’s numerous, lofty investments in service companies. The eradication of human truck drivers would render traditional transport service providers, such as Pilot Flying J, obsolete.  Still, at 750 locations across the continent and more than $20 billion dollars in revenue, Buffett’s bet on Pilot Flying J may have some sound logic to it. 

Factors in Support of Buffett’s Bet

No matter how preposterous Warren Buffett’s confidence in Flying Pilot J may seem, the fact is that few people are in a position to challenge the wisdom of a man nicknamed “the Oracle of Omaha.” Buffett’s countless successes, spanning decades of investing and financial management, have proven his ability to accurately predict long-term financial trends. While reputation alone is not enough to control a global market, the simple truth is that Buffett is rarely wrong. In fact, it is through Buffett’s guidance that Berkshire Hathaway skyrocketed into its position as the third largest publicly held company in the world. For almost anyone, a vote of financial support from Berkshire Hathaway nearly guarantees long-term success.

However, investors have not built the trust they so readily lend to Buffet, and his seemingly illogical predictions about the transport industry, on his reputation alone. Indeed, a myriad of minor changes are currently abounding behind the scenes, and they could spell tremendous success for businesses like Pilot Flying J. For one, a government mandate for the use of electronic logging devices will come into effect on Dec. 18, in an effort to ensure driver compliance with the limits set on hours of service. The mandate will, many believe, reduce the amount of time drivers spend actually driving, and will likely result in more frequent rest stops as well as, hopefully, more revenue for Pilot Flying J.

Furthermore, as Buffett frequently points out, analysts often neglect to consider the hurdles in infrastructure, legality, economics and politics that will need to be overcome when autonomous vehicles are finally market ready. Technicians will need to engineer everything on the roads, including traffic lights, signals, signs and vehicle-to-vehicle interactions, to interact harmoniously. Accordingly, as companies and consumers add more driverless vehicles to the mix, the entire system will become exponentially more complex. In essence, even when the AI technology is developed, we can still expect several years of delays before human drivers are phased out.

Speaking of AI technology, actually developing it to the point of market readiness is likely a much lengthier process than people are crediting it for, as far as Buffett is concerned. This is unsurprising when one considers that each small step forward in driverless technology will require advances in sensing and AI that are multitudes more significant than those prior. It is likely that the small step needed to reach market readiness could take as long to bridge as all of the previous research combined.

Finally, Buffett’s overarching realism about technological advances plays a large part in his predictions.  Buffett is not a dismissive fool in regards to AI; he knows that it will some day change the face of all global markets for the better. However, he is far more subdued in his excitement, as he anticipates decades of continued development to reach that point, rather than the few years that some advents of AI may suggest. 

In the meantime, the transport industry remains as relevant as ever before, and equally as profitable now as it has been in the past. Consequently, investments in traditional transport services, even in the long term, are still a safe financial bet. Transportation management systems, much like Berkshire Hathaway, have a stellar track record of steady profits and proven ROI. Pilot Flying J in particular boasts an exemplary business model and an aggressive, yet sensible, growth strategy that any rational investor could safely bank on.

Why Buffett’s Wager Could Spell Financial Disaster

Though betting against the Oracle of Omaha is rarely a wise choice, one can’t help but question the credibility of this particular Buffet prediction when considering the recent buzz around driverless truck technology.

The most damning conviction against Buffett’s predictions about AI is his aversion to technology in general. At 83 years old, Buffett is as reputable for his fervent technophobia as he is for his astounding business acumen. Buffett is not infallible, and his aversion to tech has led his investing astray before. A prominent example is when he dismissed up and comer Jeff Bezos, and his now internationally renowned online e-commerce platform, Amazon. Berkshire Hathaway has shied away from the tech market until recently, despite its rapid and steady gains in profit since the early 2000s. Considering this, it would not be unwise to heed predictions on technological matters with a healthy amount of caution and skepticism.

Unsurprisingly, Buffett’s antipathy towards tech dismisses him as an authority on AI’s current stance in the marketplace. Driverless vehicles have been a priority research topic of the world’s brightest engineers for decades now, and billions of dollars have been invested into expediting the development of this technology. Considering the analysts’ majority consensus of a future dominated by rapid and long-term growth in AI, it is not unreasonable to opine that AI drivers are closer to reality than Buffett would like to believe. Tech-savvy transport companies have already piloted autonomous vehicles in commercial deliveries and trans-continental journeys with promising results. 

Buffett himself has acknowledged that the advent of AI could spell disaster for his investment portfolio, as improved safety margins would slash insurance premiums for Berkshire Hathaway’s wholly owned subsidiary, GEICO. In addition, the economic instability generated by the AI revolution would negatively impact business overall. While Buffett firmly believes that AI will be a moot issue in the next decade, he also confesses that he would not be surprised to see large scale implementation within the next 20 years or sooner, making any long-term investments a risky proposition.

Finally, technological influences beyond the world of AI have already begun to take their toll on Buffett’s investments in transportation. Fuel efficiency has been universally improving in all consumer and commercial vehicles, thereby reducing the overall amount of fueling that transport companies need to finance, and subsequently cutting into the profits of refueling stations like Pilot Flying J. Diesel has already sunk into the lowest portion of Pilot Flying J’s total revenue, and the losses from fuel sales largely played into the $10 billion decrease in total revenue experienced by the truck stop chain in the years following 2012.

How Will It All Pan Out for the Industry?

If Buffett’s seemingly mystical powers as a financial seer hold true, then his gamble assures that truckers will remain employed and thriving well into the foreseeable future. So long as AI remains in the distant horizon, employees of the transportation industry will remain unshaken by a damning wave of driverless transport vehicles, and generous increases in revenue among the industry will likely continue. In turn, this gamble will prove to be one of Berkshire Hathaway’s most fruitful endeavours, and will serve to further solidify Warren Buffett’s already near-flawless record as an investment guru.

However, if Buffett’s predictions turn out to be off the mark, and AI makes an unexpected arrival within the next few years, disaster could ensue for a narrow selection of Berkshire’s investments, and their recent acquisition of Pilot Flying J in particular. Without human drivers, the transport industry will no longer be in need of rest stops, food services, or any other human amenities, making truck stops like Pilot Flying J’s obsolete. Furthermore, the significant cost reductions that ensue from the advent of AI transport will undermine Berkshire’s investments in Burlington Northern Santa Fe Corp. Railroad and GEICO. This is not to mention the significant political, legal, and infrastructural destabilization that will ensue. 

Still, Buffett is aware of the fact that, although an AI revolution would be dreadful for business, it would be an excellent step forward for humanity. It appears that he is at peace with the potential for failure in this sector, and with the notion that something wonderful is bound to arise from either outcome. However, as always, the variables at play are too numerous to count, and the future remains inherently unpredictable. Only time will tell whether the Oracle of Omaha is still all knowing, and what effects the AI driver revolution may have on the transportation industry and its dedicated employees.