EPA: Instead of ongoing tank-car craze, broadening rail-car demand drove 4Q rebound

Total rail-car orders rebounded in fourth-quarter 2013, primarily because of a surge in hi-cube covered hopper demand, according to Economic Planning Associates Inc.'s (EPA) "Rail Car Overview" report for the quarter.

Most other car types registered various order increases in the quarter except coal cars, which continue to be hampered by U.S. Environmental Protection Agency regulations and a slowing in export markets and intermodal equipment, the report states.

"Aside from coal cars, we are impressed by the broadening of demand for rolling stock. Tank car orders, which comprised 80.6 percent of total orders in the first quarter, 46.8 percent of orders in the second quarter and 40.4 percent in the third quarter, only accounted for 33.1 percent of the orders in last year's closing quarter," EPA officials said.

Tank cars likely will continue to lead the parade in future car orders, but demand is expected to continue growing for box and grain cars, small-cube covered hoppers and mill gondolas, they said.

"Hopefully, [the] economy can eventually embark on a stronger path of growth, which will improve railroad traffic, revenue and investments, leading to continued healthy growth in rail car demand," EPA officials said. "We have recently noted an estimated 3.2 percent increase in our fourth-quarter GDP, a smaller advance than the third quarter."

Based on beginning-year backlogs and continued growth in several markets, the EPA now projects 2014 car deliveries to expand to 59,500 units, which would represent a 12.2 percent increase compared with 2013's total. In 2015, weaknesses in coal markets and intermodal equipment demand will flatten deliveries to 60,500 units, the report states.

"Longer term, we are hopeful that stronger economic activities will provide support for certain rail-car assemblies while an improvement in the financial environment, high gasoline prices and strong government backing stimulate greater demand for ethanol and DDG cars," EPA officials said. "Replacement pressures and technological advances as well as legislative measures will also play a role in promoting the demand for a variety of rail cars."

Annual car assemblies likely will expand very moderately from 60,300 units in 2016 to 62,500 cars and platforms in 2019, the EPA predicts.