Rail-car delivery forecast for 2012 from Rail Theory Forecasts' Toby Kolstad

— by Toby Kolstad

For a very long time, rail-car orders and deliveries have followed very predictable patterns, tracking closely with well-known and long-established patterns in the economy and railroad operations.

There always have been anomalies — such as the build-up of the ethanol fleet or a temporary surge in orders from a government stimulus program — but they only had a marginal impact on the total fleet numbers and either could be easily quantified for future forecasts or dismissed as one-time phenomena.

However, everything changed in 2011. Orders surged as the economy sputtered during the first half of the year, driving up delivery rates at an unprecedented rate. The words of Dorothy Gale in The Wizard of Oz came to mind more than once during the past year: "Toto, I've a feeling we're not in Kansas anymore."

Our initial forecast of 22,000 new-car deliveries and our formal forecast in December 2010 of 26,300 cars for 2011 compared poorly with the 44,000 cars that are now expected to be delivered this year. If only the overall U.S. economy had recovered in a similar fashion!

As for 2012, the situation is still very fluid, but there should not be any retreat from the current levels of production. Deliveries may even be higher — 51,500 cars, say — if crude oil shipments continue to drive up tank-car orders.

Orders for small-cube covered hoppers seem to know no limit this year, and almost 18,000 cars were ordered between June 2010 and June of this year. Even more orders were expected in the second half of 2011, and deliveries eventually could increase the overall size of the 65,000-car, small-cube covered hopper fleet by 50 percent.

We didn't anticipate that hydrofracking wells for natural gas could lead to so many new rail-car orders. When they enter service, these cars eventually could lead to more than 300,000 new loads annually for railroads.

The number of intermodal cars ordered was also a surprise, although it might have been anticipated if I had paid more attention to the annual growth in 53-foot container loads. Although there has been significant growth in domestic container traffic due to better railroad operations and higher fuel costs for truckers, much of the growth in 53-foot container traffic is due to a substantial increase in transloading of imported 40-foot container goods into 53-foot domestic containers.

We estimate that more than 30 percent of all inbound 40-foot containers currently are being transloaded into 53-foot containers; that compares with less than 15 percent a few years ago. Although there are still thousands of 40-foot well cars parked in long-term storage, intermodal traffic growth should provide a steady demand for more new 53-foot double-stack wells in 2012.

The most surprising development this year has been the increasing shipments of crude oil by rail. Many loading and unloading terminals are being built near North Dakota's Bakken Shale and near Gulf Coast refineries to handle unit trains of crude oil. The existing pipeline is at capacity and there is environmental opposition to building another one.

Given the projections of more than 600,000 new carloads per year that have been made by executives at both BNSF Railway Co. and Union Pacific Railroad, a fleet of more than 20,000 new tank cars may be needed to handle this traffic. However, what railroad or leasing company would want to own tank cars for traffic that could move via pipeline in a few years?

If the oil companies make long-term commitments for the cars, it will be good news for railroads: They will be able to count on this new traffic for more than a few years. But will they step up and make the commitment?

Although our current forecasts have utilized word processors more than spreadsheets, the forecast models have been of great use in at least quantifying the anomalies, and data is being compiled to identify the new trends and quantify the orders from the one-time events.

However, as I work on my forecasts for next year, I fear that I may hear the words of another character from The Wizard of Oz: "Pay no attention to that man behind the curtain." I hope not! And in the interest of disclosure, I have no curtains in my office.

Toby Kolstad has been in the railroad industry for more than 30 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.