Intermodal Car Orders to Decline

By Jeff Stagl, Managing Editor

Through the third quarter, domestic container traffic increased 7.9 percent compared with volume from the same 2007 period, according to preliminary Intermodal Association of North America (IANA) data.

Yet, railroads and intermodal service providers have had access to enough rail equipment to accommodate container demand because many platforms have been added to fleets the past few years.

There’s also more than enough equipment available for international container moves, which decreased 5.7 percent through three quarters, IANA estimates. With fewer containers arriving at many North American ports vs. last year, thousands of 40-foot cars are parked in storage yards.

No surprise, then, that intermodal car builders haven’t obtained any significant orders this year and likely won’t in the near term.

“Our projection is essentially zero orders for next year and in 2010,” says Toby Kolstad, a Progressive Railroading columnist and principal at Rail Theory Forecasts L.L.C., which monitors and predicts North American freight-rail traffic and rail-car demand.

The year-end projection for intermodal traffic calls for more of the same. Although domestic container traffic is expected to remain up about 5 percent for all of 2008 because of continuing truck-to-rail diversions, international container moves are projected to remain down.

The National Retail Federation’s and Global Insight’s monthly “Port Tracker” report issued in October predicted that by year’s end, container volume at major U.S. ports would decline 6.5 percent to 15.43 million 20-foot-equivalent units (TEUs) vs. a September forecast of 15.5 million TEUs because merchants are carefully managing inventories.

If the latest projection holds, the annual total would be the lowest since 2005.

Factor the recent economic turmoil into the equation, and the traffic segment’s outlook for 2009 isn’t promising, either.

“We see a 3 to 4 percent decline in total intermodal traffic next year if there’s a recession,” says Kolstad.

It’s clear the economy already is in a recession, says Patrick Casey, vice president of fleet management for TTX Co., which manages a free-running pool of more than 200,000 intermodal platforms and is owned by North America’s nine largest railroads.

“A recession will be with us the next two to three quarters,” he says.

If, and When

Such dismal prognostications aren’t encouraging to intermodal equipment suppliers, who are trying to determine when import container demand — and orders — will rebound.

“We hear the rate of the import traffic decline is increasing. When it’s going to stop, nobody knows,” says Bob Yates, vice president of intermodal and automotive for The Greenbrier Cos., which builds 40-foot well cars for international containers and 53-foot well cars for domestic containers.

When import business does bounce back — perhaps in 2010 at the earliest — suppliers won’t notice an immediate effect on their ledgers.

“It will take another year or so after demand increases before demand outstrips the supply of cars,” says Yates.

In the meantime, intermodal equipment suppliers are adjusting their operations and business plans.

TTX, which placed no new orders for intermodal equipment in 2008, will continue to be prudent about fleet acquisitions and try to keep costs under control, such as by “taking a hard look at maintenance,” says Casey. The company’s intermodal platform utilization rate has been steady, but languishing at the low end of historical levels, he says.

At Greenbrier, a production line was converted from intermodal cars to box cars earlier this year to fulfill a recent order, says Yates.

However, two intermodal equipment suppliers are either adding production capacity or expanding their product line to be ready when demand rebounds.

National Steel Car Ltd. is building a $350 million plant in Colbert County, Ala., in the state’s Muscle Shoals area that’s scheduled to commence production in first-quarter 2009.

To be constructed and operated by National Alabama Corp. — a subsidiary of National Steel Car parent National Industries Inc. — the plant will produce about 10,000 cars annually.

“The plant will have the capability to build intermodal cars,” says Hugh Nicholson, executive VP of marketing and sales for National Steel Car, adding that the company currently has no intermodal car orders on its books and produced only a few 40-foot wells in early 2008 to complete a previously placed order.

Five-Unit Car Comes to Market

Meanwhile, FreightCar America Inc. is marketing a new intermodal car for import container moves. Introduced in spring, the five-unit articulated DynaStack™ car — the company’s first foray into the double-stack car market — is designed to hold 20- or 40-foot containers in its wells.

The 170,200-pound car weighs about 7,000 to 8,000 pounds less than conventional articulated intermodal cars, offering better fuel efficiency and more capacity, says FreightCar America Marketing Director Michael MacMahon.

The DynaStack also features a mechanically fastened open-sided truss design.

“The sides are not welded, so you can avoid fatigue at welds,” says MacMahon.

The timing of the car’s introduction wasn’t necessarily ideal.

“When we began to design the car in 2006, the market and economic environment were different,” says MacMahon.

But the soft market has afforded the company more time to put field miles on a prototype car currently in revenue service at BNSF Railway Co., says Senior VP of Marketing and Sales Theodore Baun.

Although 2009 will be another difficult year for intermodal, “we look to 2010 for a pick up and the market to start to come back,” says Baun.

Cautiously Optimistic

RailRunner N.A. Inc.’s top executive is similarly optimistic.

Although the weak economy has marginally impacted business for the company’s Terminal Anywhere™ container-based intermodal transport system, the prospects for the next 12 to 24 months are good, says RailRunner President and Chief Executive Officer Charles Foskett.

Featuring quick-change chassis and bogies to move containers via rail or the highway, the system is targeted at small shippers, logistics providers and warehousing firms that don’t want to invest a lot of capital to access traditional intermodal service.

RailRunner is working on five or six new accounts, ranging from the agricultural to municipal solid waste to general manufacturing sectors. The contracts could take a year or two to close, says Foskett.

“We also have international opportunities,” he says. “We have obtained MOUs for licensing agreements and joint ventures.”

In addition, RailRunner has shifted the focus of Terminal Anywhere’s primary North American commodity market from backhaul grain to other products, such as fresh produce.

The company’s first North American Terminal Anywhere customer, North Star Rail Intermodal L.L.C., has had difficulty getting containers to inland locations for grain backhauls because ocean carriers changed their container distribution procedures, shifting more containers to bulk ships, says Foskett.

“When [inland backhauls] were a cheap way to ship grain, companies like North Star could compete,” he says. “Now, it’s hard for them to compete.”

Forecast Far From Favorable

As long as the economy’s in a recession and import container volume’s in a rut, intermodal equipment suppliers will continue to have a tough time, as well.

Rail Theory Forecasts’ Kolstad would like to offer suppliers hope for next year. But a forecast he compiled in early October is far from rosy.

“I use two things to make a projection: retail sales adjusted for inflation and imports’ balance of payments,” says Kolstad. “I did a projection for 2009 and came up with a 4 percent decline in intermodal loads. So, that’s depressing.”

Jeff Stagl, Managing Editor.