Freight car demand weakened in 2016 as lackluster economic and industrial activities as well as sluggish economies abroad dampened commodity flows and intermodal movements, according to the most recent market analysis conducted by Economic Planning Associates.
“After two consecutive years of strong growth, 2016 annual deliveries amounted to 62,433 cars and intermodal platforms, a 24.1% drop from the 82,296 units that were assembled in 2015,” noted EPA principle Peter Toja. “More significantly, orders last year amounted to only 22,684 railcars, approximately 56% below the previous year. As a result, backlogs dropped from 111,000 at the beginning of 2016 to 66,700 units at the end of the year. Thus, carbuilders are beginning 2017 with backlogs that represent only 4.47 quarters of production at the current rate of assemblies.”
2016 “was a difficult year for the railroads, primarily due to a sharp decline in commodity movements and a modest easing in intermodal traffic,” Toja said. “Among the major commodity categories, only grain, chemicals, motor vehicles, coke, and scrap scored year-over-year gains. All other categories declined, with the most significant drops occurring in coal (-20.1%) and petroleum (-21.4%). And, railroad financial performances reflected the poor traffic environment, with BNSF, Union Pacific, Norfolk Southern, CN and Canadian Pacific indicating relatively weak revenues last year. As a result, 2017 capital spending plans among the railroads have been downgraded.”
Yet, says Toja, growth may be on the horizon. “We expect that stronger commodity growth trends over the forecast horizon will enhance traffic and profitability, leading once again to increased capital outlays, including the purchases of locomotives and rolling stock,” he said. “President Trump has already implemented procedures to ease regulations in the energy sector. In his first 100-day action plan, he said he would ‘save the coal industry and other industries threatened by the extremist agenda of the previous Administration.’ At the heart of the anticipated revival in coal demand will be a reversal of the Clean Power Plan, which has been a major impediment to coal activities.”*
As to the foreseeable future, “due to the strength in boxcars, hi-cube covered hoppers, and mid-sized hoppers, our 2017 estimate of total railcar deliveries edged up from 41,000 cars to 43,000 cars,” Toja said. “However, weaknesses in tank cars, coal cars, flat cars, and mill gons will serve to keep 2018 assemblies flat at 42,500 cars. Longer term, railcar deliveries will expand from 46,300 in 2019 to 53,500 in 2021.”
*(Editor’s note: The drop in coal traffic is largely attributable to the low cost of natural gas, which has replaced coal at a significant number of electricity generation plants, not to the Obama Administration’s Clean Power Plan and related environmental policies and efforts to reduce human-activity-generated greenhouse gases, which contribute to global warming. And global warming is not “a concept . . . created by and for the Chinese in order to make U.S. manufacturing non-competitive,” as Trump has asserted.)