It might take two years for car demand to strengthen, Kolstad says

By Jeff Stagl

The rail-car market is at low ebb and will need about two years to nudge upward. That’s the message Rail Theory Forecasts L.L.C. President Toby Kolstad drove home June 23 during a Progressive Railroading Webcast.

“If the recession bottoms out and a recovery ensues, it will take 18 months before we see signs reflected in the rail-car industry,” said Kolstad, a Progressive Railroading columnist. “I think it will be the end of 2011 or 2012 before we see anything meaningful.”

During the “Rail Car Counts 2009: What’s Next?” Webcast, Kolstad predicted that ’09 car deliveries will total about 22,300 units. In December 2008, his firm projected deliveries would total 30,600 units this year.

No ethanol comeback expected

Ethanol production “flattened out,” prompting an unexpected decline in the number of tank cars needed to move the commodity and number of covered hoppers needed to transport distiller’s dried grains (DDGs), an ethanol byproduct, Kolstad said.

“We don’t see ethanol coming back in the near future,” he said.

Kolstad also reviewed delivery forecasts for four car types that account for 80 percent of car fleets and drive build totals: tank, coal, intermodal and covered hoppers.

Tank-car deliveries will total about 6,000 units by year’s end, predominantly because of reduced ethanol production, and partly due to a drop in resins and plastics production, Kolstad said. Rail Theory Forecasts previously projected 12,000 tank-car deliveries.

Coal-car deliveries will total about 8,000 units, matching the December forecast. Since 2007, there’s been a 5 percent decline in the amount of coal used to generate electricity, Kolstad said.

Meanwhile, intermodal-car deliveries will total zero — the first time no intermodal cars will be produced in a calendar year, although the industry “came close a few times in the past,” he said. Retail sales are down 10 percent and imports are down 20 percent, the prime reasons railroads’ intermodal traffic is down 15 percent this year, said Kolstad.

Finally, covered hopper car deliveries will total 7,500 units vs. a December forecast of 10,000 units. Jumbo hoppers used to move DDGs will only total 500 units instead of a previously expected 3,000 units.

The roller-coaster nature of the current business cycle is making it difficult to be optimistic about the car industry’s prospects, Kolstad said.