The changing freight car landscape

The North American freight car market has changed dramatically in the past few years. Where coal gondolas and hoppers and intermodal platforms once accounted for the bulk of builders’ order books, tank cars and covered hoppers now dominate.

Based on strong first-half 2014 orders and a backlog approaching an astounding 100,000 units, Economic Planning Associates has once again raised its estimate for 2104-2015 freight car deliveries. “In spite of a lackluster economy, second-quarter 2014 railcar orders of 33,912 units far outpaced deliveries of 16,056, raising mid-year backlogs to a formidable 99,782 cars and platforms,” EPA said in its most recent forecast. EPA raised its short-term railcar deliveries estimate to 66,300 cars this year and 72,000 cars in 2015. Beginning in 2016, annual railcar assemblies will “ease very moderately, at historically high levels,” from 63,300 to 62,500 cars and platforms in 2019.

Tank cars remain dominant in terms of total railcar backlog share, but demand for other types of equipment “has increased significantly thus far in 2014,” EPA noted. “We are especially enthused by the strong demand for all types of covered hoppers, mill gondolas, intermodal equipment, and Class F flat cars. However, the star of the railcar industry remains tank car equipment, primarily crude oil service cars. Demand for tank cars has escalated once again. After three relatively modest quarters, orders for tank cars surged to 10,629 units in the second quarter, taking backlogs to the mid-year level of 52,589 cars.”

Longer term, EPA is hopeful that “stronger economic activities will provide support for certain railcar assemblies while an improvement in the financial environment, high gasoline prices, and strong government backing stimulate greater demand for ethanol and DDG cars. Replacement pressures and technological advances as well as legislative measures will also play a role in promoting the demand for a variety of railcars. Construction activities are expected to continue to advance, which should support movements of aggregates and structural steel products.

“Continued expansion in demand for crude oil, petroleum products, chemicals, and food and beverages will prop up haulings of a variety of liquid products and the demand for tank cars. Growing worldwide nutritional needs and expanding exports will pressure current grain service cars as we proceed through the longer term while long-neglected segments such as equipment to haul waste, aggregates, and limestone show signs of revival and should add to the railcar delivery mix in the years to come. However, the most dynamic element in the long-term railcar environment will be tank cars to transport ever increasing volumes of oil and petroleum products.”

Based on its most recent information on the continued expansion in U.S. oil production and the need to upgrade tank car equipment, EPA anticipates further growth in demand for rolling stock. “Spurred by hydraulic fracturing, U.S. oil production has jumped from 5.0 million barrels per day in 2008 to 7.4 million last year and is expected to average 8.5 million this year and 9.3 million next year, according to the U.S. Energy Information Administration,” EPA said. “This boom, along with a rise in natural gas liquids production, has dramatically lowered petroleum imports. The share of U.S. liquid fuel consumption met by net imports, down from 60% in 2005 to 33% in 2013, is expected to fall to 22% in 2015, which would be the lowest since 1970. The U.S. and Canada are expected to account for most of the world’s projected growth in production of oil and other liquid fuel through 2015, while China and less developed countries will drive most of the growth in consumption, according to the EIA’s July forecast.”

EPA believes that the U.S. Department of Transportation’s Notice of Proposed Rulemaking on so-called HHFTs (high-hazard flammable trains) that carry crude oil, ethanol, and other volatile commodities should positively impact demand for oil carrying tank cars. The proposed rule calls for older DOT 111A tank cars (pre CPC-1232 cars, the rail industry’s voluntary standard in effect since October 2011) used for the shipment of Packing Group I flammable liquids, including most Bakken crude oil, are to be retired within two years unless retrofitted to comply with updated standards—whatever those will be.

The DOT’s open-ended NPRM “does not directly answer the question of what car is preferred for hauling crude oil, but it does provide some thoughts about how the process might move forward,” says Railroad Financial Corp. Senior Vice President and Railway Age Contributing Editor David Nahass. “It is clear that the DOT would prefer the 9/16-inch-steel car design. That standard should have been established and the issue should be put to rest. Unfortunately there are so many hands in the cookie jar regarding this issue that a straightforward proclamation seems unfeasible right now. If the DOT had established the 9/16-inch standard earlier without delay, all parties in the industry would have processed the change in specification and moved beyond it. Then the issue of retrofits could have been handled separately, with a critical eye and a focus on the business and safety aspects of a massive shift in transportation fundamentals.”

For tank car builders, “the solution is easy,” says Nahass. “Start selling the 9/16-inch car exclusively. A universal decision by the five carbuilders (Union Tank Car, Trinity, ARI, National Steel Car, and Greenbrier) to move to this design would end the debate and allow the regulatory agencies to focus on the retrofit issue exclusively. The mixing of the two issues—new car design and retrofit—makes the solution and final resolution that much more complicated and invites an endless parade of commentary and debate. There are already too many parties involved in the decision-making process; inviting more to the party will make users and the public wonder if there will be a final resolution within the next 12 months.”

Cars for downstream petroleum products

The other market segment experiencing rapid growth is covered hoppers—not just small-cube cars for the extremely dense sand used in hydraulic fracking, but high-cube models designed specifically for such downstream petroleum products as plastic pellets and chemicals, demand for which is expanding. EPA reports “significant strength in each of the covered hopper segments.” High-cube cars accounted for 2,950 units in this year’s first half, and a rebound in grain hauling and reports of equipment shortages drove an increase in first-half orders for mid-sized cars. As expected, the escalation in fracking activities raised demand for small-cube equipment in the first half, and strong delivery levels are anticipated both this year and next.

One of the newest high-cube covered hoppers comes from The Greenbrier Companies, which last month introduced an all-new, 6,250-cubic-foot plastic pellet car. Railway Age got a close look at this car, both inside and out, at its unveiling for customers at Greenbrier’s Cleburne, Tex., shop. Designed with input from more than 50 plastic pellet shippers, the new car “has hit the marketplace with a lot of attention and orders,” according to Vice President Marketing Tom Jackson. Among Greenbrier’s first customers is Formosa Plastic Corp. USA, the U.S. subsidiary of Taiwan-based Formosa Plastics Group, a global producer of petrochemicals and plastics.

“Low natural gas prices have made the U.S. competitive again in the world energy market, and we are now headed for the second round of the ‘Energy Renaissance in America,’” observes Jackson. “On the rail equipment side, the first round was dominated by small-cube covered hoppers and large tank cars for frac sand drilling and crude oil transportation. The second round of equipment demand will be for specialty tank cars and large covered hoppers required for products such as plastic resin, petrochemicals, and fertilizers. We believe that North American chemical and plastics production will double by 2020, generating $67 billion in new chemical industry shipments.”

Greenbrier’s new “6250,” which is being built at the company’s Gunderson-Concarril Plant 2 in Mexico City, is specially lined and equipped with four Miner aluminum pneumatic discharge gates that “make it ideally suited for the storage and transportation of free-flowing, light-density products,” says Senior Design Engineer Mike Gillis. “Its curve-sided, all-welded design and ten 20-inch-diameter hatch covers—four vented and six unvented—protect against vacuum pull and product contamination.”

This Plate C car, built to AAR’s M-1001 specification, features a continuous side sill, with side sheet reinforcement between 35-degree transverse slope sheets, 55-degree sideslope sheets, and a protected brake rod that runs through the side sill, with a slack adjuster inspection portal. With a GRL (gross rail load) of 286,000 pounds, load limit of 219,000 pounds, and light weight of 66,500 pounds, it measures 67 feet, 10 inches in length (over couplers), 62 feet, 9.625 inches inside length, 15 feet, 6 inches in extreme height, 10 feet, 4.75 inches in extreme width, and 54 feet, 2 inches between truck centers. Curve negotiation radius is 180 feet (uncoupled), 256 feet (coupled to a similar car), and 253 feet (coupled to a base car). The car rides on Amsted Rail ASF-Keystone® M976 Motion Control trucks and is equipped with Amsted Rail couplers and draft gear and Ellcon National handbrakes. Safety appliances are designed to AAR S-2044 requirements.

Greenbrier says its new 6250 can be configured with a variety of hatches, outlet gates, and interior coatings.

“Plastic pellet cars make approximately four turns per year, and typically sit in storage for three months or more, in SIT (storage-in-transit) yards,” notes Greenbrier Vice President Sales and National Account Executive Tim Schitter. “We project that every one billion pounds of plastic produced requires about 1,000 railcars. We’ve seen delivery projections of about 27,000 cars through 2018, but we believe that actual demand will be around 33,000 cars, with a peak in 2016 of 10,480 units.”

Beyond tank cars and covered hoppers

Looking at other car types, Economic Planning Associates points out that mill gondolas “exhibited strength in second-quarter orders, responding to a rebound in domestic steel shipments and strong growth in steel imports. Demand for three- and five-unit intermodal platform cars have picked up, and given the rising trend in intermodal traffic, we have raised our short-term forecast for intermodal equipment assemblies. But we continue to be concerned about the underwhelming growth of the economy as manufacturers, oil and gas producers, and coal companies struggle with the increasing number of government regulations that are dampening our economic potential. Hopefully, our economy can eventually embark on a stronger path of growth that will improve railroad traffic, revenue, and investments, leading to continued healthy growth in railcar demand.”

And what about the industry’s old standby, the coal car? “Even with an anticipated rebound in coal hauling this year, we remain cautious on the outlook for coal cars, primarily because we have heard that customers prefer to rebuild rather than purchase new equipment in the currently dismal coal environment,” EPA said.

EPA is also cautious about the motor vehicle market, noting that North American light vehicle sales dropped in January and February, and then rebounded through June as sales expanded to 16.92 million units. “We are factoring in some moderation in sales in the months ahead, and we continue to remain leery on the future course of auto sales through the next two years,” EPA said. “Until the economy is on more solid footing, employment advances at a more significant pace, and consumer income growth increases, we expect quarterly auto sales to remain relatively flat at high levels during 2014 and 2015.”

In other words, as Walter Brooke said to Dustin Hoffman in 1967’s The Graduate, “I just want to say one word to you. Are you listening? Plastics.”