Media Kit » Try RailPrime™ Today! »
Progressive Railroading
Newsletter Sign Up
Stay updated on news, articles and information for the rail industry



This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.




railPrime
View Current Digital Issue »


RAIL EMPLOYMENT & NOTICES



Rail News Home Mechanical

December 2020



Rail News: Mechanical

What will the rail-car equipment market look like in 2021? (commentary by Richard Kloster)



advertisement

It seems like I was answering this question 12 months ago, but for the year 2020. Then the pandemic hit with its economic impacts, none of them good for the rail-car industry except for rail-car storage companies. And all the optimism that we were going to turn the corner for the better in 2020 flew out the window … without a mask.

Now, the focus is on 2021. But there is absolutely nothing to draw on from the horrible 2020. Not one good take-away. No momentum. Nothing positive. Well, maybe not nothing. If you dig deep, you might find some “not negatives.” The big one that comes to mind is we may have found the bottom for lease rates. Granted there are some surplus fleets trading at almost net-zero rates, but most of the stored fleet will return to service as the economy improves — whenever that might be. Hopefully sooner in 2021 than later.

New car deliveries held up in 2020’s first half, with a decent backlog and orders placed before the full extent of the pandemic shutdown was realized. But by late spring, the order rate plummeted and is not likely to return until well into 2021. The result: Deliveries will be down significantly. 

The few areas with any demand strength will be grain and plastic pellet covered hoppers, intermodal flats — and, possibly, mill gondolas, box cars and aggregate hoppers. Also, some tank car types will continue to benefit from compliance-replacement new car demand. Should these markets hold up in 2021, deliveries will be around 27,800 cars. If not, the total will be closer to 23,000 cars.

Focus on the ‘not-negatives’

Retirements are expected to be well above average in 2021 and could mitigate some of the new car demand weakness. However, the timing of this replacement demand is the unknown, which could be pushed out to 2022 or later. A lot will depend on when and how robustly the underlying freight market returns for a particular car segment. Also, scrap steel prices play an important role in the timing of scrapping a rail car. Scrap prices have been so low this year that to-be-scrapped cars have been left in storage for the time being.

The pandemic also was no friend to the rail-car services industry, particularly repair shops. Numerous shops have closed, or plan to. While bad news for the affected facilities, the not-negative is this industry has been chronically over-supplied for years, and in need of a rationalization cycle. This cycle has begun and will last into 2022.

Rail-car storage demand will remain high in 2021, but the heavy inflow is over. Hopefully, cars will begin returning to service next year, which would benefit the repair industry, including full-service shops, mobile repair and cleaning companies, since most of these cars will require some level of repair.

Lastly, there are two developments to watch. The first is the Freight RAILCAR Act of 2020, a bill that would “provide tax credits to encourage the replacement or modernization of North America’s freight rail car fleet,” according to the Railway Supply Institute. The bill has support from all sides of the rail equipment supply chain; it also has Congressional sponsors. However, the bill will not be addressed until the next Congress, and at that time, the state of the economy will factor significantly into whether it is enacted.

The other is Rail Pulse, a recently announced venture comprising several railroads and leasing companies to provide a technology platform designed to accelerate the adoption of GPS and telematics technology to the industry’s rail-car fleet. The platform is expected to be available by 2022’s end and is long overdue.

So, as much as we want to put the horrible year that 2020 was behind us, and as cautious as our expectations need to be for 2021, I hope these not-negatives will provide a little bit of momentum going into the new year.



Keywords

Browse articles on rail-car outlook rail-car equipment Richard Kloster Freight RAILCAR Act of 2020 Railway Supply Institute Rail Pulse

Contact Progressive Railroading editorial staff.