Fleet Stats 2008: Taking some sting out of ‘cyclical’

By Pat Foran, Editor

For North American rail-car builders and lessors, smoothing out the chronically cyclical rail-car market has always been rough sledding, if not an altogether illusory exercise. But should the economic sluggishness they’ve been slogging through begin to dissipate, builders and lessors just might be in for a smoother ride this go-round. Or so we were told during the data-gathering for this year’s “Fleet Stats,” our annual compendium of rail car and locomotive facts and figures.

Of course, “smooth” in this context means “gradual” — as in barely discernible movement in either direction — as rail traffic data continues to demonstrate. Through 2008’s first 17 weeks, U.S. and Canadian railroads boosted carloads 0.2 percent to 6.8 million units, but registered a 2.2 percent drop in intermodal volume to 4.5 million units vs. last year’s totals, according to Association of American Railroads data.

GRADUAL IS GOOD

One result: Railroads and lessors cancelled orders for 4,850 intermodal platforms, 1,250 tank cars and 920 high-cube covered hoppers during the first quarter, according to Economic Planning Associates Inc.’s (EPA) quarterly rail-car outlook report. So, EPA lowered its production estimates to 51,500 deliveries in 2008, down from the 56,500 it had predicted in January.

Hardly the stuff economic rebounds are made of. But gradual, for the lack of a better word, is good — or so observers hope.

For example, the U.S. gross domestic product didn’t contract during the first quarter, as some feared; it grew at an annual rate of 0.6 percent, just as it did in fourth-quarter 2007. And even though the Conference Board’s Consumer Confidence Index in April dropped to 62.3 — the lowest point in five years — analysts had expected a more precipitous dip.

Meanwhile, the 10,500 rail cars ordered in the first quarter suggest the market “retains a degree of resiliency,” EPA said.

Other prognosticators offer similar, if slightly less optimistic, projections. In fall 2007, Rail Theory Forecasts L.L.C. (RTF) predicted that rail-car manufacturers would produce around 48,000 rail cars this year, said RTF President (and Progressive Railroading columnist) Toby Kolstad. Last month, Kolstad was sticking by the 48K forecast. He also expects the sluggishness to continue for builders and lessors through 2009 (see "It’s the same old, cyclical song").

But there’s slow, and there’s slow. That 48-50K car total, should it, indeed, be the trough, wouldn’t be anywhere near as devastating as the last cycle’s low ebb (17,700 deliveries in 2002). The best remedy for what ails the rail-car segment? An equally gradual upswing. It’d go a long way toward taking the sting out of the inherent cyclicality, several observers believe.