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September 2013
— by Walter Weart
Through the year's first half, North American crosstie purchases dipped 6 percent to nearly 12 million units, production tumbled 16 percent to 10.6 million units and inventories dropped 10 percent compared with the year-ago period, according to a Railway Tie Association (RTA) market report issued in late July.
Meanwhile, 12-month rolling data showed both production and purchases continued to decline from last year's high levels. But in the aggregate, tie demand "appears to be stable," RTA Executive Director Jim Gauntt said in a July 19 email.
"Our projections have been for it to soften very slightly [minus 0.7 percent] from 2012, and it looks like that trend is holding," he added.
But the tie production decline is a concern, tie producers and market observers say. As of June 30, production fell from a peak of 25.4 million units in October 2012 to 23.2 million units, while purchases dropped from a peak of 24.3 million units in July 2012 to 22.3 million units, according to the RTA.
"The wet weather in many parts of the country, coupled with higher demand from most of the other timber products cut from the same hardwood log, has frustrated producers," Gauntt said. "Log inventories are very slim and products such as crane mats for the oil industry have really directed an overall decline in the number of ties cut from what few logs are available."
Meanwhile, timber prices in some areas have "risen significantly, as has competing hardwood product pricing," he said. Loggers also are "constrained" as they aim to supply all markets, including the timber product and pulpwood markets, which are heating up, Gauntt said. Ditto for the pallet lumber and cant, and wood pellet markets.
"This possible 'perfect storm' could mean production [assigned] to crossties could be down by as much as 15 percent by year end," Gauntt said.
If that happens, production might be affected in 2014 and even in 2015, he said, noting that producers are putting ties up for air-seasoning for 2014 and, since the "inflows of green ties are lower than optimal at this time," producers may be forced to boultonize (or season ties in a treating cylinder) a "significant portion" of their production, Gauntt said.
"Boultonizing reduces production capacity because the treating cycles are quite a bit longer," he said. "This drives labor overtime and extra energy costs into the system."
And increased costs, of course, can negatively impact demand.
"So, will we get a spiraling effect? It is too early to know," Gauntt said. "But with our forecast model predicting fundamental tie demand to increase for 2014 [2 percent] and 2015 [1.4 percent], something probably has to give."
Ultimately, it'll take a while for the marketplace to "work through it," as Gauntt noted.
"Since there is only so much logger, mill and treating capacity available, recovery and market readjustment phases could be longer than in the recent past," he said.
Despite the purchase and production declines — and a few other potential near-term concerns — tie producers feel pretty good about the market's near-term prospects, if recent conversations with wood, concrete and composite tie company officials are any indication.
At Koppers Inc., demand for treated wood railroad products has remained strong, in part because "Class I orders have remained relatively consistent," said Vice President of Sales and Marketing Tom Niederberger in an email.
"The utilization of unit trains to supply treated crossties to the tie gangs now seems firmly entrenched with a number of Class Is," he said, adding that the company has been working closely with several railroads to coordinate logistics. "The improved communication between the customers and our plants has generated improved turn times as the inventory levels are planned in advance of the inbound cars. This process has lead to downstream efficiencies for our customers."
And although the short-line, contractor and transit markets have shown "variability by region," they've essentially been "pretty much the same as last year," said Niederberger.
But there are "some significant raw material headwinds for the industry in the near term" — namely some "very real concerns" about the growing disparity between grade lumber pricing and crosstie pricing, and how that could alter what's been a stable market for the past five years, he said.
Boosted by the ongoing strength of the U.S. housing industry and the related flooring market, and buoyed by the demand for board road material for the energy market and a resurgence in export lumber, there is "strong evidence that higher pricing for these sawn products will push more logs to be cut into boards rather than ties without further financial support," Niederberger said, citing RTA's corresponding tie-production decline data. "Needless to say, we are working closely with our customers and suppliers to develop strategies to mitigate these issues and secure the necessary green ties to meet customer requirements."
Not that Niederberger isn't bullish on the tie market going forward.
"We continue to see a positive outlook for tie demand," he said. "Both short-term and long-term demand will be a function of the overall domestic economy."
Other wood-tie producers also expressed varying degrees of optimism about the market's near-term prospects. Although tie demand has been strong, production is "down significantly due to competing products such as crane mats and lumber using product that would have otherwise gone into tie production," said Gross & Janes Co. President and Chief Executive Officer Michael Pourney in an email, adding that production "will continue to be a problem for the next few years."
Stella-Jones Inc. officials, too, cited strong demand for treated-wood railroad products, as well as production hurdles of their own. New construction projects and track expansions related to growth in crude-by-rail business has helped drive that demand, Stella-Jones Vice President George Caric said in an email. The company also continues to see strong interest in bridge timbers.
"We are making capital improvements to improve our bridge capabilities," Caric said.
And later this year, Stella-Jones plans to open a new treating facility in Cordele, Ga., that will serve two Class Is and what Caric termed "the strong Southeast commercial market." But weather has taken a bit of a toll.
"The wet weather this year as well as a stronger demand for other forest products have put us a bit behind in our green tie production," Caric said. "We had a good inventory going into 2013 and it has helped us keep up with the demand."
Weather has been an issue for Appalachian Timber Services L.L.C., as well. Business has been steady for the past two-and-a-half years, said Vice President of Sales and Marketing Rick Gibson. But due to "excessive rainfall this summer, sawmills are experiencing low log inventory," he said, adding that the log shortage will impact tie availability for the rest of the year.
But in the short term, tie business should be steady, presuming there's tie availability — and that the Section 45G short-line tax credit remains in place beyond 2013, Gibson said. Longer term? The boom in the oil and gas industry, which uses the same type of timber, will slow down, and tie and timber supply will improve, he said.
For Boatright Cos., 2013 is shaping up to be a "banner year," propelled in part by a new plant in Clanton, Ala., that'll lead to "significant production increases" in the third and fourth quarters, said Vice President and Chief Financial Officer Steve Bookout in an email.
"We have had increased interest in the dual treatment crosstie using borate and creosote," he said. "This has become a standard for the crossties being installed in the southeastern part of the United States. This year, we have sold a considerable amount of dual treated crossties using borate and copper naphthenate."
In the short term, Boatright officials expect "a continued inflow of crosstie orders," but the longer-term picture isn't as clear, Bookout said.
"[It] depends on a lot of factors, namely the durability of the copper naphthenate crossties as well as the availability of creosote," he said. "From all indications, the railroads have recovered from the drop in coal shipments with increases across the board in other markets."
Boatright also is making product and production improvements. The company "has gone to 100 percent end plating" of all tie production, which required a significant investment in automated equipment to ensure production wouldn't be slowed, said Bookout.
The result?
"We have achieved similar production levels [despite] the additional step of plating every crosstie," he said.
And the aforementioned Clanton plant provides the capacity to produce 2 million ties annually. Previously, Boatright had to outsource production when its facility in Montevallo, Ala., which is 20 miles from Clanton, was shut down for maintenance.
Last year, Boatright entered into an agreement with Gross & Janes, under which Gross & Janes "manages the green tie aspect of our production cycle at both the Clanton and Montevallo plants," said Bookout. Specifically, Gross & Janes performs the processing and borate pre-treating at both plants, Pourney said.
Meanwhile, a new tie producer is bringing its own brand of tie treatment to the marketplace. Lonza Wood Protection recently announced that its licensee Cambium Group Inc. had begun production of ammoniacal copper zinc arsenate (ACZA)-treated railroad ties. Cambium will be the first Canadian producer of the ties, and will market them in Canada and the northeastern United States under the Chemonite® name.
Cambium Group will use ACZA to pressure-treat ties and switches, both hardwood and softwood, at its South River, Ontario, facility. Cambium's other four plants do not serve the railroad market.
"We began operation at South River in July and are spending some of our effort in educating customers about ACZA as there have been concerns about disposal of ties treated in this method," said Jacques McKay, Cambium's part-owner and president, adding that because demand for the ties is growing, he expected "greater acceptance."
Although the company is beginning to market the ties to railroads, "I anticipate that our customer base ultimately will be about one-half railroads and one-half contractors," McKay said.
Railroads and contractors make up a portion of National Salvage & Service Corp.'s customer base; industrial users are part of the mix, as well. The firm specializes in providing "cradle-to-grave" products and services — from the removal of used ties to asset recovery to re-sale, and the grinding of spent ties (for fuel) to restoring track through the supply of new ties and other treated wood products, said Vice President of Sales, Marketing and Business Development Jeffrey Broadfoot in an email.
National Salvage provides oak and selected hardwood borate/creosote dual-treated, creosote-only treated and copper naphthenate treated ties; switch ties; crossing and bridge approach ties; crossing panels; and bridge ties and timbers. The company also offers crosstie pre-plating services.
"Our tie and OTM recycling business is booming," Broadfoot said, adding that the company is on track to handle and recycle about 7 million ties this year.
Railroads also are asking the company to rehabilitate used ties by filling spike holes with a "filler compound," Broadfoot said.
Once the compound sets, the ties can be reused or "cascaded" in less densely traveled tracks, he added.
Meanwhile, sales of new ties — particularly borate/creosote dual treated ties — have been strong, Broadfoot said.
"Also, we are seeing more copper naphthenate-treated ties being specified and used by the railroads, especially by the Class Is as well as some other railroads, including commuter [railroads]," he added.
In February, National Salvage opened a state-of-the-art tie sorting and grinding operation for CSX Transportation in Dudley, N.C., where the company now receives an average of 45 carloads of spent ties per day, Broadfoot said.
Suppliers don't have the same supply or production issues in the concrete-tie realm, where demand's been steady pretty much all year.
For example, L.B. Foster Co.'s Spokane, Wash., plant is "at full capacity and has a good backlog," said General Manager of Concrete Products Jim McCaslin.
The company, which produces CXT concrete ties, also is registering more activity from passenger railroads — "particularly on the West Coast," McCaslin said — and in the industrial sector. Another potential market: railroads that serve northwestern Mexico.
"I think the market will be steady in the short term and if the FRA becomes more stringent in its oversight, there will be additional opportunities for us," said McCaslin.
Officials at Rocla Concrete Tie Inc. also envision a marketplace full of opportunities.
"Overall, our business is very strong right now for concrete ties," said Sales Manager Brett Urquhart in an email. "The concrete tie industry continues to have a backlog of work due to a good mix between heavy-haul customers and transit-oriented work. The Class Is are beginning to request pre-recession level volumes for their capital programs."
Rocla officials also consider West Coast port projects as "strong areas of investment," Urquhart said, citing ports in Los Angeles, Long Beach and Oakland, Calif., and in Manzanillo, Mexico, which continues to invest to take advantage of the growing Asian markets.
"We expect the ports' intermodal market to continue to rise along with growth for the Class Is' intermodal traffic," he said, adding the company also looks forward to supplying ties for projects at Bay Area Rapid Transit (BART), the Sacramento Regional Transit District and Denver's Regional Transportation District.
Rocla also has been active on the new-product development front, working with fastener suppliers and key customers to develop a new "Yard Tie" for less-demanding heavy-haul applications and industrial track.
"The combination of a more cost-effective tie and fastening system offers concrete ties at a more competitive price than wood," Urquhart said.
The company also has added capacity and new technology at its new Pueblo, Colo., facility. Rocla also plans to open a new plant in Querétaro, Mexico, to serve the growing freight corridors between Mexico and the United States. The Querétaro facility should come on line in 2014, Urquhart said.
At KSA, Koppers' concrete-tie division, business so far this year has been good, just not as good as it was this time last year, said KSA General Manager Scott Craig in an email.
Considering 2012 was KSA's best year since 1998, 2013 is shaping up nicely, Craig said.
"The second half of the year has the potential to be better than the first, depending how projects develop over the next few months," he said.
Most of KSA's 2013 work is a continuation of projects that began last year, the most significant being CSX's S-Line improvement project, which involves upgrading 51 miles of track and installing about 108,000 concrete ties, said Craig.
Work on the S-Line, which runs from Callahan to Auburndale, Fla., is expected to be completed in early 2014.
KSA also is supplying Low Vibration Track blocks for the Metropolitan Transportation Authority's $4.45 billion Second Avenue Subway project in New York City.
Business opportunities appear to abound in the plastic/composite tie segment, as well. For at least one supplier, business this year has been "great," as AXION International Holdings Inc. AXION ECOTRAX® Rail Division Manager Cory Burdick put it in an email.
"We continue to expand our customer base, primarily into public transits, and short-line and regional railroads," he said. "[We're also] gaining type approval and shipping first orders to several major international freight-rail customers."
In addition, the company is active in the "specialty applications" area, serving customers' needs at grade crossings and turnouts, where "maintenance costs are high," Burdick said.
Projects include continuing to fill a three-year, $15 million supply contract with a Class I. Earlier this year, AXION began supplying ties for use on curves and in "high rot zone areas" to another Class I that serves the northern United States, or "where weather conditions cause wood ties to deteriorate rapidly," Burdick said.
The transit market, too, continues to be "solid" for AXION, which has added several new customers this year, including New Jersey Transit, Los Angeles County Metropolitan Transportation Authority and Edmonton Transit, Burdick said. Other customers include Dallas Area Rapid Transit, Miami-Dade Transit, BART, Calgary Transit and the Toronto Transit Authority.
AXION also serves international transit agencies in Australia, New Zealand, Brazil and Colombia.
"[We] also began in-track testing following a years' worth of laboratory testing of a kilometer of ECOTRAX ties with a major European railroad, opening up a potential demand of 300,000 ties annually, Burdick said.
In addition, AXION is working with railroads to increase performance levels "consistently beyond" what both parties believe had been possible for composite ties, he said.
Moreover, the company is doubling the capacity of its Waco, Texas, facility to meet growing demand from Class Is and transit customers that serve the southern and western United States.
The company aims to continue stepping it up on the product quality front, as well.
"AXION has worked to strengthen its product to meet the increased weights and speeds our customers are running, and internal standards have been raised to a minimum of 50 percent above AREMA standards," Burdick said.
The "raising the bar" sentiment is one several tie suppliers shared. Serving the customer better, they noted, is the track they aim to be on. Whatever the marketplace weather.
Walter Weart is a Denver-based freelance writer. Email comments or questions to prograil@tradepress.com.
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