Railcar builders are finally seeing swelling order books after a long struggle out of recession, and are forecasting even better times ahead. This in spite of weakening rail traffic volume that is feeding fresh doubts about the economy’s underlying strength.
Trinity Industries says demand remains strong enough in both sectors that the major builder of railcars and barges needs to watch productivity as it ramps up railcar production, and is pushing to get a flooded Missouri barge facility back to normal.
Competitor Greenbrier is getting a lot of orders as well. And American Railcar Industries, a smaller car builder, has received enough new business to swing to a small quarterly profit from a hefty loss a year ago.
That follows years in which railcar and barge builders had to depend on parts sales and car refurbishing business to keep cash flowing, or try to find income from abroad or other industries. Rail equipment lessors, shippers and railroads parked hundreds of thousands of railcars during the Great Recession, and have been slow to draw them down either to haul loads or sell as scrap.
But business for certain car types has boomed even with a slow economy. Intermodal well cars for the jumbo 53-foot containers are in high demand, along with chemical tank cars for ethanol or oil shipments and hoppers for distillers dried grains and other trendy cargoes.
At the same time, freight rail traffic has flattened out this summer in a decidedly flatter U.S. economy. Overall rail volume in July was down from June levels, according to numbers from the Association of American Railroads.
Except for a few cargoes such as metal ore loadings, which are running at year-to-date highs, major railroads and short lines could point to few signs of new strength in recent weeks.
That is most evident across most bulk commodity and equipment railcar loadings. For the week ending July 23, large railroads across North America picked up 291,909 carloads, 0.8 percent below the mid-June level that was this summer’s best so far, and down 4.6 percent from this year’s peak at the end of March.
Railroads’ intermodal shipments should be on a fairly steady uptrend under the normal seasonal buildup toward the peak season for containerized imports. However, through late July, they were running thousands of loads per week behind 2011 peak weeks in June.
This year’s loadings of July containers at major North American railroads are only about 3 percent ahead of 2010, while trailer shipments that reflect all-domestic loadings actually trail last year’s July pace.
Compared with their 2011 peak weeks in June, North American carriers handled 1.5 percent fewer intermodal loads in the week ending July 23, while U.S. railroads that haul most of the continent’s intermodal traffic were down 2.5 percent.
However, none of that has dampened what’s shaping up to be a big year for suppliers of transportation equipment.
Railcar leasing firm CIT Rail placed orders in June and July with three suppliers for another 5,000 hoppers and tank cars, valued at $475 million. Most are for delivery next year, indicating CIT thinks the bulk carload market will strengthen.
Suppliers for other freight modes also are active. Stronger demand for trucking equipment, much of it to rebuild aging fleets after years of low vehicle purchases, is driving sales reported for engine maker Cummins and drivetrain builder Eaton.
Mark Pigott, chairman and CEO for Paccar, which makes Kenworth and Peterbilt, cited “stronger truck sales in North America and Europe and an improvement in aftermarket parts sales” as his company’s profit jumped 141 percent in the second quarter. And despite an “uneven economy” in North America, Paccar has hit capacity constraints for tires and chassis components; its suppliers are investing to meet the increased demand.
There is also a shipbuilding boom under way for a range of vessels from high-volume container ships to natural gas tankers, as fleet operators plan for the long term in construction commitments and hope the economic slump does not last.
But factory growth nearly stalled in July, and overall new orders by manufacturers contracted. The equipment building spree could explain the demand for metal ore shipments, but if the recovery does not expand soon, other cargoes may not go along for the ride.