Railcar production improvement: Wait for 2019

Freight car deliveries will remain relatively flat over the next two years at 42,500 units annually but will enter an up-cycle, according to the most recent quarterly report issued by Economic Planning Associates.

“Due to the strength in boxcars, hi-cube covered hoppers and mid-sized hoppers, our 2017 estimate of total railcar deliveries remains at 42,500 cars,” says EPA principal Peter Toja. “However, weaknesses in tank cars, coal cars, flat cars and mill gondolas will serve to keep 2018 assemblies flat at 42,500 cars.”

Due to a slowing in assemblies in the first quarter, end-of-March backlogs of 60,500 railcars still represent some six quarters of production at the current rate of assemblies, but “unfortunately, there are still underutilized cars in the various fleets that will keep railcar deliveries moderate this year and next,” notes Toja. “However, we expect stronger economic activities and an easing in the regulatory environment to induce a pickup in railcar orders in 2018, leading to the next up-cycle in railcar demand beginning in 2019. Longer term, railcar deliveries will expand from 47,300 in 2019 to 59,500 in 2022.”

2016 “was a difficult year for the railroads primarily due to a sharp decline in commodity movements and a modest easing in intermodal traffic,” Toja notes. “Among the major commodity categories, only grain, chemicals, motor vehicles, coke, scrap and other carloads scored year-over-year gains. All other categories declined, with the most significant drops in coal (-20.1%) and petroleum (-21.4%).”

But things are looking up. “This year is off to a formidable start for the railroads,” Toja says. “Through the first quarter, commodity loadings were 5.7% ahead of the comparable period last year, while intermodal traffic was running 1.4% ahead of last year. Among the commodities, strong gains were recorded in coal (+16.8%), grain (+6.3%), nonmetallic minerals (+6.4%), and metallic ores and metals (+6.1%). And, the railroads are reflecting the improvement.”

CSX, CN, Norfolk Southern and Canadian Pacific “have all noted good revenue gains thus far,” Toja says. “We anticipate that our expanding economy and a lessened regulatory environment will result in further quarterly advances in financial performances.

“We currently anticipate that commodity haulings this year and next will be led by continued growth in coal, grain, metals and nonmetallic ores, as well as by a rebound in petroleum and chemical haulings. We now look for commodity growth of 3.5% this year and 2.7% in 2018. From 2019 through 2022, commodity movements are slated to advance 2.4% per year. Following a 1.6% drop in intermodal movements last year, we expect a rebound of 2.9% in intermodal haulings this year and a 4.2% advance in 2018. From 2019 through 2022, combined container and trailer haulings will expand 4.0-4.3% per year.”