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Rail News Home Rail Industry Trends

December 2007



Rail News: Rail Industry Trends

What goes up, must come down:
There'll be 48,000 deliveries in '08



At least three times a week I am asked the following: What is the normal rate of production for the rail-car industry, and what is the normal rate of replacement of old cars? While I usually provide an estimate of what might be considered “normal,” I always qualify my reply to the effect that the industry never has a normal year. Production either is going up or down, and if there’s a normal to be found, it’s in a 20-year average. As for old cars, replacement schedules change more often than railroad traffic levels.

However, there is one apparent constant for this industry: What goes up eventually comes down.

FROM 74k to 63K to 48K
After increasing production from 18,000 cars in 2002 to more than 74,000 cars in 2006, rail-car manufacturers reduced their output this year to about 62,800 cars. Moreover, we expect them to cut back even further in 2008 to 48,000 cars.



Toby Kolstad
Unless the economy goes into a recession,
2008 should be near the low point
in deliveries for this business cycle, and
an upturn in demand for some car types
should start to materialize by mid-year.
We would have projected an even lower delivery rate for this year and next if three of the six builders weren’t producing a new fleet of tank cars for the ethanol industry. In a “normal” year, total tank car deliveries for all users do not even reach the number of cars being built to move ethanol. We project 20,000 tank cars will be delivered in 2008. For 2007, we predicted 18,500 compared with the 22,500 actually expected as of November.

Demand for new covered hopper cars is falling fast, and surpluses exist for all car sizes. Cutbacks in the construction industry continue to stifle demand for small cube cars used to move cement and other building products; rail grain shipments are down this year and there’s a small surplus in the grain car fleet; and since ethanol producers are not shipping their distillers’ dried grains (DDG) in the quantities that had been expected, there are surplus jumbo DDG cars.

Our 2008 predictions for shipments of covered hoppers for small, large and jumbo sizes are: 2,000, 5,000, and 7,000, respectively. At this time last year, we projected 21,000 covered hoppers would be shipped compared with the 20,500 we now expect.

New coal car demand would be at depression levels if Norfolk Southern Railway were not ordering replacements for its older steel cars. With so many newly built cars in storage, we don’t expect to see a significant number of orders until many months after production rebounds in the Powder River Basin. We predict 2008 deliveries of new GT gondola and hopper cars to be 2,500 and 4,500 cars, respectively. This year, the actual deliveries of GT gondola cars and hopper cars should be 6,100 and 6,600, respectively, compared with the 5,500 and 6,500 cars we predicted late last year.

For the first time in many years, intermodal traffic is down — 1.3 percent through the first 45 weeks of 2007 — and demand for new intermodal cars is down accordingly. The fleet is too new to require replacements and the 4,000 new cars delivered this year only added to a surplus created by the traffic downturn. Just as surplus coal cars will be a drag on new car orders once production picks up, so too will surplus intermodal cars stifle demand for new equipment when intermodal traffic rebounds.

This year, intermodal car deliveries should reach 4,000 cars compared with the 6,000 that we projected. Optimistically, next year’s deliveries might reach 5,000 cars.

A LOW POINT LOOMING
Housing market doldrums have depressed demand for lumber flat cars, but deliveries of other flat car types in 2007 should total around 1,700 compared with our prediction of 1,500. Our forecast for 2008 is 1,500 cars. Deliveries of new GB mill gondola cars should total about 1,000 cars in 2008 after reaching 2,200 cars in 2007 (compared with our prediction of 2,000). Box car demand is too erratic to forecast, but 2008 deliveries should be well under 1,000 cars.

Unless the economy goes into a recession, 2008 should be near the low point in deliveries for this business cycle, and an upturn in demand for some car types should start to materialize by mid-year. We expect orders for new coal and grain cars to raise production estimates for those car types in 2009.

However, we anticipate tank car production to fall significantly in 2009, and the additional coal and grain cars just might be able to keep industry totals from falling any farther.

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.




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