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August 2010
—by Pat Foran, Editor
A year ago, rail-car and locomotive manufacturers, fleet managers and leasing execs used words like "grim" and "dim" when asked to share their thoughts on their respective spheres' near-term outlook. Next year, they told us, had to be better. And 2010 is — a variety of economic and industry data suggests it, and so does some of the anecdotal evidence we collected during the information-gathering process for this year's edition of "Fleet Stats."
"It's better, just not a lot better," says Harry Zander, senior vice president of sales and marketing for Macquarie Rail Inc., which provides rail-car leasing and financing. "Uncertainty, unfortunately, is still the name of the game."
And those improvements by the inch continue to breed uncertainty and, in some circles, the angst that often accompanies it. But we didn't detect too much angsting-out among the car builders and lessors we spoke with. Many cited some of the positive trend lines they've been tracking. Lessors, shippers and railroads continue to pull cars out of storage, although 23.7 percent of the fleet was still idle at midyear, according to the Association of American Railroads. Even so, members of the rail-car crowd also noted that the rail traffic rebound during the year's first half is beginning to show up in car orders. In 2Q, orders totaled 4,886 units compared with 2,165 units in second-quarter 2009, according to the Railway Supply Institute's American Railway Car Institute Committee (ARCI). Orders totaled 5,078 units in 1Q and 2,821 units in 4Q 2009.
Meanwhile, the rail-car backlog stood at 14,930 units on July 1 vs. 12,990 units on April 1, 10,462 units on Dec. 31, 2009, and 19,343 units on Oct. 1, 2009, ARCI said. Rail-car builders were "exercising caution" in 2Q, which represented the second consecutive quarter in which orders outstripped deliveries, according to Economic Planning Associates Inc.'s (EPA) "Rail Car Overview" report for July.
"While we appreciate the caution on the part of the car builders as well as the multi-year orders portion of the existing backlogs, we would expect to see a pick up in second-half production runs," EPA report-writers state. "Nonetheless, we have lowered our forecast of assemblies this year from 16,000 to 13,250 cars."
It's the uncertainty thing, rearing its indistinct (but certain) head once again. It's enough to make a few observers we spoke with wonder if a double-dip recession could be in the offing, or if a lower baseline for railroad traffic (and, by extension, freight-car demand) has been established. Just wondering, they tell us.
Some are sidestepping those questions for the time being. They're looking out only so far on the horizon. Others say they'll stick with their projections, presumptions and belief systems as the economy wends its way toward Destination: Unknown (or, at least, Uncertain).
"Most economists still expect GDP [growth] from a high of 3 percent to a low of 2 percent — I'm in the latter group and always have been," says Rail Theory Forecasts L.L.C. President Toby Kolstad, who expects 13,800 rail cars to be delivered in 2010. "It's still stacking up where I though it would."
We'll follow the order activity — for freight cars, as well as locomotives and passenger cars — wherever it leads ... as well as where it doesn't.
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