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October 2017



Rail News: Rail Industry Trends

Uncertainty rules the wood crosstie market in the aftermath of two hurricanes



Gross & Janes Co. recently expanded and updated its switch-tie processing plant in Camden, Arkansas
Photo – Gross & Janes Co.

If you’d asked Jim Gauntt in mid-August to identify his biggest concern about the wood crosstie market heading into 2018, he would have cited surplus inventory. But the two deadly hurricanes that caused historic flooding in about half the primary tie-producing states in late August and early September have given the Railway Tie Association’s (RTA) executive director reason to pause, prediction-wise.

“Now, I don’t know where we’ll be,” Gauntt said less than three weeks after Hurricane Harvey decimated south Texas with a one-in-1,000-years flood that dropped up to 50 inches of rain in some areas. A week and a half later, Hurricane Irma raged through Florida and portions of the U.S. East Coast.

“We may see a number of sawmills run out of logs, as logging remains impossible in some areas — maybe for weeks,” Gauntt says. “Sawmills like to go into the winter with a surplus of three to four months on deck. Now, it’s looking more like [a surplus of] one month to six weeks.”

So, what does that mean for the railroad industry — and the wood-tie market, specifically?

“We don’t know the answer,” Gauntt says. “Everything could be status quo. It all depends on how fast the inventory will be reduced because of the effects of rebuilding the infrastructure, homes and businesses in Texas. It’s hard to quantify, as is any potential increase in railroad track repair needs, and traffic to deliver rebuilding materials and replacement vehicles.”

Reassessment time

Ties that weren’t already nearing the end of their lifecycle should survive the recent flooding, manufacturers of wood ties and related protection products say. But some tracks were severely damaged.

“Everything is going to be goofy for awhile,” predicts Tim Carey, product manager for Arch Wood Protection Inc., which offers wood-tie treatment products. “Who knows what all of that rain is doing to the ballast and tracks that are underwater? Everybody — Class Is, regionals and short lines — will be in need of reassessment.”

Another pressing concern is that much of the raw wood that might otherwise have been earmarked for ties likely will go toward lumber for construction of new homes and other buildings in areas hit hard by the hurricanes. The increased demand will drive up log costs, and could result in more pricing and inventory fluctuations during what already has been an erratic year for the wood-tie market, observers say.

All of which raises the question of whether railroads will optimize their current tie inventory in anticipation of tighter supplies and higher prices.

“The sawmills are going to run out of logs and then not be able to get back into the woods,” says George Caric, vice president of marketing for wood-tie manufacturer Stella-Jones Inc., which has registered an uptick in commercial business this year, the result of short lines continuing to take advantage of the Section 45G tax credit to jump-start infrastructure projects previously on hold. “We’ll probably see some shortages. But the good news is that we’ve got plenty of material to meet any emergency demands.”

Up and down

Industrywide, wood-tie production and purchases throughout 2017 have been up and down from month to month. In July, crosstie production fell 8.9 percent to 1.6 million units from June levels, and purchases dropped 9.8 percent to 2.2 million units, according to RTA’s monthly market report.

In June, tie production fell 4.8 percent to 1.8 million units, while purchases rose 7.8 percent to 2.49 million units from May levels. In May, production rose 7.2 percent and purchases dropped 2.4 percent.

However, Gauntt cautions not to place too much stock in monthly reports.

“Data on production and inventory can vary widely from month to month, and does not accurately illustrate real trends,” he says. “There are several technical reasons for this, but mostly it’s because physical inventories are taken at different times by different producers, which can require adjustments, so month-to-month differences can be misinterpreted.”

Gauntt suggests analyzing data over the past five years from a big-picture perspective. From 2013 through mid-2015, several logging states sustained some of the wettest weather on record since 1895, which resulted in railroads facing shortages for treated ties and higher demand, he says. The subsequent surge in sustained tie production to overcome the weather-related shortages was followed by softer demand in 2015 and 2016 from virtually every rail industry sector.

“Railroads were not buying as much, but the faucet was still wide open,” says Bill Behan, president of Gross & Janes Co., a tie supplier and shipper. “The sawmills were trying to crank out as much as they could, and they cranked out more than we needed. Everybody just pulled back.”

Since then, some railroads have maintained their typical volumes, while others scaled back their purchases “to varying degrees,” adds John Giallonardo, vice president of Class I sales and North American operations for wood-tie manufacturer Koppers Inc.

“There has been an overall increase in railroad shipments, with a strong emphasis on intermodal business,” Giallonardo says. “However, the de-emphasis of the heavy-haul coal lines has had a negative impact on crosstie demand. The railroads are in the midst of an ongoing analysis to determine what the sweet spot is for their tie purchases.”

The self-analyzing continues. Production during 2017’s first seven months declined 21.9 percent to 12.65 million units, while purchases fell 9.6 percent to 13.7 million units compared with the same 2016 period, according to RTA data.

“Had purchases been up by 10 percent, the industry would be a lot farther along in finding market balance,” Gauntt says.

Gross & Janes’s Behan thinks the current high inventory levels might “speed up” the recovery.

“I don’t think we’re going to go backwards, because there’s so much in the pipeline. … I think saying the industry was unwittingly prepared for any potential shortage is a good way to describe it,” he says.

Expansions and enhancements

Recently completed plant expansions could help, too. Gross & Janes expanded and updated its switch-tie processing plant in Camden, Arkansas — boosting capacity from 30 percent to 80 percent, Behan says.

“It was a matter of starting at one end of the plant and going through each machine center to replace worn parts, update the timing of equipment and put everything in new running condition,” he says.

Meanwhile, technology continues to help tie producers ramp up production efficiencies. For example, Stella-Jones switched to robotic stackers in several plants for safety reasons — a trend Caric expects will continue, as the company cuts down on injury rates and positions facilities to keep better pace with demand.

“Railroads [also] are asking suppliers to figure out a way to get rid of old railroad ties,” Caric says, adding the urgency to do so is increasing. “We’re working on it every day and looking at new technologies, such as building cogeneration facilities to burn old ties.”

Efficiency and sustainability will be the primary topics of RTA’s 99th Symposium and Technical Conference, which is slated for Oct. 30-Nov. 3 in San Diego. Representatives from RTA and the Railroad Sustainability Symposium will jointly meet to discuss alternative wood preservatives and tie disposal. For more information, visit rta.org.

Michael Popke is a Madison, Wisconsin-based freelance writer. Email comments or questions to prograil@tradepress.com.



Keywords

Browse articles on Railway Tie Association wood-tie market Arch Wood Protection Stella-Jones Gross & Janes Koppers

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