Rail-car fleet trends beyond the tank-car fray — by Toby Kolstad

— by Toby Kolstad

If you're writing about rail cars these days, it's hard not to include at least something on the ongoing tank-car developments and disagreements, which I wrote about in my February column and which has covered extensively. And there's still plenty that needs to be said by observers and analysts who aren't biased toward one of the parties with a vested interest (car builders, car owners, railroads and their oil shippers, not to mention tort lawyers and politicians). But there's a lot going on within the other fleets that also deserves comment, so I'll set aside the tank-car matter for now.

On March 17, the Surface Transportation Board released the 2012 Public Use Waybill Sample data. Much of the data was predictable. There was only one surprise: Box-car loads declined again. It was unexpected because paper production, which accounts for more than 50 percent of all box-car carloads, was up slightly in 2012, as were the totals for two other box-car commodities (lumber and auto production). Orders for new box cars have not even come close to matching the number of cars that have been retired in recent years; the fleet shrank from roughly 150,000 cars in 2008 to just over 100,000 cars in 2013. One might expect to see signs reading "The end is nigh" very soon for this fleet, as containerization of box-car traffic continues to lessen the need for this car type.

Rail-car orders to increase for several car types

Another fleet that reflects the impact of retirements is mill gondolas, which primarily are used to move iron and steel products, and scrap metal. Between 2008 and 2013, the fleet declined from 108,000 to 92,000 cars. Unlike box-car carloads, though, mill gondola carloads are increasing slowly and soon will reach the average load level of the past 20 years, with a fleet size that is 20 percent smaller than the average number of cars during the same period. Deliveries should soon begin to outpace retirements, given that steel and scrap metal are two commodities that are not easily containerized.

The U.S. covered hopper fleet — which numbers around 455,000 cars and accounts for more than 32 percent of the national fleet — also is expected to grow significantly, following a few years during which retirements outpaced new builds. Orders for all three covered-hopper sizes are increasing due to more carloads of cement and industrial sand, higher grain exports and a boost in plastic-pellet production. Except for the grain exports, much of these gains are due to increased hydrofracking exploration and production of natural gas in the United States. Even after shipments of frac sand slow down, covered-hopper demand likely will continue as the U.S. economy expands, and as demand increases for cement and domestic production of petrochemicals from domestically sourced natural gas.

Meanwhile, the flat-car fleet, too, should experience real growth for the first time in several years — if lumber shipments and automobile loadings stay relatively strong. With respect to the latter, 70 percent of the multilevel flat-car fleet was built before 1980. Although the Federal Railroad Administration has approved a service life of 65 years for these cars, which will enable most to remain in service well beyond 2035, automakers may not wish to continue loading such old and dated equipment. The current fleet originally was built and managed to satisfy the demands of the Big Three auto manufacturers; the Association of American Railroads originally located its multilevel reload headquarters in Detroit. Of course, the auto industry has changed significantly since 1980; the Big Three are now the Domestic Two, and most foreign-car imports of 1980 are being produced domestically. Perhaps the new automobile shippers may want better rail cars.

As for tank cars, which account for 20 percent of the U.S. rail-car fleet: I hope a resolution for the current disagreement will be reached this summer. Increased oil and gas production in the United States has taken on global political importance in recent months, and perhaps the bigger picture will help all parties involved move past their disagreements.

Toby Kolstad has been in the railroad industry for more than 40 years, with stints at the 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., he can be emailed at Tkolstad@aol.com.