Wednesday, April 23, 2014

Freight car orders, backlog soar in first quarter—and it’s not tank cars

Written by  William C. Vantuono, Editor-in-Chief
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Greenbrier covered hopper Greenbrier covered hopper William C. Vantuono
Freight car orders in 2014’s first quarter soared about 38% from fourth-quarter 2013, to 24,050 units, pushing builder backlogs up around 12% to 81,927, according to the most recent Railway Supply Institute American Railway Car Institute figures.

In this year’s first quarter, builders delivered 13,954 cars, a 12% drop from fourth-quarter 2013’s 15,776 units, as the industry backlog grew. ARCI figures (see chart, below) indicate a relatively flat backlog prevailed through 2013’s second through fourth quarters.

Car orders have been on a roller-coaster ride since 2010, starting with a low of 29,992 units, tripling to 89,073 units in 2011, before settling down somewhat to 55,046 cars in 2012 and 66,569 in 2013.

Economic Planning Associates in October 2013 was predicting deliveries of 57,800 cars in 2014. That number may have to be revised—upwards, if carbuilders can keep up with demand. Also, the rising backlog may not be attributable to tank cars:

“First-quarter industry railcar data support our thesis of a rising non-tank car backlog,” said Sterne, Agee & Leach analyst Sal Vitale in a Barron’s “Investor’s Soapbox” entry released April 23. “Total backlog increased 12%, driven by a 79% quarter-over-quarter increase in non-tank car backlog, more than offsetting a 9% quarter-over-quarter decline in tank car backlog. The first-quarter data are consistent with our thesis of a broad-based recovery in non-tank railcar orders after a lull in 2012 and early 2013.

“The Railway Supply Institute released first-quarter industry data. The backlog rose 12.3% quarter-over-quarter on a 79% increase in non-tank car backlog, more than offsetting a 9% drop in tank car backlog. Total backlog increased by 9,000 cars from 72,900 in the fourth quarter to 81,900 in the first quarter on 24,000 orders and 14,000 deliveries. The Tank backlog fell by 4,900 cars from 55,400 to 50,500 on 4,800 orders and 8,400 deliveries.

“The first quarter was the fourth straight double-digit quarter-over-quarter increase in the non-tank car backlog after six quarters of decline. From third-quarter 2011 through first-quarter 2013, the non-tank backlog fell 72%. Since then, the non-tank backlog more than tripled from 10,400 at first-quarter 2013 to 31,400 at first-quarter 2014, largely due to a six-fold increase in covered hoppers from the first-quarter 2013 nadir. Renewed demand for small-cube covered hoppers (fracking sand and cement) drove much of the increase in overall orders, but the backlog also rose for midsized covered hoppers (grain, soda ash, potash), and large cube hoppers (plastics). This is consistent with our thesis of a shift in railcar backlog growth from tank cars—the main driver in 2011/2012—to non-tank cars. Tank cars now comprise 62% of industry backlog, down from the peak level of 86% at first-quarter 2013.

“Consistent with our thesis, intermodal (IM) and coal car orders also started to recover in the first quarter, driven by improving IM and coal railroad volumes. IM orders and backlog improved markedly in the first quarter, with backlog nearly tripling from 825 at year end to 2,357 at the first quarter, on IM orders of 2,207 (up from zero in the fourth quarter). Coal car orders also turned, with a backlog of 2,597 marking the highest point since first-quarter 2012’s 3,666-unit backlog. First-quarter coal car orders of 1,604, while still below normalized quarterly levels of about 2,500-3,000, have recovered from the trailing two-year average of about 430 cars per quarter. Both IM and coal railroad volumes have improved recently. For IM, first-quarter U.S. volumes improved 4.2% year-over-year, while the four-week moving average improved 12%. For coal, the first quarter was down just slightly year-over-year (0.6% in the first quarter, vs. 4% and 11% declines in 2013 and 2012, respectively). The trailing four-week average year-over-year increase in coal volume was 6%.

“The railcar order cycle continues to broaden in breadth with the return of IM and coal supplementing the strength in covered hoppers. We expect the shift from tank cars to non-tanks continue in 2014. We believe the recovery in coal volume and coal-car orders is a positive for coal-car-centric manufacturer FreightCar America, while the improvement in IM bodes well for Greenbrier, which is the leading IM car manufacturer. The strong covered-hopper orders should be positives for both Greenbrier and Trinity Industries.”

ARCI Summary 1STQTR 2014

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