2/1/2013

Mechanical Article
EPA: Despite strong tank car demand, rail-car deliveries will fall to 50,500 in 2013

Tank cars remain the "dominant force" in overall rail-car demand, but a variety of covered hoppers, mill gondolas, and Class F flat cars registered a demand uptick in the fourth quarter, according to Economic Planning Associates Inc.'s (EPA) latest rail-car market review.

Tank cars accounted for 83.5 percent, 58.3 percent and 61.8 percent of total car orders in the second, third and fourth quarters, respectively, primarily because of increasing movements of crude oil, particularly from the Bakken Shale.

"While we are pleasantly surprised by the modest expansion in demand for other car types, we remain cautious. We are 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, which are dampening our economic potential," EPA officials said in their market review report. "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."

Assuming there are "no further jolts" to the economy from federal environmental regulations, the Obama administration or negative external developments involving financial environments abroad, demand should stabilize for most car types, with the exception of small-cube covered hoppers and coal cars, they said.

"After strong deliveries in 2011 and the first half of 2012, demand for these hoppers weakened considerably in the second half," EPA officials said. "As a result, our estimate of an easing in assemblies of small-cube equipment from 13,781 units last year to 5,000 units in 2013, as well as the pronounced weakening in coal car demand, will serve to drop total rail-car deliveries from 58,900 last year to 50,500 in 2013."

Longer term, stronger economic activities would support increased demand for certain rail-car assemblies, while a better financial environment, high gasoline prices and strong government backing would stimulate demand for ethanol and DDG cars, they said. Replacement pressures, technological advances and legislative measures also will play a role in promoting demand for various cars.

"However, the most dynamic element in the long term rail-car environment will be tank cars to transport ever increasing volumes of oil and petroleum products," EPA officials said.

The company projects car deliveries to rebound to 59,800 in 2014, then reach 63,500 in 2015. Deliveries eventually would climb to 66,500 by 2018.