Rail-car outlook '24: Dick Kloster's annual forecast

Late last year, I projected new car deliveries to total 45,737 cars in 2023. Through this year’s first nine months, deliveries totaled 33,760 cars. If we straight-line for the 4th quarter, the year-end total would be 45,013. Pretty close.

For 2024, I’m forecasting that 41,134 new cars will be added to the fleet — down slightly, but still respectable. However, there is probably more upside risk to this projection than downside risk. Why? The devil is in the details.

Box cars: A huge backlog was built up about a year ago and deliveries will likely exceed 7,000 cars this year. However, the order rate has fallen off considerably, and 2024 deliveries will fall, as well — to a projected 5,820 cars. However, with retirements increasing, another mini-build cycle could emerge. Meanwhile, availability is somewhat constrained and lease rates are holding up.

Covered hoppers: The backlog is currently over 30,000 cars and deliveries will likely exceed 15,000 cars this year. However, the backlog has multiyear orders in it, so the forecast for 2024 is for only 12,226 cars, allowing for some upside risk. Compounding this is that retirements are increasing, which could fuel 2024 orders further.

Tank cars: Deliveries are expected to total 10,528 in 2024, up 20% from the last three-year average. Retirements will be higher, as well, but won’t exceed deliveries. Availability will be tight, supporting higher lease rates in 2024. There is upside risk for deliveries in 2024 given several factors: replacement demand for flammable tank cars, numerous fleet segments with high age profiles and continued upgrading to 286k tank cars.

Gondolas: Deliveries over the last two years have averaged over 8,000 cars, due to a modest build cycle for mill gondolas and other non-coal cars — replacements for an aging fleet. However, deliveries in 2024 are projected to fall to 6,205 cars as this build cycle wanes, and retirements will exceed deliveries, forcing the fleet to decline in size, mostly surplus coal cars. However, with a backlog of only 1,907 cars, there is a considerable downside risk, as a strong order environment will be needed in 2024. The availability of non-coal cars is tight, and will continue to be so, keeping lease rates at higher levels. For coal cars, the trend is unchanged: no new car builds, high retirements, downward trending coal freight, depressed lease rates, etc.

Open-top hoppers: Fewer than 150 open-top hoppers will be built this year, continuing a 10-year trend that has averaged only 880 deliveries per year. However, in 2024, deliveries are expected to increase to 375 cars, all non-coal, as replacement demand for retiring non-coal cars builds. Open-top hopper coal cars have the same outlook as gondolas, and with such a low forecast, there’s nothing but upside risk for open-top hopper deliveries.

Flat cars: Deliveries in 2024 are expected to total 5,980 cars, down slightly from 6,493 in 2023 (projected). Driving the current cycle are auto racks and intermodal, with some traditional flat-car demand. The current backlog is 4,160 cars, so some order activity will be needed in 2024 but the forecast is low, up or down.

Overall, 2023’s trends will continue into 2024: moderately strong builds, higher retirements, slightly declining fleet sizes, low storage rates (adjusted for chronically stored cars), tight availability, strong or strengthening lease rates, etc.

And next year, we should see the bottom of the new car-build cycle. Hint: my preliminary number might be between 43,464 and 43,466 cars in 2025. But don’t hold me to that!