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Demand for rail equipment and railcars is likely to grow in 2022 and 2023 as customers become more confident about economic recovery in North America, according to rail experts with consulting firm FTR Transportation Intelligence.
“The rail equipment market is only just now starting to turn the corner, unlike truck and trailer equipment where that happened at the end of 2020,” said Todd Tranausky, FTR vice president of rail and intermodal, in a presentation last Thursday. “We really haven’t seen that in rail equipment. We’re just now starting to get there, and it’s going to be next year that there’s going to be a strong uptick.”
The economic recovery so far hasn’t really translated into increased orders for rail equipment and new railcars because of the nature of rail equipment, according to Tranausky. Unlike tractor-trailer equipment, which can turn over more quickly, rail equipment can last for decades and so would-be customers are more cautious about making purchases, he said.
Although FTR forecasts roughly 26,000 railcar deliveries in 2021, that could increase to between 46,000 and 49,000 deliveries in 2022, according to FTR’s presentation.
“Until you’re sure you’re going to see a recovery in freight, until you’re sure there’s durability there, you’re not necessarily inclined to pull the trigger on new orders,” Tranausky said.
FTR expects rail equipment demand to continue to grow from this year because of support from macroeconomic factors such as anticipated increases in industrial production and manufacturing, according to FTR Chairman and CEO Eric Starks.
Although manufacturing and industrial production haven’t yet surpassed their pre-pandemic levels, steady gains for durable goods orders and sharp growth for core capital goods orders so far in 2021 show that demand among manufacturers for goods is ramping up, according to Starks, referring to U.S. Census data.
Indeed, growth in new home sales and housing starts implies demand for building materials such as lumber and metals, according to Starks. However, many manufacturers, such as automakers, are also grappling with supply chain issues, such as lack of microchips, and there is also concern about inflationary pressures on the market, Starks said.
Nonetheless, these underlying macroeconomic factors should support North American carload volumes in 2021 and 2022, especially carload volumes for economically sensitive freight such as lumber and wood, pulp and paper, automotive, and metals, according to Tranausky.
That volume growth in turn will increase the number of railcars being utilized by owners, and that market environment paves the way for more orders and deliveries in 2022, particularly for certain railcar types, Tranausky said.
FTR projects North American railcar utilization to be about 82% by mid-2022, compared with utilization rates in the low to mid-70s in the first half of 2021.
Additionally, high steel prices are encouraging owners to scrap less-utilized railcars such as open-top hoppers, gondolas and small cube covered hoppers. The scrapping of railcars could hasten the pace that railcar utilization increases, according to Tranausky.
Among the railcar types that will find market support are boxcars, which carry products such as metals, waste or scrap, beverages, wood, and automotive products, according to Tranausky.
Although boxcar utilization has declined since 2005, there is persistent demand for boxcars because there is a core of boxcar traffic that can’t be handled by intermodal or truck, Tranausky said. Furthermore, the North American boxcar fleet is aging, with about a third of the fleet over 40 years old. Because of these factors, owners may need to invest in replacing their aging boxcars someday, he said.
However, owners of open-top hoppers will need to decide whether or when to retire their hoppers since those cars carried commodities whose volumes aren’t likely to grow, such as coal from the Powder River Basin, Tranausky said.
This article first appeared on www.freightwaves.com
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