Creating a Culture of Little Brother Surveillance or Systems Thinking?

Forecast & Outlook:  The principles of ‘situational awareness’ based on perception, comprehensive and projection might soon support a wide range of applications that reach far beyond military operations and crisis response.   It is a user and outcomes-centric systems approach that could integrate anticipated advances in mobility, ‘smart’ infrastructure, learning systems, policy-making and business intelligence.

Situational Awareness systems might have what it takes to create demand for integrating a wide range of emerging disruptive technologies that include: low cost sensors, IT architecture (network/virtualization), video, robotic vision, gaming, 3D/geospatial modeling, physical and virtual augmentation, autonomous systems, simulation software, location based service, social web lifestreams (by activity/sentiment), and expert software learning systems.  Yes, this is a grab bag of buzzwords (forgive me!) but Situational Awareness (’dashboard’) platforms will require significant integration to make it useful for users in a networked world.

Managing Expectations & Changing Assumptions:
From Pilots to Drivers to Politicians to Businesses to Learners
Situational awareness will certainly raise red flags of ‘Big & Little Brother‘ by professional and part time conspiracy theorists, but as it becomes more understood and applied by individuals, I believe it will cultivate our capacity for increased awareness, mindfulness, and focus in an age of information distraction.  It will force learners to expand their collection of inputs, selectively identify their filters used in synthesizing and sense-making.  And help to mainstream systems thinking and the imperative of understanding structure, relationships and feedback loops in a globally interdependent world.

Yes, this is my wishful thinking!!  But we are in fact seeing a mainstream cultural transition between the ‘anonymous web‘ (Nobody knows I’m a dog!) and a more ‘social web‘ (’Most people know I’m a dog)!   Why shouldn’t web users continue to evolve alongside the web as it enters its next phase of being embedded inside the physical world?

To become as mainstream as today’s ‘social web‘ behavior and expectations, situational awareness (SA) systems will have to stretch beyond historical and current day applications that lead to potential confusion that it might be just a code word for advanced ’surveillance’.  And I am certain that more accessible concepts like ‘dashboards’ will emerge to properly frame and engage mainstream world!

Situational awareness is most commonly divided into three stages of awareness and behavior that allow us to see wider, deeper and further:

• Level 1 – perception of elements, relationships and structure in a given environment
• Level 2 – comprehension of the real-time situation
• Level 3 – projection and anticipation of possible outcomes into the future

The historical SA paradigm of perception, comprehension and projection is most familiar to military pilots (”lose sight, lose fight“) engaged in training and combat based situations.  In the recent years military leaders have extended SA approaches from pilot training to field troops navigating a combat theater of small networks distributed across remote rural regions and embedded inside challenging urban environments.   SA principles have also been embraced by crisis response teams seeking to create an information architecture for relaying real-time information across a temporarily disabled system.

Situational Awareness is the ultimate user-focused experience layer for infrastructure assessment and utilization.  Now what happens when we expand our definition of infrastructure to engage users and where  might SA principles be applied?  How might we imagine the positive decentralized benefits of situational awareness in non-military applications?

Six Areas to Explore:

1. Driving/’Connected Cars’
2. Political Transparency / ‘Civicware’
3. Geospatial / Real-time for Policy-making and Public Safety
4. Infrastructure Management
5. Learning Systems
6. Business Intelligence

#1 ‘Connected Cars’, Smarter Drivers
The most likely near-term application of situation awareness systems will experienced inside our cars! Instead of engaging military pilots, we will engage civilian drivers to increase the safety and flow of our roadways!

Situational awareness software is likely to play a major role in the changing driver experience.  Automakers are already beginning to integrate ‘sensing’ systems inside and outside vehicles based on sensors, radar, and video recognition that relay information to drivers and to other cars.  In this future our cars are collecting data and relaying information that will help drivers make better decisions on congested roadways.    This era of ‘connected cars’ is likely to make roads safer for drivers and pedestrians, and increase the flow of traffic on our highways. [Telematics examples: Ford Sync; GM OnStar; Kia UVO]

#2 Political Transparency / Civicware
Political transparency is a major driver of change in emerging economies and fledgling democracies.  Civicware systems based on situational awareness allow us to gather real-time, onsite information based on a distributed network that is resilient to attack or centralized control.  In this light, we can view the situational awareness role that Twitter played in Iran during political protests in 2009 as adding an SA layer of new inputs and on the scene conditions that could never had existed prior to the age of mobile social networks.

Another widely cited example of SA systems in political transparency is Ushahidi – an effort to build a mobile phone based infrastructure for ‘crowd-sourcing’ information that could prevent post election violence based on misinformation (e.g. groups rioting when in reality they are not!)   The Ushahidi Engine allows anyone with a cell phone to gather and distribute real time situation information via SMS, email or web or view aggregated data on a map or timeline.

#3 Policy Making / Public Safety
Geospatial visualizations are an emerging platform for communicating information based on place.  We can imagine a future in which social support services are based on a greater understanding of data sensed, synthesized, visualized and anticipated in communities afflicted by a wide range of events or socio-economic conditions.

In 2004 Christian Nold released an innovative map-based platform for gathering real-time information on emotional states.  His ‘biomapping’ projects can reveal where people are happy, hungry, angry, fearful or sad.    Imagine the public policy implications for supporting decision-making, policy analysis, and responses based on this bottom up data collection that can be conveyed on maps!

And let’s not forget about policies that support public safety and enforcement against violent crimes!

In recent years police agencies around the world have implemented gun location directional systems to help them gain real-time situational awareness in an area with detected gunfire.  These stories are widely reported in the media, but what happens when there are ubiquitious sensors and mobile phone ‘apps’ that can create an open distributed infrastructure for safety.  What happens when community members build their own layers of situational awareness?

What are the implications of lowering the cost of community safety oriented situational awareness systems?

#4 Smart Infrastructure Management
Situational Awareness is at the heart of emerging ‘smart’ infrastructure models that attempt to reveal real-time data and conditions within major infrastructure components for energy, transportation and water.  This allows infrastructure operators and users to make better decisions in managing resources and anticipating potentially disruptive events.  (e.g. electrical grid failures, peak demand, rush hour) [See PNNL Laboratory Situational Awarness for ’smart grid’)

#5 Lifelong Formal and Informal Learning
Situational Awareness systems go beyond mere ‘sensing and anticipating’—and can be applied as a tool for learning how to improve our performance in responding to complex systems.  SA systems that are user and outcomes centric might find a home in formal and informal learning applications!

Pilots will often train in mock environments to improve their ability to sense.  Field troops will train in mock situations that teach them how to protect themselves in hostile environments.

But how might we apply staged-learning and/or scenario based learning to improve learners’ ability to reveal their mental models that guide their responses.  How might SA layers expand our desire for more sensing inputs based on real-time information and a stronger understanding of structure, relationships and feedback loops within the environment?

#6 Business Intelligence and Capital Markets
What about the world of business?  Both small and large companies are operating inside increasingly complex market environments that are fragmented and shaped by events and rapidly changing conditions (many of which are not currently measurable).

We can already see growth in enterprise solution markets for situational awareness  systems such as ‘complex event processing’ and business intelligence ‘dashboards’ and decision support systems.  Real-time market situational awareness might indeed offer the biggest return on investment for SA systems.

What is Beyond?
Situational Awareness principles will likely have to be re-framed and re-packaged before mainstream audiences are likely to embrace and adapt systems designed to increase our ability to perceive, comprehend and anticipate.

We are probably a 5-10 years away from mainstream market users understanding and demanding early stage SA capabilities in their everyday world.   And 15-20 years away from more advanced systems and wider spread institutional adoption.

And I suspect transportation will be the first market followed by enterprise business intelligence applications.

So I suspect ’situational awareness’ might be the next big thing for Tweeting web geeks and industry pundits… in 2018?!!

I suspect life in a world of ‘smart, connected’ devices will push SA to the forefront as a way of managing life in this ultra-connected landscape.

In the meantime, I will be looking for the positive applications of SA systems and the potential of a learning culture of systems thinking based on awareness, focus and foresight.

Image Credit: Eyes at Williams College by dbking (Thank you!)
Flickr Creative Commons License Attribution 2.0 Generic

Situational Awareness Resources to Explore: Notable Projects:

• Global Incident Map https://www.globalincidentmap.com/
• BioWatch – http://en.wikipedia.org/wiki/BioWatch
• UK SA Driving Program –  http://www.2pass.co.uk/awareness.htm
• Global Seismic Monitoring - http://www.iris.edu/seismon/bigmap/index.phtml
• Cisco-NASA Planetary Skin
• HP Central Nervous System for the Earth (CeNSE) (Thanks @wendyinfutures)
• IBM Smart Planet

Papers / Academic

• Knowledge Structures for Situational Awareness (Learner) http://www.dodccrp.org/events/2006_CCRTS/html/papers/220.pdf
• Situation(al) Awareness (SA) in Effective Command and Control  by Derek J. Smith http://www.smithsrisca.demon.co.uk/ http://www.smithsrisca.demon.co.uk/situational-awareness.html
• An Approach to Collaborative Sensemaking Process http://www.dodccrp.org/events/11th_ICCRTS/html/papers/101.pdf
• Inferring High-Level Behavior from Low-Level Sensors http://www.cs.rochester.edu/~kautz/papers/High-Level-140.pdf
• The Knowledge Structure of the Commander in Asymmetric Battlefield: The Six Sights and Sensemaking Process http://www.dodccrp.org/events/2006_CCRTS/html/papers/220.pdf
• USE OF TESTABLE RESPONSES FOR PERFORMANCE-BASED MEASUREMENT OF SITUATION AWARENESS http://web.mit.edu/aeroastro/www/labs/ASL/SA/sa.html

Companies

• SA Technologies – http://www.satechnologies.com/
• EchoStorm – http://www.echostorm.net/index.html
• Logos Technologies – http://www.logostech.net/index.htm
• Swarm Micro Aerial Vehicles  – http://www.swarmsys.com/index.html
• Raytheon Intelligence and Information Systems – http://www.raytheon.com/businesses/riis/

I’m looking for non-military situation awareness companies?!!! Any thoughts?

Forecast & Outlook: The future of unconventional natural gas is the buzz topic within the world of energy forecasting.  Natural gas is a clean, versatile fuel that could eventually expand beyond centralized utility power plants into markets for smaller scale Distributed Power systems, as a cleaner transportation fuel in the ‘Electric-H2 Age’, and if all else fails- as a hydrocarbon materials feedstock for the nano-age.

Exxon-Mobil’s $41 billion stock and debt deal for XTO Energy has sent positive shock waves through the energy community by validating the future of unconventional shale natural gas resources.

Analysts are quick to point out the obvious market reasons for Exxon’s big bet on the US natural gas sector: future of utility power generation favoring natural gas over coal, macro policy desires to increase US domestic energy production, corporate political ‘drill baby drill‘ capital of bringing resource wealth to ’shale counties’ in places like Texas, Lousiana, [Watch: Haynesville Documentary], Pennsylvania and New York.

On the downside this return to domestic unconventional resources speaks to new fundamentals for the hydrocarbon industry in the post ‘cheap conventional oil’ era. A brighter future for shale natural gas does not mean our conventional oil production problems disappear!

Let’s be clear…. hydrocarbons are not going away!  But it is increasingly difficult for energy majors (Shell, BP, Exxon, et al) to expand their resources around traditional strategies.  Hence, Exxon is jump-starting the era of non-conventionals that include shale natural gas, ‘tar sands’, deep water fields, et al.

Shale Natural Gas steals the ‘future’ away from LNG
Natural gas has a high hydrogen to carbon ratio, and is a favored cleaner transition fuel as we look to decrease reliance on carbon-heavy fuels and turn towards renewable resources over the long haul.

For years analysts claimed global ‘liquefied natural gas’ (LNG) production would eventually steal market growth from oil, but it now looks like unconventional domestic supplies could be the favored growth fuel over the next few decades.

The most likely future for natural gas is a fuel for utilities who own large central power plants that push electrons across regional energy grids.  So very 20th century!

But what about the alternative futures for natural gas beyond fuel for centralized power plants?

How does the versatility natural gas apply in a future with some profound energy system discontinuities and new markets applications?

How about distributed power generation, electrification of the auto fleet, and nano-structured composite materials?

Distributed Power Generation

All eyes are on the role of natural gas in US utility power generation, but what are alternative assumptions about the economic feasibility of distributed power generation that might disrupt the 20th century utility-grid model?

Consider this alternative assumption:
In the 21st century, global energy markets will grow around distributed power generation rather than through large centralized power plants and ‘grid’ connections.

In this future, the most important elements are: access to ‘fuels’ not the grid, and  low cost, reliable energy conversion systems (e.g. fuel cells) based on electrochemical conversion (not combustion via large power plant turbines).

So the most disruptive concept for utility providers is not a new fuel source (wind/solar),  but new energy conversion devices (e.g. fuel cells) that can create electricity onsite at the same (or lower) cost with more reliability.  Throw in cheap abundant fuels and we can imagine the whole notion of a ‘grid’ becoming less relevant.

Envisioning a world without a ‘grid’ requires a leap of faith (and knowledge base on the disruptive developmental path of distributed power systems).

But let’s imagine…

Stationary Power (e.g. Home / Factory)
Imagine Best Buy and Home Depot selling GE branded low cost energy appliances for powering our homes and offices.  Connect it to your natural gas line or refuel it with natural gas from the retail market and you can have six months of electrical energy onsite without any fear of grid disruption or variable monthly costs.

If you do not have a  natural gas pipeline into your homes, imagine buying solid-state ‘packets’ or ‘bricks’ sold in Walmart or Whole Foods (or delivered using a ‘milk’ truck model).  In one trip you could bring back enough energy for several months.

[Hard to imagine not being connected to 'the grid'?  Just ask a 15 year old to imagine having a 'landline' phone connection in an age of cell phones?]

Portable Power (e.g. Object based)
Imagine a world in which gadgets and appliances do not have to be ‘plugged in’ for power!

How?

We evolve from a ‘grid energy storage’ model (the battery) to a ‘fuel conversion’ (micro fuel cell).

Instead of plugging in every night, we’d simply ‘refuel’ (via a ‘packet’ of liquid fuel or solid gas).

In this future micro fuel cells (e.g. micro power plants) are embedded inside every object (toaster, cell phone to washer & dryer).

No more cords, no more grid dependency.

We simply refuel (How often? Obviously, adoption will depend that it is orders of magnitude more convenient)

Future of the ‘Fuel’ Provider
In both futures the ‘fuel’ provider becomes the critical stakeholder as energy conversion shifts from central to distributed- and from storage (battery) to conversion (fuel cell).

In this future, energy majors can bypass lower margin , long-term contracts with Utilities, and focus on more profitable end consumer markets.   The profit potential has some precedence – e.g. price premium paid for battery electrons is higher than grid energy; the price premium paid on bottled water is higher than tap!

Natural gas (via pipelines or retail shelf distribution) could emerge as the preferred ‘fuel’ for distributed power generation.

Transportation ‘Fuel’ (vs Grid Storage)
Oil’s biggest problem is its lack of substitutability.  We cannot put electrons from solar or nuclear energy inside a combustion engine gas tank.  And despite the vision of the “Pickens Plan” to subsitute oil for gas, natural gas is unlikely to take away any significant market share from gasoline in this waning era of the mechanical engine. It is hard to imagine winning market share in a liquid fuel market match up.

But the future of natural gas might be brighter in the era of electric vehicles powered by the integration of batteries (storage) and hydrogen fuel cells (on board fuel conversion).

If indeed, the current ‘fuel’ and on-board conversion model extends into the electric age, natural gas will be in a solid position for growth beyond oil.

Why are fuel cells and ‘fuel’ model so relevant to the automakers and energy majors?

First, low cost manufacturing incentives for car makers!  Automakers need a low cost, scalable power generation system for electric motors.  And despite all the hype, batteries are not the end game.   Fuel cells offer better performance, lower cost per mass, and preserve the ‘fuel’ and on-board conversion model (rather than a pure storage model of batteries).

Second, Utilities operated within a highly regulated market, and are unlikely to innovate in any meaningful way.   Plug in for ‘fleets’ is doable, but extending fixed wall socket access to a world with over a billion vehicles is an expensive vision.  It is hard to imagine us moving away from ‘portable’ fuels in the transportation sector.

The incentive for energy majors is to maintain their dominant role in the transportation fuel market even beyond the era of oil and the combustion engine.

So ‘fuels’ still matter.  And this is the big mental barrier in the public conversation about vehicle ‘electrification’:

Electricity stored in a battery is a ’storage’ model.  It is grid dependent. No fuel is converted on board.

Electricity produced from hydrogen converted in a fuel cell is a ‘fuel’ model.  This is the end game.

And despite all the challenges of hydrogen storage (gas, liquid or solid) and infrastructure (commercial pump, retail shelf or home production) it is much more likely that energy majors will out-innovate utility companies and retain their ‘fuel’ provider role in the post combustion engine era of transportation.

Natural gas has a high hydrogen to carbon ratio making it an ideal source of hydrogen for electric vehicles.

Materials Feedstock

Natural gas is already the preferred hydrocarbon feedstock for most polymer-based materials manufacturing.  But what about for emerging classes of high end materials based on nanostructured molecules like carbon nanotubes and carbon-based particles?  Again, we see natural gas as holding its ground as preferred feedstock for nanostructured materials.

Most carbon nanotubes are produced from natural gas that reacts over metal catalysts.   So even in this ‘carbon age’ of materials engineering, natural gas is likely to hold its market position as the feedstock of choice!

What else to watch? The ‘anti’ positions to Shale Gas production

There is little debate over how clean natural gas is compared to coal and oil.  But the extraction of unconventional shale gas reserves is not without its own environmental footprint.   The process of ‘fracking’ uses water and sand to push out gas molecules from shale deposits.  And environmental groups are already raising some small red flags about the unknowns of shale gas field development.

So consider this the beginning of Round One in the PR campaigns for and against natural gas!

Hans Rosling takes us on another data-driven journey looking at past, present and future with a special focus on the  social and economic re-emergence of India and China in the 21st Century.

Direct link to TED Talks Video Recorded at India’s first TED Conference

TED Talk – Hans Rosling 2006

TED Talk – Hans Rosling 2007

TED Talk – Hans Rosling 2009

Warren Buffett seems to be be tapping his inner Futurist and raising the bar for applying strategic foresight in the world of finance and business.

The decision by Berkshire Hathaway’s CEO to buy Fort Worth Texas-based Burlington Northern Santa Fe demonstrates his understanding of deep structural changes in the world economy and the strong defensive position (and flexibility) rail could apply even with major disruptions to the world of freight infrastructure.

Berkshire’s move to pay a premium for BNSF shares has made headlines around the world for both the clear ‘bet’ on the future health of the US economy and for its unique bridge between 19^th century industrialism and 21^st century financial investments.

Berkshire had been BN’s largest shareholder (owning 22%) and Buffettologists are quick to point out that Buffett has been a student of the railroad industry and freight sector for many years.

It is clear that Buffett expects BNSF to provide a steady stream of cash for Berkshire shareholders in the decades ahead.  But what might he see as the core drivers of change and likely disruptions that can be leveraged by BNSF management?

How might BNSF’s leadership navigate 21^st century challenges with a 19^th century platform?  Here are a few thoughts:

• Railroads in an Interdependent Global Economy
• Rail & Multi-modal Integration
• Railroad Titans in the Knowledge Economy
• The Really Long View: Land & Corridor Connectivity
• Transportation: Information Technologies (LBS & Autonomous Vehicles)
• Transportation & Energy Efficiency
• Rail and Politics of Coal

1) An Interdependent Global Economy

Buffett’s ‘bet’ is not only on the ‘US economy’ as much as it is a validation on the continued integration of the global economy and the role North America will likely play in the future as a producer and consumer of raw materials, commodities and finished products.

Buffett understands that the non-material fundamentals driving globalization – namely capital and information flows – inevitably end up pushing some form of material good from place to place.

He obviously believes that North America will continue to play an elevated role in the flow of rail’s most important products: raw resources / commodities and industrial products manufactured or consumed in the US, Canada, and Mexico.

What is Warren Buffett’s inner Futurist saying?
Trade is the backbone of the world economy and despite all the rhetoric for energy or commodity independence, it is economic and cultural ‘interdependence’ that is likely to drive the future.   Add a few more billion consumers by 2050 and rail will have plenty of growth on the upside for freight transportation.

2) Rail’s Best Hope? Multi-modal Integration
Integrate Rail (Corridors) + Truck (Roads) + Shipping (Ports) + Air Freight (Inland Ports)

Despite being our oldest industrial era mode of transportation rail is largely misunderstood by the public.

Rail is a corridor-based platform supporting major industry sectors: raw materials, commodity agricultural products, consumer and industrial products, and energy (e.g. coal).

It does not exist in a vacuum or operate against the trucking or shipping industries.  The reality that rail is already tightly integrated into all forms of freight transportation modes: trucking, shipping and air freight.   Industry veterans are quick to quote that the ‘trucking business is the rail road industry’s biggest customer’.

The future for Berkshire’s BNSF is multi-modal freight integration from seaside ports, to inland air freight hubs, to rail-trucking transit depots.   Railroads provide the fixed corridors for long-haul and then tap the unique advantages of trucks, ships and planes to fill in the gaps on low cost and/or fast delivery time.

Buffett knows that rail is part of a much larger ecosystem that supports our global supply chains that stretch from raw materials to finished products.   And this freight provider ecosystem has one mission: reducing costs and ensuring more growth in global trade.

Growth will come from more seamless integration of all forms of transport, not direct head-to-head competition.

What is Warren Buffett’s inner Futurist saying?
Rail’s growth depends on tight integration of ‘multi-modal’ transportation systems. We know our strengths and weaknesses.  And we will welcome trucking, shipping and air freight partnerships that helps reduce costs for global customers.

3) Railroad Titans in the Knowledge Economy

Railroads are likely to find a valuable role in the 21^st century knowledge economy as a main aggregator of market information and insights that stretch far beyond pure commodities and raw resources.

Forget about the rail cars, it’s the information and insights that matter most.  The short-term and long-term market insights that emerge from the freight industry analysts and forecasters is second only to the market studies conducted by energy producers like Exxon, Shell and BP.

Railroad leaders pay attention to everything: weather patterns and their impact on grain, the price of energy (e.g. portable fuels), highway congestion and infrastructure investments, labor union dynamics at major ports, peak production of conventional oil supplies, et al.   They monitor most major sources of economic uncertainties and the most fundamental socio-economic trends driving globalization.

Beyond the market insights, railroads also play a key role in the stock and flow of raw commodity distribution.  BNSF is heavily invested in food and agricultural products both in terms of transportation and storage in massive grain storage facilities.   Making key data elements more visible to customers on both sides of the agricultural commodity value chain might be a lucrative offering for a Berkshire-owned BNSF.

What type of partnerships might we expect?  IBM and Cisco stepping in to provide BNSP with capacity for embedding sensors and adding software as service to BNSP customers.

What is Warren Buffett’s inner Futurist saying?
We need to embed sensors and software along our entire value chain.   And then we will be able to transfer these on the ground market insights into Berkshire’s other businesses!  I am getting gratis global market insights along with my massive set of railroad cars.

4) The Really Long View: Land & Corridor based Connectivity

Berkshire has become owner and leaser of a sizable corridor-based infrastructure footprint second only to the federal national highway system.  Not bad for $44 billion.

Who can say what the future of rail cars will bring in twenty or thirty years?!  Will it be ‘steel on steel’ or lighter advanced composites and concrete?  Will it be highly scheduled long chains of trains or a more dynamic ‘river’ of smaller connected train lines that operate autonomously?

But land will always be land.   And these corridors will remain major points of connectivity between major urban hubs in North America will only increase in value.

What is Buffett’s inner Futurist saying?
We now own infrastructure based on corridor real estate and urban-to-urban connectivity that could connect major points in three major economies of the world (Canada, Mexico and US). We will wait out the looming federal, state and private sector investments in upgrading our aging highways.  But in due time, these corridors could be transformed with the right vision (and steel on steel is not our only path forward!).

5) Transportation & Situation Awareness / ‘Smart’ Information Technologies

Berkshire is likely to hold BNSF for many decades, and leaders will soon confront the technological revolutions occurring in transportation sector and world of ‘smart infrastructure’ where sensors, software and ‘situation awareness‘ are bring greater transparency and control.

Information technology is transforming all notions of vehicle design, user interactions, traffic flow management, electric power train management, in-car entertainment, autonomous vehicle operation, et al.

Nothing in the world of transportation will go untouched by information technology.  And 2010-2030 is likely to be a very disruptive period for transportation technologies.

But what matters most to freight infrastructure?

Location-based services (LBS) are likely to bring tremendous value to supply chain management and transit decision making for freight providers.  Freight transport providers will have a real-time pulse check on every object floating at sea, flying in the air, or traveling across one of the world’s connected roadways.  Buffet must see the upside for rail in this future of real time dynamic modeling of freight transportation.  The low cost offering of long distance rail coupled with just-in-time delivery via air (inland ports) or trucking could be a profitable proposition to customers.

And this is only the beginning.

Autonomous vehicle systems are the great disruptor!

Semi-autonomous (Driver Assistive) and fully autonomous vehicles are no longer distant dreams imagined by Hollywood producers.  We are entering the first phase of commercialization.  The 2010 Ford Taurus will help to mainstream the notion of conversation-based command and control interfaces with our vehicles via Sync.  (Forget about today’s generic voice interface and relatively low quality of service; in the near future, services like Sync and OnStar will mean that our cars will have agent-based personalities that help manage our experiences on the road and on the go)

The 2010 Ford Taurus is also raising the bar for Adaptive Cruise Control which allows the vehicle to follow the proceeding vehicle based on a desired ‘distance’ not a static ’speed’.    Slowly drivers will be exposed to experience and safety benefits of vehicles with total situation awareness.

Yes, the transition will take years to unfold, but we have begun.  And we can start to see the roadmap towards widespread adoption and the overcoming of our initial fears of ‘robotic cars’ that currently exist.

Beyond 2025, who can say what the future of autonomous systems will bring to the trucking industry.  Semi- and fully-autonomous vehicles could change the cost structure for long distance transport and regional distribution hubs.

In a decade or two, a single long-distance truck driver could, with a back-end support team,  conceivably haul several cargo beds with the aid of sensors, software and autonomous technologies.   Transforming the image and role of trucks on the road from single disconnected vehicles, to long connected streams of cargo and you could see some real competition to the corridor model.

What is Buffett’s inner Futurist saying?
I’ll be long gone before these robotic cars hit the road, but Berkshire is still in a strong position. Even in an age of autonomous vehicles, rail’s fixed route corridor is the perfect platform for more futuristic freight transporter concepts.  We could be a test-bed for autonomous systems in Ports and along railroad lines.

6) Rail & Energy Efficiency

Despite commentary from the blogosphere, Buffett is not betting on the ‘End of Fossil Fuels’.   But he is betting that today’s current liquid fuel model (e.g. no substitutability) for transportation fleets is likely to work in favor of electrification and higher efficiency modes of transportation in the short-term.

I’m guessing he has studied the IEA and EIA-based forecasts of peak production of conventional oil and implications for the cost structure confronting oil producer and consumers.

Oil is not going away, but it is not getting cheaper.

Yet much of the hype of rail’s cost advantages via efficiency is overstated in the long-term.  Yes, in the short term 10-20 years rail could do quite well in a world of higher oil prices.  But in the end, fleet electrification for trucks could negate all ‘efficiency’ advantages currently held by rail.

7) Rail and the Politics of Coal

Buffett appears to be a pragmatic environmentalist at heart.  He knows that coal has a future, but that it isn’t the future.

BNSF is heavily invested (per tonnage) in the transport of low-sulfur coal from Wyoming’s Powder River Basin which is better suited in a carbon constrained world compared to Appalachian region coal.  But he continues to state publicly the long-term shift away from coal as an expected trend for the US.

I’m not as convinced and believe coal is going to be around for a very long time as biologically-based carbon utilization strategies (e.g. algae bioreactors) emerge in the years ahead.  Coal is the world’s fastest growing fuel and the US utility sector is likely to bend, but not break in its dependency on this fuel source.   Even with carbon pricing schemes, coal-based power plants control the grid line connections to our factories, offices and homes.

And few analysts are accounting for a disruptive biotechnology platform that neutralizes carbon.  Algae and bacteria-based bioreactors that bind carbon dioxide with hydrogen could silence critics by taking the emissions question out of the equation.  That would leave only those who are opposed to coal’s negative impact during mining.   Translation: BNSF is not going to take coal off its future revenue list anytime soon.

What is Buffett’s inner Futurist saying?
Downplay coal.  Pray for algae-based capture.  (Maybe make an investment or two in bioindustrialism).  And hope the cash cow continues without adding carbon to the atmosphere.

Challenges Ahead

Of coure, Buffett is not expecting an easy journey ahead.

Despite all these potential upsides to growth, Berkshire has stepped into a capital intensive industry when it comes to major infrastructure upgrades!

Rail in its current ‘steel on steel’ model is not cheap to maintain or expand.  But looking beyond 2025, what about carbon-composite trains, tracks or even wheel to ‘concrete’ corridors that open access to everyone?!  If I have one potential wildcard for rail is that the industry abandons steel in favor of wheels to concrete in a massive overhaul circa 2030-40.

Beyond capital costs, finding new corridor real estate opportunities for expansion is not easy (making it highly dependent on integration of trucking, air and shipping in the future).  There is no more ‘frontier’ and several cities remain locked in battles with railroad companies over control of future corridors and reduction of ‘at grade’ crossings that have an impact on road traffic.

And Berkshire’s management will continue to navigate challenges with federal, state and city governments who have a challenging relationship with rail in areas related to suburban expansion, urban redesign, and of course the potential ‘monopoly’ attacks.

Buffett BNSF: Video of mainstream / short-term / ‘baseline’ future analyst view from Morningstar

Image: Bribirto, Flickr CC License Attribution Share alike

How much change might we expect in the balance of global economic power over the next ten years?  How might financial markets evolve alongside the dramatic geopolitical market transition occurring between the dominant Western consumer economies of the 20th Century and the rapidly rising Asian consumer economies of the next century?

Over the past year, the World Economic Forum (sponsor of the annual Davos Meeting) has been exploring key drivers and potential outcomes for the future of global financial markets and government institutions.  Follow this link for a wealth of resources or get started by watching this 8 minute video exploring four financial market scenarios: Financial Regionalism; Fragmented Protectionism; Re-engineered Western-centrism; and Rebalanced Multilateralism

Learn more here

Downloads:
“The Future of the Global Financial System: A Near-Term Outlook and Long-Term Scenarios.”
“The Future of the Global Financial System” [PDF 12 MB]