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October 2009
By Walter Weart
Through August, tie purchases rose 0.3 percent to 15.1 million units and production jumped 29 percent to 16.5 million units compared with figures from 2008's first eight months, according to the Railway Tie Association (RTA). Although production — which has been easing since May — fell an unseasonal-like 13 percent in August alone, purchases rose 1 percent.
Railroads "have done a remarkable job" of maintaining their networks at optimal levels in the face of the eroding economy and declining traffic, said RTA Executive Director Jim Gauntt in an email.
However, the recession eventually will take a toll on railroads' maintenance-of-way (MOW) spending and tie demand, he believes. Demand is dependent on freight traffic levels, MOW budgets and tie condition changes over a two-year period. The history of a recession's impact on demand shows the second year of a deep recession is worse than the first, said Gauntt, referring to a data model based on the past 23 years.
RTA's statistical analysis shows tie replacements — which drive demand — can best be predicted by the miles of track currently used to move freight, and an average of ton-miles moved in a current and prior year. In a recession's early stages, track time increases and tie installations accelerate, as witnessed in this year's first half. But as the economy deteriorates, its impact on railroads' budgets the following year becomes more apparent as capital spending is reduced and fewer ties are purchased, said Gauntt.
Although purchases likely will reach 19.5 million to 20 million units by year's end — representing a "modest reduction" of about 4.3 percent to 6.5 percent from 2008's level — the latest projections shows purchases will fall to between 18.6 million and 18.9 million units in 2010, he said.
"If the economy deteriorates further in 2009, then we could see demand dip under 18 million ties, which would be in the range of 2004 tie purchases," said Gauntt. "However, with demand approaching 21 million ties for three years in a row, the change feels much more dramatic to producers."
Sawmills now are more dependent on business from wood ties — which still account for a vast majority of tie purchases — than they were 10 years ago because of sluggish housing starts. If more sawmills close or don't restart operations when the economy strengthens, raw material supplies could lag once demand rebounds, said Gauntt.
All things considered, the industry might not register a significant boost in demand until mid- to late 2011, he believes.
Such projections are leaving tie suppliers in a quandary, trying to determine how to best balance production with demand. Although some suppliers still are boosting capacity and developing new products, others are holding serve until more orders roll in.
Orders weren't an issue for Thompson Industries Inc. in the first six months of its current fiscal year (October 2008 through March 2009), when the wood-tie supplier registered its best-ever sales for the period. The company treated 692,100 ties, including switch and bridge ties, timbers and crossing timbers.
"However, this second half is a completely different story and proving to be quite a challenge," says Jeff Broadfoot, Thompson Industries' national sales and service manager. "Our regional, short line and contractor business is down significantly compared to this same time last year."
Nonetheless, the company recently expanded production capacity in the face of a slowing market. Earlier this year, Thompson Industries added spur tracks at its Russellville, Ark., plant so the facility could handle 55-car unit trains for tie loadings. In addition, the plant now features three large pressure-treating vessels, says Broadfoot.
Last year, the supplier also teamed up with L.B. Foster Co. when the company decided to move a pre-plating operation to Thompson Industries' Russellville plant, he says. During the pre-plating process, a machine positions a tie, places the tie plates and mechanically spikes the plates in the proper location, eliminating the need to perform the task at a job site.
"We have set up a high-capacity crosstie boring and pre-plating operation, and we can pre-bore and pre-plate crossties with hardware supplied by us or by customers," says Broadfoot.
This year, Thompson Industries obtained an order for pre-plated ties from Balfour Beatty plc. The supplier also received an order from Alaska Railroad Corp. for pre-bored ties.
Koppers Inc. also recently filled an order for pre-plated wood ties — just not as many units as in years past. Earlier this year, the supplier completed a 25,000-unit order for CSX Transportation, which previously had ordered more than 100,000 units in 2006 and 2007, says Vice President of Marketing and Sales Tom Niederberger.
Recently, Koppers gained pre-plating flexibility by using mobile machines at several plants, he says. In July, the company acquired three mobile pre-plating machines from Coastal Timbers Inc.
During the past year, Koppers also has replaced older cylinders with new high-capacity cylinders at two plants. The supplier added one new cylinder at its Guthrie, Ky., plant and two new cylinders at its Green Spring, W.Va., facility.
"These capital investments have generated incremental gains in our overall treating capacity," says Niederberger.
Although demand is softening, stimulus-funded projects and an extension of the short-line tax credits could help spur more business in the near term, he believes.
A significant boost from its BPB operations acquired from Burke-Parsons-Bowlby Corp. last year helped Stella-Jones Inc. register booming business in the first half. Sales reached $241.1 million vs. $189.3 million in first-half 2008, says Doug Fox, Stella-Jones' senior VP of engineering and operations.
However, the wood-tie supplier cut back production because of excess treating capacity.
Stella-Jones temporarily suspended treating operations at a Prince George, British Columbia, plant for six weeks to account for seasonally reduced tie demand during the Canadian winter, says Fox, adding that temporary shutdowns are a common operating practice.
To help boost sales in both the near and long term, Stella-Jones continues to stress R&D. The company is trying to improve borate treatment to address bridge timber damage caused by Formosan termites. In addition, Stella-Jones is analyzing copper napthenate treatment for bridge material to reduce bridge and building crews' handling issues, and address other concerns about current treatments on elevated track, says Fox. The treatment not only makes timbers "cleaner," it reduces creosote usage and costs, he says.
Tangent Rail Corp. is researching borate treatment, as well. The supplier continues to expand its use of borate dual treatment, which will be applied to ties installed in the Southeast, where their lifecycle can be shortened by harsh environmental conditions, says Tangent Rail Vice President of Business Development George Caric. A Norfolk Southern Railway study of borate dual-treated ties found there was no trace of degradation after 15 years, he says.
In the meantime, Tangent Rail is filling a few orders. The supplier received a "sizable order" from the Indiana Rail Road Co., which is building new track for a coal mine project, said Caric, adding that Tangent Rail also obtained large orders from CN and the Massachusetts Bay Transportation Authority.
A steady stream of orders has helped Boatright Cos. Inc. register stable wood-tie sales so far in 2009.
The primary reason: Class Is and "large" short lines continue to maintain and upgrade their systems, Boatright officials said in an email. The railroads' preliminary budgets for 2010 appear to be about the same as 2009 and 2008, the officials believe.
However, "small" short lines have cut back on their tie purchases because of the economy and impact on their cash flow. Small- to large-size contractors that serve short lines also have cut back on purchases, Boatright officials said.
Purchase cutbacks have prompted Gross & Janes Co. to "make several hard decisions" — such as adapting production capacity to purchases and balancing tie availability — that might have long-term effects, said President and Chief Executive Officer Matt Clarke in an email.
Untreated wood ties can't be used until additional manufacturing processes are completed, similar to crude oil and iron ore, he said. Tie availability and pricing are influenced by multiple factors, such as demand, competing markets and weather. If left "un-reviewed," the factors can add cost, said Clarke.
To generate more business, Gross & Janes is mirroring several of its competitors by stressing R&D. The company continues to develop the Tight Spikeª, a more cost-effective chemical tie-plugging compound that's been available the past 18 to 22 months, said Clarke.
A urethane system designed to restore ties by securing the spike for many years, the Tight Spike so far has met or exceeded testing parameters, he said.
The market forces that are affecting wood-tie suppliers also are hampering concrete-tie providers. L.B. Foster Co.'s CXT¨ Inc. subsidiary had a steady backlog in the first half, but knew that sustaining it would be difficult because of the economy, says Mark Hammons, L.B. Fosters' national sales manager.
Long term, the outlook for concrete ties appears favorable because of new transit projects and the ongoing development of high-speed rail corridors, says CXT President Kevin Haugh.
For now, the supplier is filling orders for the Utah Transit Authority, Sound Transit and Port of Portland, as well as several Class I, regional and industrial customers.
"CXT supplied 87,000 ties for the new rail line to serve the Signal Peak Mine south of Roundup, Montana," says Hammons.
CXT also is pursuing R&D. The company continues to develop an abrasion-resistant concrete tie designed for applications ranging from light- to heavy-haul railroads that require more durability.
An R&D team currently is testing a concrete tie that offers superior abrasion resistance and hardness without affecting flexural capacity and tensile strength, says Haugh. Preliminary test results have been promising and CXT plans to complete additional testing in the fall, he says.
By year's end, the company expects to begin testing the ties in track with several Class Is and a third-party test center, says Haugh.
Rocla Concrete Tie Inc. already is reaping the benefits of R&D conducted the past several years.
The supplier previously worked with BNSF Railway Co., which was concerned about the future availability of wood ties, to develop the Maintenance Replacement Tie (MRTª), says Rocla Manager of Sales Al Smith. Since the tie was introduced in 2002, BNSF has installed about 30,000 MRTs, which offer the same dimensions as a wood tie.
Rocla also worked jointly with Progress Rail Services in 2003 to develop a family of ties to be used with turnouts. The ties are cast in six-inch increments and use a standard shoulder, milled plate and anchor, says Smith, adding that Bay Area Rapid Transit (BART) has purchased the ties.
Among other recent orders, Rocla is supplying concrete ties to BNSF, the New Mexico Rail Runner Express and Amtrak, which plans to install the ties along the Northeast Corridor. Rocla also is supplying 40,000 ties for the Regional Transportation District of Denver's West Side Corridor.
Business might have been better through the third quarter because of stimulus-driven projects, but the flow of funds for rail projects hasn't been "as fast as we had hoped," says Smith. "This will likely push any request for proposals into the first half of 2010."
So far, market fluctuations aren't impacting North American Railway Steel Tie Corp. (NARSTCO) as much as they're affecting other tie suppliers.
"The market is not bad, but not as good as we would like," says NARSTCO VP of Marketing and Sales John Fox. "We focus on projects with the Class Is, and NS has seven projects in which we see potential."
To generate sales, NARSTCO aims to continue improving its turnout-tie sets, such as by ensuring the sets are faster to assemble and easier to install, he says. The supplier also is adding a second production line at its Midlothian, Texas, plant.
In addition to product development and capacity expansion, ensuring a project is the right application for its steel ties — meaning the ties are cheaper to install and maintain vs. other ties — is paramount to NARSTCO, says Fox.
Lately, the "right" project has been a new intermodal terminal. The company is supplying steel ties to UP for its new terminal in Joliet, Ill., and to CSXT for its new intermodal facility in North Baltimore, Ohio.
Meanwhile, plastic-composite tie supplier TieTek L.L.C. is registering more sales to transit agencies — including BART, the Chicago Transit Authority, Metropolitan Transit Authority of Harris County, Texas, MTA New York City Transit and Miami-Dade Transit — even though a majority of its ties have been installed by Class Is over the years, said Marketing Manager Shauna Morris in an email.
Transit agencies are responding to the environmental and sustainability benefits of TieTek's ties, in addition to their performance history, she said.
A study conducted by HDR Inc. showed the installation of TieTek ties on 100 miles of track can reduce greenhouse gas emissions by 40,000 metric tons of carbon — the equivalent of removing 25,000 passenger cars from highways for one year, said Morris.
Agencies also are interested in the tie's life-cycle economics; at the end of their useful life, the ties can be recycled into new ones, she said.
Although both freight and passenger railroads continue to evaluate and install ties produced from plastic-composites, steel and concrete, wood ties likely will continue to dominate the market, according to the RTA.
Wood's market share will remain at about 93 percent for the foreseeable future, with concrete ties and steel/composite ties holding at about 6.5 percent and 0.5 percent, respectively.
Wood ties offer "desirable performance properties" that make them ideal for a wide variety of track applications, as well as attractive "life-cycle economics," according to the RTA.
No matter the type, the tie market as a whole will continue to brace for — and plan for — a demand downshift that will remain a downer for suppliers until the economy fully recovers and railroads commit more dollars to MOW.
"The turnaround we thought we might see by now has not yet arrived," says Koppers' Niederberger.
Walter Weart is a Denver-based free-lance writer.
TIE PRODUCTION (in millions)
TIE PURCHASES (in millions)
TIE INVENTORY (in millions)
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