11/12/2012

Mechanical Article
A need for more crude oil-carrying tank cars drove rail-car demand in 3Q, EPA says

Rail-car orders in the third quarter reflected a modest uptick in demand for covered hoppers, mill gondolas and class F equipment used to transport light vehicles, according to Economic Planning Associates Inc.'s latest quarterly "Outlook for Rail Cars" report.

But tank cars by far remained the car type most in demand, primarily to transport crude oil from the Dakotas. Despite increasing demand for various other cars, tank cars accounted for 58.3 percent of the total orders in the third quarter versus 83.5 percent in the second quarter, the report states.

"It has become readily apparent that lacking pipeline capability, increasing amounts of Bakken oil will move by rail," EPA officials said in the report. "And, with strong quarterly orders this year and a backlog of 46,705 cars, we have significantly raised both our short- and long-term outlooks on tank car deliveries."

Nevertheless, EPA officials remain cautious about other car types' prospects due to concerns about the economy's "underwhelming growth" and the Gross Domestic Product's slippage from the first quarter to second quarter, they said.

"Hopefully, our economy can eventually embark on a stronger path of growth which will improve railroad traffic, revenue and investments leading to continued healthy growth in rail car demand," EPA officials said. "Assuming no further jolts to our economy from either [federal environmental] regulations or the Administration, or external negative developments involving the financial environments abroad, we look for a stabilization in demand for most car types, with the exceptions of small-cube covered hoppers and coal cars."

An easing in small-cube equipment assemblies from 15,000 units in 2012 to 5,000 units in 2013 and a pronounced weakening in coal car demand will reduce total rail-car deliveries from 57,200 this year to 48,800 in 2013, EPA projects.

"Longer term, we are hopeful that stronger economic activities will provide support for certain rail-car assemblies while an improvement in the financial environment, high gasoline prices and strong government backing stimulate greater demand for ethanol and DDG cars," EPA officials said. "Replacement pressures and technological advances, as well as legislative measures, will also play a role in promoting the demand for a variety of rail cars."

The most dynamic element in long-term demand will be tank cars, which will be used to transport "ever increasing volumes" of oil and petroleum products, they said.

EPA predicts that rail-car deliveries will rebound to 60,300 in 2014, then average 66,000 to 67,000 per year to 2017.