Progressive Railroading

Newsletter Sign Up
Stay updated on news, articles and information for the rail industry

All fields are required.

Rail News Home Mechanical

December 2008

Rail News: Mechanical

Toby Kolstad: How Low Can Rail-Car Deliveries Go in ’09? Try 31,500

While presenting my initial projections for next year’s rail-car deliveries at Progressive Railroading’s RailTrends conference in New York City on Sept. 30, the unfolding drama on Wall Street forced me to warn the audience that the 42,000-car forecast we’d made in early September already looked too optimistic, and that the credit/banking crisis might bring deliveries down to 37,000.

During the past several weeks, the situation has further deteriorated, with a probable and very deep worldwide recession in 2009. As a result, we’ve dropped our forecast even lower to just 31,500 cars. That total represents a 50 percent cut in production from 2007 deliveries.

Toby Kolstad  
For the first time since doublestack
well production began in 1985,
there may be no new intermodal
cars built in 2009.

Consequences of Contraction

Last year, we projected 48,000 (plus or minus 10 percent) cars would be delivered in 2008, but that was before Congress passed the Economic Stimulus Act of 2008, which included an accelerated depreciation provision for capital assets acquired before Dec. 31, 2008. The full impact of that provision did not become apparent until Q3, when rail-car deliveries increased by 11 percent after falling each quarter since the summer of 2006. Total deliveries this year may exceed 60,000 cars, well outside the promised accuracy of our overconfident ’08 forecast. So much for our Q.E.D. last year!

Actually, deliveries of most car types were pretty close to last winter’s forecasts. Tank car deliveries should total around 21,500 compared with the 20,000 cars we forecasted. Next year, however, a slowdown in the ethanol industry — which was squeezed this year by increasing corn costs and prices capped by gasoline distributors — and a general contraction in the economy lead us to predict that only 12,000 cars will be delivered.

For cars that haul general merchandise traffic — box cars, flat cars, and mill gondola cars — it’s more or less the same. There is no demand for new box cars and only a backlogged order from 2006 was produced; deliveries may total 300, and 300 were forecasted. Flat-car deliveries will amount to 2,000 cars vs. the projected 1,500, and mill gondola deliveries may reach 1,500 cars vs. the 1,000 cars predicted. Next year, we project deliveries of 1,000 flat cars and 1,000 mill gondola cars.

With intermodal traffic down for the second-straight year, intermodal flat-car deliveries crashed to 2,000 cars in 2008 compared with the 4,000 units projected. For the first time since doublestack well production began in 1985, there may be no new intermodal cars built in 2009. Moreover, with so many surplus cars in storage, no new deliveries of this car type will be needed for quite a while, unless Canadian National Railway Co. orders more non-TTX Co. cars for its growing Prince Rupert terminal business.

The big gainers in 2008 were coal and covered hopper cars. Coal production was up this year, and although total output was still less than it was in 2006, the surplus coal cars that depressed lease rates in 2007 disappeared and the industry needed new cars. Although coal exports continued to rise and created a need for more steel coal cars in the East, coal car production benefited most from the economic stimulus package, rising to more than 14,500 cars in 2008 compared with the 7,000 cars we forecasted last year. However, unless there is another February surprise from Congress, production in 2009 should fall to 7,000 cars.

A Few Surprises Ahead?

Deliveries of all covered hopper types should reach almost 17,000 cars compared with the 14,000 units forecasted. Although grain traffic was up in 2008, there were surplus cars from 2007 to handle the increase and hardly any reason for 9,700 deliveries (vs. a projected total of 7,000 cars.) Grain production is expected to remain high in 2009, but without a stimulus package, deliveries should fall to 6,000 cars in 2009. Small and jumbo cars were a mixed bag in 2008, with the former coming in 1,500 cars over the forecast of 2,600 deliveries, and the latter underperforming by the same amount with 4,500 deliveries.

The economic situation is still very fluid, and there may be more economic and legislative surprises in the coming months that could stimulate demand. It may be necessary to adjust the forecasts as more information becomes available. In any event, the numbers might look a lot different than they do right now — fodder for discussion, to be sure, when I participate in a Webcast Progressive Railroading plans to host next spring.

Toby Kolstad has been in the railroad industry for more than 30 years, with stints at Illinois Central Gulf Railroad, Denver & Rio Grande Western Railroad, a car builder and lessor. Currently a consultant on rail-car matters and president of Rail Theory Forecasts L.L.C.


Browse articles on rail car freight car rail car deliveries freight car deliveries Toby Kolstad

Contact Progressive Railroading editorial staff.