Friday, November 12, 2010

From the Editor: The end is approaching (of the freight car drought) (November 2010)

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By William C. Vantuono, Editor

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If you happen to believe the popular misinterpretation of the Mesoamerican Long Count Calendar (Mayan Calendar), we won’t need any new equipment as of 12/21/2012, so don’t bother reading any further. If, on the other hand, you’d like some valuable analysis of the long-term freight car market (not from me, mind you), read on.

The analysis comes courtesy of Peter Toja and Economic Planning Associates. EPA has upped its freight car production estimate for 2011 from 19,800 units to 22,500 units, with more-substantial growth beginning in 2012. “After three dismal years, we look for railcar deliveries to advance moderately to 32,800 cars in 2012 and then expand annually to the level of 59,000 units in 2015,” Toja says. Here are highlights from EPA’s Oct. 30, 2010 overview:

“On the heels of rebounding traffic in commodity haulings and intermodal movements, demand for rail equipment is recovering. Equally important, equipment demand is broadening as orders are being placed for previously neglected categories such as small-cube covered hoppers, intermodal platforms, grain service hoppers, and hi-cube covered hoppers. Some of the other recently quiet categories are drawing interest as one railroad announced fourth-quarter orders for mill gons and coil cars while another indicated a forthcoming investment in its coal car fleet.

“While deliveries increased in both the second and third quarters, backlogs jumped from 10,462 cars at the beginning of the year to 19,267 units at the end of September. The backlogs as well as our anticipation of future growth in traffic should keep short- and medium-term assemblies of assorted railcars moving up gradually. The improvements in railroad traffic volumes, revenues, and profitability continues to gain momentum. Citing revenue gains across the board in all market sectors, the railroads are also looking to invest in facilities and equipment to accommodate future traffic expansion as well as to upgrade fleets to better-service customers. During the third quarter, the railroads specifically addressed their need to invest in equipment to service lumber and wood products, iron ore, steel, and coal. Investments are also being planned in other equipment types.

“Agricultural exports are rising, ethanol production is accelerating, the housing markets are stabilizing, light vehicle sales are expanding, manufacturing activities have revived, and a stronger economy will stimulate greater electricity production. These activities will prompt haulings of grain, ethanol and DDG, lumber, motor vehicles and parts, metals and products, chemicals, plastics, and coal.

“These improvements will extend into 2011 and beyond. We expect commodity loadings to advance 5.3% this year and 2.9% in 2011. From 2012 through 2015, annual growth in carloadings will moderate from 1.8% to 1.4%. Demand for intermodal services is rebounding strongly. We expect a 10.3% rebound in intermodal movements this year, followed by a 5.5% hike in 2011 and a 5.2% jump in 2012. From 2013 through 2015, intermodal traffic gains will be in the range of 3.5-5.0% per year.

“Some idle capacity will continue to dampen equipment demand. Given assemblies to date, current backlogs, and the builders’ conservative approach to managing backlogs, we expect deliveries of 13,500 cars this year. The cautious attitude of the builders is best exemplified by the fact that third-quarter backlogs of 19,267 still represented 5.2 quarters of assemblies at current production rates. Replacement pressures and technological advances as well as legislative measures will also play a role in promoting the demand for a variety of railcars.”

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William Vantuono

With Railway Age since 1992, Bill Vantuono has broadened and deepened the magazine's coverage of the technological revolution that is so swiftly changing the industry. He has also strengthened Railway Age's leadership position in industry affairs with the conferences he conducts on operating passenger trains on freight railroads and communications-based train control.