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November 2020
By Vesna Brajkovic, Associate Editor
The COVID-19 pandemic continues to make headlines across the rail industry, negatively affecting every operation from transit agencies to Class Is. The North American rail-car repair market is no exception.
Significant carload declines earlier in the year attributed to the pandemic led to lower rail-car repair volumes between May and June, according to a sampling of rail-car repair firms.
In May, U.S. freight railroads logged 740,171 carloads, a nearly 28 percent decrease compared with the same month last year, according to Association of American Railroads (AAR) data. Carloads hit a low point that month when the AAR logged the largest weekly drop since the association began tracking traffic data in 1988. For the week ending May 16, U.S. railroads logged 184,415 carloads, down a record-breaking 30.2 percent.
In June, U.S. carloads fell 22.4 percent to 794,256 units. With traffic way down at mid-year, the pandemic led customers to adjust their budgets and capital spend, said Ryan Davis, vice president of freight car operations for Progress Rail — which provides car repair services — in an email.
Since fleet owners are registering reduced car utilization rates, repair shops haven't been very busy for much of 2020.
"With many cars in storage, car shops are seeing an overall decrease in rail cars undergoing repairs," said Vanessa Knapton, director of repair sales for The Andersons Inc., in an email.
Although many shops recorded a dip in repair volume through late spring and early summer, The Andersons as of October was at least maintaining an even flow of business, she said. But the company has adjusted manpower and cut expenses to address the downtick.
At least traffic volumes are slowly coming back, and car repair demand in the fourth quarter is shaping up to be strong, says Northern Plains Rail Services' (NPRS) Director of Marketing, Sales and Business Development Brock Lautenschlager.
Specifically, NPRS is expecting strong demand in upper northern Minnesota and the northeastern part of North Dakota, where the firm's rail-car shops are located.
Declining carloads impacted by a combination of the pandemic, industry demand and precision scheduled railroading have prompted many coal car lease turnbacks in the past few months, Progress Rail's Davis said. He expects that trend to continue for several more months.
The Andersons officials also have noted many lease returns in hopper car varieties.
In early 2020, the company had focused on those end-of-lease opportunities, but now is gaining more opportunities for pre-planned maintenance projects.
The Andersons began the year with strong tank-car requalification work, but that dropped significantly during the summer, Knapton said.
Just as in-shop repair work demand dipped during spring and summer, so did mobile repairs. In the short term, fewer customers reported bad orders for cars needing repairs, NPRS' Lautenschlager says. A bad order refers to a rail car requiring repairs before it is unloaded or loaded because of such issues as a faulty gate or hatch.
"As the weekly carloadings have improved significantly since Q2, we've seen most of the demand come back," Lautenschlager says.
Some fleet owners weren't investing in larger-scale repairs this year while others were pursuing preventative mobile maintenance to try and stay ahead of their needs, said Dean Sawyer, senior VP of sales and marketing for car repair firm American Industrial Transport Inc. (AITX), in an email.
Mobile repairs can save time and reduce freight costs because a customer can forgo sending their cars to a full-service facility. AITX offers both on-site and mobile maintenance options, which has enabled the company to adjust and remain flexible to any changing repair needs that stem from budget constraints — regardless of the market's condition, Sawyer said.
AITX is trying to expand its mobile footprint by using data analytics to better understand mobile issues and create program work at its full-service facilities to confront most common repair issues before they occur.
For example, if AITX mobile repair units begin logging a lot of valve issues on a car fleet, then the team will discuss preventative maintenance measures to address the problem during the next full-service inspection or re-certification.
"Preventative measures in the shop will always be cost-effective to large-scale mobile repair," Sawyer said. "This type of thinking and collaborative strategic planning has been embraced by our customers."
Despite the tough going in 2020, car repair firms are preparing for what they hope is at least business as usual in the first half of 2021 as carloads eventually increase and cars are pulled from storage.
"We expect that the United States and Canada will still be figuring out COVID-19; however, as a country and as an industry, we will better know how to manage and normalize," Sawyer said. "Thus, we are preparing for 2021 to be an increase over 2020, even if it may not meet 2019 metrics."
AITX officials are anticipating a federal infrastructure investment bill, which would be a positive for many manufacturers and freight flows.
"Coming out of COVID and the election should positively impact consumer confidence and the flow of commodities," Sawyer said. "That said, we try not to be macro-economists. We are long-term committed to rail-car repairs and plan to invest and grow our facility network as we know that the market will rebound."
As some companies exit the rail-car repair business, repair capacity has become somewhat of an issue, Progress Rail's Davis said.
To boost its own capacity, NPRS in summer completed a new rail-car servicing and repair facility in Grand Forks, North Dakota.
The shop already has logged repair orders, Lautenschlager says. Located on a 283-acre industrial site, the facility offers a connection to a BNSF Railway Co. line.
"[The facility] provides a transload option that NPRS expects will be a vital link to enable non-rail served industries in the area with the ability to access the rail transportation network to procure or sell products," Lautenschlager says.
NPRS' repair shop and mobile car repair business is driven by hopper car repairs in the Midwest, and the company doesn't expect a material change in its business this year, he says.
However, NPRS is working to obtain the necessary certification at the Grand Forks facility to repair tank cars. The certification would lead to a greater mix of work next year, Lautenschlager says.
Still, NPRS is cautiously optimistic about 2021, he says.
AITX officials dub the fluctuating economy and marketplace circumstances as "predictably unpredictable."
"While we can not anticipate the what and when, we do prepare and model for uncertainty," AITX's Sawyer said. "What we hear from our industrial shippers is that regardless of the circumstances, they need to keep business moving. Budgets may fluctuate but results need to be maintained. Our response has been to offer as much flexibility as possible."
Email questions or comments to vesna.brajkovic@tradepress.com.
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