Friday, December 14, 2012

The supply side: We’re always dodging rain clouds

Written by  Tom Simpson, RSI Executive Director
Railway suppliers are a resilient and optimistic bunch. They know that if times are tough, a better day will come. Over 1,300 railroaders and suppliers attended the September 2012 RSI/CMA meeting, and I detected a sense of optimism. I’d like to explore some of the reasons why.

According to the RSI American Railway Car Institute Committee’s third-quarter new freight car order and deliveries report, orders remained strong at 15,151. Plastic pellet and sand drove continued orders for covered hoppers, scrap steel drove demand for gondolas, and autos drove non intermodal flat car orders. Another 8,832 tank cars were ordered, bringing year-to-date orders to 29,028. Demand for crude is going to grow, and the supply of Bakken crude could last for decades. Freight car builders delivered 47,089 cars in the first three quarters of 2012, a pace that will approach 60,000 deliveries by year’s end—a number not seen since 2008.

Railroad capital expenditures have continued at a record pace.AAR President and CEO Ed Hamberger talks about Class I capex north of $20 million. A good portion of that accrues to the supply community.

The rail industry has recently had some success in Washington. In July, the President signed into law Moving Ahead for Progress in the 21st Century (MAP-21). A coalition of AAR,ASLRRA, the Coalition Against Bigger Trucks, and RSI defeated onerous language contained in the House of Representatives version of MAP-21 that would have increased truck size and weights in a massive unprecedented scale. Instead, the law requires the U.S. DOT to conduct a two-year study on the impact of trucks exceeding current federal size and weight limits on accident data; potential effects on infrastructure (costs and benefits; the percentage of trucks operating in excess of federal limits; the ability of states to recover costs); the frequency of weight or size violations and the cost of enforcement; and the impact on bridges and safety. However, don’t expect truckers to get caught flat-footed again when MAP-21 needs to be reauthorized in two years.

In addition, funding for the Section 130 Highway Rail Grade Crossing Safety Program and Operation Lifesaver was retained as was funding for rail transit programs. The threat of onerous anti-passenger rail language was averted. Finally, through a variety of stimulus programs, More than $11 billion has been spent on freight and high speed and intercity rail related programs since 2009.

It appears as if there is some desire in Congress to solve our nation’s financial and transportation issues. The policies of the Obama White House and the U.S. DOT have been a mixed bag for suppliers. On the one hand, President Obama’s investment in rail as an economic stimulus has been a plus. His ongoing support of intercity passenger rail (both Amtrak and high speed) is also positive. However, Obama’s stance on coal has hindered growth in that segment of our industry.

A new Congress brings new challenges—new committee leadership, new members who don’t know our industry, and anti-rail forces eager to counteract our messages. Plan to be in Washington for Railroad Day on Capitol Hill, March 14, 2013.

Being a railway supplier means always dodging rain clouds. Some projections for next year indicate that the strong freight car order trend may not continue, disrupting that sector’s planning process. Because of that, some on the mechanical side are being more cautious about plans for next year. Coal loadings are down and coal car orders are “dead,” according to my sources. Rail traffic levels are mostly “mixed” in AAR’s weekly rail traffic reports—a disheartening trend.

All those new railway tank cars for crude oil service are being built to standards adopted by the AAR Committee on Tank Cars. The U.S. Department of Transportation has final jurisdiction over tank car safety, and there’s concern that DOT may order time-consuming and costly retrofits in a rulemaking that might come by year’s end, throwing that segment of the industry into disarray and uncertainty at a time when tank cars and crude oil are a bright spot. DOT’s sluggishness so far to issue a final rule on a new tank car design—a rule supported by the railroads, shippers, leasing companies, and carbuilders—is puzzling.

Yet, optimism is still strong. Railway Interchange 2013 is scheduled for Sept. 29-Oct. 1 in Indianapolis. Booth sales are brisk for all three trade associations involved, and you can expect that this show will be a sellout. Hotel reservations open in January. Act early so you that can be in one of the prime hotel properties we have under contract. For more information, visit www.railwayinterchange.org.