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October 2008
By Angela Cotey, Associate Editor
As Class Is continue to carry out aggressive maintenance-of-way programs while transit agencies expand lines and build new ones to meet growing demand, rail industry suppliers are benefitting from a steady stream of business — tie suppliers included.
“Railroads are continuing to try and increase their train velocities and run more trains, and to do that, they need to improve their track,” says Tony Chambers, director of marketing for wood-tie supplier Stella-Jones Inc., which in April acquired wood-tie manufacturer Burke-Parsons Bowlby. “Railroads are still buying a healthy volume of crossties, so we’re still having a pretty good year.”
However, growing economic concerns are beginning to impact rail traffic and could eventually put a damper on railroads’ capital plans.
“Tie demand remains strong even with what we now believe will be a rather protracted recession,” said Railway Tie Association (RTA) Executive Director Jim Gauntt in an email. “But, since U.S. gross domestic product is a major driver of railroad traffic expansion or contraction, our forecasts could be a little on the high side if the U.S. and world economies continue to suffer.”
Another capital plan downer: the rising cost of materials. Prices for some raw materials, such as steel, have spiked so high during the past year that at least a few railroads and transit agencies are reconsidering whether to advance MOW projects. As a result, a few tie suppliers say they’ve noticed a drop in orders this year. A sign of that drop-off came in July, when tie purchases dropped 25 percent compared with June’s total to 14.6 million units — the first month-over-month decrease since April, according to RTA.
“We don’t yet know the extent of the drag that recessionary forces will impose on the overall U.S. economy,” said Gauntt.
But for now, suppliers of ties — particularly of the wood variety — feel pretty good about this year and their near-term prospects.
For wood-tie suppliers, business has generally been strong this year. As of August, RTA expected new wood tie purchases to total about 19.9 million in 2008 — not too far off from the 20.6 million ties purchased in 2006 (the peak demand year) or the 20.4 million purchased last year.
Stella-Jones is busy filling orders for Class Is, regionals and transit agencies. The firm is the largest wood treating company in Canada, according to Chambers, and now has seven tie plants in the United States after acquiring Burke-Parsons-Bowlby.
“We’re offering the same products Burke-Parsons-Bowlby did, we just have more resources,” says Chambers. “And we’re working on several other things, like alternative treating solutions, cleaner treating solutions.”
To ramp up production, Stella-Jones is making improvements at several plants, such as by installing a wood fire spoiler at a Fulton, Ky., facility.
Tangent Rail is upgrading facilities, too. The wood-tie supplier has a “good, strong capital program for plant improvements,” says Vice President of Business Development George Caric. Since late 2007, the firm has been adding capacity for air-drying ties and installing additional tracks at its five plants.
“We’re in an industry that right now is doing very well,” says Caric.
In particular, Tangent Rail has noticed increased demand for its dual-treated borate ties, which it’s been manufacturing for the past couple of years at a Warren, Ala., plant. The ties are designed for railroads that operate in the “severe rot zone” of the South, says Caric, adding that the company is supplying the dual-treated ties to various railroads, such as Norfolk Southern Corp. and Florida East Coast Railway.
At Thompson Industries Inc., production lines have been running 24/7 all year long — and the wood-tie supplier plans to keep them running as long as demand stays strong, said National Sales and Service Manager Jeff Broadfoot in an email.
“Over the past four years, our business has grown three-fold and we are currently on pace to treat well over 1 million crossties by year’s end,” he said. “Almost all of the Class Is and many of the regionals and short lines have experienced record or near-record growth in both revenue and tonnage hauled. The railroads have seized this opportunity to continue expanding capacity by building new track and replacing worn-out ties at record levels.”
Thompson Industries — which supplies ties to Class I, short line, regional, commuter, government and industrial railroads throughout North America — recently installed three large pressure-treating vessels, multiple acres of additional green tie seasoning and treated tie storage, and three new spur tracks for rail-car loading, unloading and storage at its Russellville, Ark., facility.
Future expansion plans call for adding more preservative storage and an overhead preservative tank-car unloading facility, and upgrading two trim and grade stations at the plant.
In addition, Thompson recently partnered with L.B. Foster Co. to establish a high-capacity tie boring and pre-plating operation at the facility.
Appalachian Timber Services also is offering pre-plating and pre-boring services to its customers, says VP of Sales Rick Gibson.
Orders for the wood-tie supplier have been flowing in this year, and Gibson expects them to keep coming at least into second-quarter 2009.
“When fuel costs go up, railroads get more business and, in turn, generate revenue they can put into the tracks,” he says.
At Koppers Inc., demand for wood ties has been relatively stable, said VP of Marketing and Sales Tom Niederberger in an email, adding that the company is noting strong demand in export markets, “due to the value of the dollar and resurgence globally in transporting minerals and ores by railroad to ports for export.”
However, wood-tie suppliers are facing some challenges in 2008 and beyond.
“There’s been some negative impact relating to the financial/credit markets and higher fuel prices, which in turn have influenced the housing and lumber industries and in turn tightened raw material supply,” said Niederberger.
Other wood-tie suppliers have supply concerns, as well.
“There’s been a perfect storm of wet weather, a weak lumber market and the high cost of fuel that’s causing sawmills to have a rough go,” says Tangent Rail’s Caric. “There might be a shortage of untreated ties through 2009.”
Officials at Stella-Jones are trying to nip the tie-supply issue in the bud.
“We’re trying to look for more sources that were not cutting ties before this year,” says Chambers. “With the housing and lumber markets down, people are looking for an alternative market to supply their wood products and are opting to cut crossties until the housing industry picks up, so we’re pushing local procurement areas to get as many crossties as we can.”
So, too, are suppliers of composite, concrete and steel ties.
Composite tie supplier TieTek Inc. — which touts its products’ longer life span vs. wood ties — has been in “continuous growth mode” for the past several years, according to a company spokesman.
“We see substantial growth opportunity and we’re trying to meet customers’ demand and also broaden our customer base,” according to TieTek, which counts Union Pacific Railroad, the Chicago Transit Authority, BNSF Railway Co. and India Railways among its customers.
In 2007, the company manufactured less than 150,000 of its composite ties — which are produced from plastic and five other materials — and was unable to meet demand.
Now, after completing some minor expansions and improving manufacturing processes at its Marshall, Texas, plant, Tie Tek expects to manufacture almost 300,000 ties in 2008. And next year, the company will launch a third production line at the plant to increase capacity by 50 percent.
However, at least one segment of the tie market has noted a drop in orders this year. Concrete-tie suppliers CXT Inc., KSA Concrete and Rocla Concrete Tie Inc. have received fewer orders vs. last year, particularly from Class I customers.
Nevertheless, business still has been “fairly strong” for L.B. Foster subsidiary CXT® Inc., says National Sales Manager Mark Hammons.
In August, the company obtained a contract from Volkmann Railroad Builders Inc. to supply 87,000 ties for a 35-mile rail spur that Volkmann is building at the Bull Mountain coal mine in central Montana.
CXT also is supplying about 42,000 ties for Utah Transit Authority’s (UTA) Mid-Jordan light-rail line, and is filling orders for UP and MTA New York City Transit.
In July, CXT introduced its 529S tie, a cost-effective alternative for low-density mainline, transit and industrial track applications, says Hammons. The tie is manufactured at the firm’s Grand Island, Neb., facility.
CXT also is trying to improve its existing concrete tie products. During the past year, the company has placed an increased focus on supplier alliances to help with R&D efforts.
“We’re utilizing their labs and their experts to help us in mix designs and new techniques to make a stronger, more durable, longer-lasting tie,” says Kevin Haugh, president of CXT Inc., and VP and general manager, concrete products for CXT Concrete Products for L.B. Foster.
At KSA Concrete — whose customers include CSX Transportation, Amtrak, MTA Metro-North Railroad and MTA Long Island Rail Road — orders didn’t flow in during 2008’s first quarter as they typically do, though the company received a few at the end of the second quarter, says General Manager Scott Craig.
“At the end of last year, it looked like this would be a really good year, but there were a lot of jobs that got postponed,” he says. “We are expecting things to get back to normal next year.”
Rocla has had its share of postponed jobs, as well.
“About a year ago, railroads were saying they expected that carload revenue was going to go down, so they cut capital budgets,” says Manager of Sales Al Smith. “Then, carload revenue didn’t go down all that much, and in some cases it might have even gone up, but we didn’t see a corresponding increase in this year’s capital.”
Not that Rocla isn’t keeping busy. In the fourth quarter, the company will begin supplying about 80,000 ties for the Regional Transportation District of Denver’s (RTD) Westside extension. Rocla also is continuing to fill a 140,000-tie order for UTA’s FrontRunner South commuter-rail line.
And, the company recently began sorting concrete ties for railroads, then redistributing them for use in yards and on sidings.
“We began doing this in earnest this year, and we’re doing tens of thousands of ties — it might even turn into a potential second-hand market,” says Smith. “Because of their long life, concrete ties are a commodity railroads can use again.”
Officials at North American Railway Steel Tie Corp. (NARSTCO) also tout their products’ long life as a benefit. Steel ties can last up to 50 years compared with 12 to 15 years for wood ties, according to VP of Marketing and Sales John Fox.
The ties themselves might cost more than wood, but require up to 40 percent less ballast than wood and 55 percent less than concrete ties. In addition, a six-person crew can install 1,200 to 1,800 steel ties in an eight-hour work days, said Fox in an email.
NARSTCO is continuing to improve its products by using better-quality steel, and upgrading the manufacturing processes and fastener systems. The company also is improving its after-sales support and service, said Fox.
Regardless of whether their orders are up, down or flat this year, all tie manufacturers expect demand to be strong in 2009. Freight railroads and transit agencies are expected to continue upgrading track as they handle more and more traffic.
“The Class Is are staying on pace and their needs are gong to be strong for the next five years, as far as we can tell,” says Tangent Rail’s Caric.
That is, as long as their financial performance holds up.
“Our customers tell us their current plans are to purchase almost the same quantity of ties in 2009 as they did in 2008,” said Thompson Industries’ Broadfoot. “However, the number of ties they actually purchase really depends on their financial performance. Many of the railroads are under tremendous amount of pressure to reduce their operating ratios and subsequently are looking to save money anywhere and everywhere they possibly can.”
However, if traffic and ridership levels remain high — and the U.S. doesn’t fall into a severe recession — tie orders could really pick up after next year, RTA predicts.
“Our models suggest that If the recession is mild, we’ll begin to see a return to 2006-07 demand levels starting sometime in 2010,” says RTA’s Gauntt.
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