Surplus of parked and underused cars to hang over industry for years
(The following story by John D. Boyd appeared on The Journal of Commerce website on February 15, 2010.)
WASHINGTON, D.C. — All across North America, freight railcars that were parked when the economy was in a tailspin are slowly coming back on line. But the rebound will be nowhere near as fast as the collapse.
Through a mild but steady improvement in freight flows, railroads and freight shippers are redeploying some railcars and trimming the surplus of those either held in storage or active but underutilized.
Still, the number of railcars yet to be put to good use is so huge that FTR Associates, a consultant to the freight supply industry, expects production of new railcars to fall 47 percent this year from an estimated low of 21,541 units in recession-smacked 2009.
And while FTR looks for new railcar deliveries to double next year and again in 2012, its five-year forecast still looks for production of 60,408 cars in 2013 to be below 2006 levels.
In other words, unless the U.S. economy grows much faster than expected, or railcar owners push a lot more of their old units to scrap yards, the North American fleet will be working out of its massive overhang of surplus cars for years to come.
At the worst of the rail freight downturn last spring, FTR President Eric Starks estimated that more than 500,000 railcars of all types were stored around the continent, while about another 150,000 were in service but underused.
FTR now says that total surplus probably shrank from 681,000 units to 603,000 by year-end, or “better, but still extremely high.”
Although railcar owners don’t have to pay shop maintenance fees when cars are parked, owners still may pay financing charges on cars that are no longer generating revenue, plus storage costs such as rents on tracks where they sit.
Union Pacific Railroad, North America’s largest carrier with a network that sprawls across the western U.S., had parked 66,000 railcars in last year’s first quarter and only trimmed that to 60,000 in the spring quarter, spokesman Tom Lange said.
Since then, it has worked down the number of idled cars in its fleet, reporting 44,000 idled at the end of the year.
Norfolk Southern Railway in the East said it reduced its stored railcar level to around 20,000 at year-end from a high of around 35,000 at its peak last May.
A mild recovery in freight traffic has been under way since midsummer, and people who live or work near freight tracks have seen lots of cars that were tagged with graffiti while in storage come back into service.
Yet railroads have kept their active capacity closely matched to demand, helping them to raise average freight rates even in a recession.
David Brown, chief operating officer for eastern carrier CSX Transportation, said the railroad can quickly bring some of its 23,000 stored cars back if demand warrants, but indicated CSX will wait for the demand. “We will continue to take a disciplined approach and activate available resources only when necessary,” he said.
The railroads also posted significant gains in efficiency last year, moving trains better and thereby needing fewer railcars to haul the same amount of freight.
UP’s Dennis Duffy, executive vice president for operations, told analysts last month the carrier’s record 27.3 mph average train velocity in 2009 and improved car utilization meant it could use less equipment. “Faster asset turns lets us move more freight with fewer cars,” he said, according to a Seeking Alpha transcript.
FTR also suggests that not all the reductions in stored equipment come from rising freight levels. It said the fleets scrapped about 60,000 old units in 2009, and will likely retire another 57,000 this year and 56,000 in 2011.
Those numbers could increase, and trim the surplus sooner, if scrap metal prices rise enough to entice fleet owners to eliminate inventory rather than wait for freight demand to pay revenue on the equipment.
Whether by traffic or scrap counts, FTR projects North America’s freight car surplus to be about 531,000 units at the end of 2010 and 447,000 next year.
Although production of new railcars should pick up starting in 2011 — more because shippers need certain car types rather than from overall demand rising enough to soak up idled equipment — FTR looks for a surplus overhang in 2013, at the end of its five-year forecast range, to still be 341,000 units.
Tuesday, February 16, 2010
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