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October 2016



Rail News: MOW

Despite a strong 2016 so far, the wood-tie market could soften in 2017 if freight-rail traffic doesn't pick up



“It’s sometimes a balancing act to get the weather and supply of loggers to match up, but that is an industrywide challenge,” says Mike Pourney, president and chief executive officer of Gross & Janes Co., a tie supplier and shipper.
Photo – GROSS & JANES CO.

By Michael Popke

The wood crosstie business might be at Mother Nature’s mercy more than other segments of the rail industry, but railroads can’t function without properly maintained tracks.

The wood-tie industry suffers less than some supply segments because of railroads’ ongoing maintenance plans, which are “developed as part of an internal policy regarding optimizing maintenance,” says James Gauntt, executive director of the Railway Tie Association (RTA). “Since the late 1990s … railroads seem to have recognized that some maintenance items are more optimally procured as close to steady-state as possible.”

As a result, wood-tie suppliers likely haven’t been hit as hard as others have in the wake of freight-rail traffic (and capex) declines. Additionally, Gauntt thinks that the industrial and short-line markets still have unmet needs for ties because of raw material shortages in recent years, and are building and maintaining tracks at higher-than-normal rates in 2016 — in part because wood-tie suppliers returned to normal production levels following a couple of the wettest weather years in recent memory.

There’s also been trackwork in the short-line realm because of the certainty surrounding the Section 45G tax credit. In December 2015, Congress passed the fifth short-term extension of the tax credit, extending it through 2016. Section 45G provides regionals and short lines a 50 cent tax credit for every dollar they spend on track rehabilitation and maintenance, up to $3,500 for each mile of track they own or lease.

Through 2016’s first seven months, wood-tie production rose 9 percent to 16.2 million units and purchases increased 6 percent to 15.7 million units compared with year-ago levels, according to RTA data.

Overall, purchases have been in a “moderate upswing” since May 2015 and production has been in a “strong uptrend” since November 2014, according to an RTA market report issued in August.

That said, tie production plunged 12.9 percent in July to 2.21 million units, while purchases dropped 11.8 percent to 2.2 million units from June levels, according to RTA. Compared with July 2015 data, production fell 7.6 percent, while purchases slipped 8.4 percent.

If freight traffic does not increase dramatically during the fourth quarter, Gauntt predicts next year likely will be a little softer for wood-tie suppliers.

For the most part, wood-tie manufacturers and tie treaters say they’re cautiously optimistic about the market’s prospects in the months ahead.

“I think we will see continued growth through the end of this year, because production fell behind the last of couple of years due to wet weather, which hindered accumulation and production of ties,” says Tim Carey, product manager for Arch Wood Protection Inc., which treats wood used to produce ties.

Indeed, heavy rains flooded large swathes of the southern and western United States in 2013, 2014 and 2015, resulting in waterlogged wood supplies and derailed inventories.

“Crosstie production has continued to rebound nicely over the past year,” adds John Giallonardo, vice president of Class I sales and North American operations for wood-tie manufacturer Koppers Inc. “We have made tremendous progress in our effort to replenish the inventory levels of our Class I customers. All indications are that production will remain solid for the foreseeable future.”

Stella-Jones’ George Caric agrees.

“With the reduction in train traffic, the tie gangs have been able to gain efficiencies,” says Caric, vice president of marketing for the wood-tie manufacturer.

And that’s the case even though some of his firm’s major projects have been stalled or cancelled because of weak market conditions in the coal and crude-oil sectors.

“The Class Is have been hesitant to cut tie programs too deep for fear of letting the track structure suffer,” Caric says.

Which is why 2016 essentially has been a rebound year for the wood-tie crowd.

“It’s sometimes a balancing act to get the weather and supply of loggers to match up, but that is an industrywide challenge,” says Mike Pourney, president and chief executive officer of Gross & Janes Co., a tie supplier and shipper.

Tie supply and demand

Although 2016 so far has been drier than previous years in the United States, tropical summer weather in western and eastern procurement regions could slow down tie supply for awhile, Gauntt says. If it does, it could balance out the supply-and-demand equation.

“Hardwood sawmillers have to find a home for everything they produce at the mill,” Gauntt says. “The last three years have seen some wild swings in demand for some of the other hardwood products, and managing that has been a real uphill battle for sawmills. Railroads and treating plants have had to contend not only with the weather, but also with how these other markets are faring.”

In an effort to help keep track of procurement trends for ties in various regions, RTA in July unveiled the Procurement Trends Dashboard. Built to represent the monthly opinions of in-the-field tie buyers who procure untreated ties from sawmills in their specific regions, the dashboard displays data submitted to RTA within the first two weeks of the month following a specific reporting period. The output is available in monthly and yearly formats.

In North America, there is no shortage of wood fiber for ties, says Gauntt. Nonetheless, manufacturers are cautious about the near term.

“Last year, raw material supply struggled to keep pace with industry demand,” Koppers’ Giallonardo says. “However, with current demand softening a bit and raw material supply finally starting to get healthy again, we need to be cautious in how we proceed in the coming months. It is important for the entire industry that we protect the raw material supply base and avoid the pitfalls that we just recovered from.” Treatment innovations continue

Increasing interest in environmental and economic sustainability continues to drive innovation at railroads. It’s also sparking research and development among tie suppliers and treaters.

In September, Gross & Janes announced it received a U.S. patent for a “two-step” borate pre-treatment dipping process and related equipment that the company developed to increase tie life. Forty percent of the 23.5 million ties produced in North America last year were treated with borate, according to RTA.

“Gross & Janes was an early railroad industry proponent of using borate to enhance the life of crossties,” Pourney said in a statement about the patent, which will be used to produce Tuff-Tie™ crossties. “After years of monitoring borate in railroad crossties, we have succeeded in making the two-step application process more uniform and consistent. Receiving this patent validates decades of effort to incorporate borate as an additional component in treating a railroad tie.”

Meanwhile, Nisus Corp.’s BTX® system for railroad bridge ties moved into the production phase at some treatment facilities this year.

The process involves drilling and injecting green bridge ties with Cellutreat® liquid borate prior to pressure treatment. During the Boulton cycle, as a vacuum is drawn to remove moisture from the tie, the borate in the drilled reservoirs is drawn into the tie. Then the bridge ties are pressure-treated with QNAP™ copper naphthenate.

Nisus also has added new borate and copper naphthenate treaters, with two more scheduled to begin operation in 2017, says Ken Laughlin, vice president of the company’s wood preservation division.

At Stella-Jones, production teams are pre-plating bridge ties and building panelized bridge panels in an effort to increase safety and improve installation efficiency, Caric says. And Arch Wood Protection has a hot-oil, creosote-replacement preservative in pilot production in Europe, which the company eventually hopes to develop in the United States.

Sustainability success story

Regardless of the production and purchasing fluctuations in the wood-tie industry, the product remains “one of the most sustainable resources on the planet,” says Arch Wood Protection’s Carey.

For example, Arch Wood Protection’s Chemonite® and Wolmanac® industrial preservative systems are water-based and not dependent upon fossil fuels for a carrier, Carey says.

“We strongly believe that wood is the most desirable building material, and we focus our extensive research, development, technical and engineering resources [on] developing new technologies that enhance the performance and increase the longevity of wood,” he adds.

Last year, RTA hosted a popular session at BNSF Railway Co.’s Railroad Sustainability Symposium at the GE Training Center in Crotonville, N.Y., that focused on wood preservation and other environmental aspects of tie usage.

“We not only have developed a significant story on our industry’s ability to be the most environmentally sound solution for tie production, but we continue to place emphasis on the incredibly powerful carbon sequestration story for wood,” Gauntt says.

Wood products account for 47 percent of all raw materials manufactured in the United States, but during production use only 4 percent of the total energy consumed by U.S. manufacturers, he says.

“Add in the fact that when we treat wood or produce any wood product that lasts for decades or more, we have effectively taken huge amounts of carbon out of the atmosphere and sequestered it for generations,” Gauntt says.

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



Keywords

Browse articles on wood-tie market crossties wood ties Railway Tie Association Arch Wood Protection Stella-Jones Gross & Janes Nisus Koppers tie supply sustainability

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