Rail Theory Forecasts™ LLC

Annual Publication

North American Rail Car Market

North American
Freight Car Market

Progressive Railroading Magazine http://www.progressiverailroading.com/

Progressive Railroading Magazine, December 2009

"Spirit of relative optimism prompts a 15K-delivery projection for 2010 "

The annual forecasts for next year’s new railcar deliveries are a function of many factors, the most important of which are the production trends and backlogs in the current year and the GDP forecast for the next. Last year, the estimate of the negative GDP growth was right on target, but the cancellation in the fourth quarter of 11,000 backlogged orders for railcars related to the ethanol industry was an unpleasant surprise. The revised forecast of 22,000 cars that was issued in late February appears to have been right on target. This year, no major surprises are expected from the railcar builders, but guessing the GDP growth in 2010 proved to be problematic.

In October, the economic consensus for the GDP was for a 2.5% improvement next year, but after the third quarter ’09 numbers were released, some economists were raising their projections for 2010. If there is strong economic performance from the start, deliveries could reach 16,000 cars, but if the economy falters after the Federal Reserve stops buying Treasury Notes and FHA mortgages as they have promised, then deliveries could tumble to as low as 8,000 cars next year. Hence the dilemma facing railcar builders and suppliers in anticipating next year’s market, not to mention forecasters trying to get within 10% of the actual number.

Barring any surprises such as the sudden cancellation of the tank and jumbo covered hopper orders last fall, the delivery of a few car types can be projected even without a good estimate of the economic growth in 2010. There were no intermodal car deliveries in 2009, as predicted, and none are expected in 2010; and as for other types of flatcars, deliveries should look like those in 2009, with just a few hundred cars produced. There are just too many surplus intermodal cars, lumber cars, and multilevel flatcars. The same could be said of boxcars and mill gons, although the surplus cars in these fleets are all very old and orders for replacement equipment would be a real boon for some builders.

With the Administration and Congressional leaders so overwhelmingly against the coal industry, even a rapid rate of economic growth many not spur orders for new coal cars, and deliveries may not even reach half of this year’s expected 6,000 car total. Utilities cut back their use of coal by 15% in 2009, even though electrical output was reduced only 5%. Cheap natural gas and costly environmental regulations will work against coal again in 2010 and it may be a few more years, if ever, before demand climbs above 2006 the production totals.

Demand for tank cars will mirror the developments in the overall economy. With strong growth, deliveries might reach 8,000 cars, but if the economy remains weak, production will likely stay below 6,000 cars. More than any other fleet, demand for these assets reflects the rational fleet management of the oldest leasing companies in the industry. Replacement demand and the mandated need to retire pressurized cars built before 1989 that are used to ship toxic gases will keep deliveries above 5,000 cars even in the worst of times.

The car types most likely to see renewed demand and increased deliveries are grain sized covered hoppers. The farm sector is expected to harvest a bumper crop in 2009, and exports seemed to be rising at the end of the year to levels not seem in over 12 months. If traffic picks up, deliveries would easily exceed the 3,000 car total that is expected for 2009. Demand and deliveries of other covered hopper car types are expected to remain low in 2010, much like they were for most of this year.

While as yet unfounded in actual numbers, a spirit of optimism has inclined this forecaster to project that new railcar deliveries in 2010 will only fall to 15,000 cars, as opposed to previous estimates of 12,000 cars or less. However, whether or not next year looks to be an inflection point for this business cycle has yet to be determined. Like last year’s backlog cancellations, there may be some unpleasant economic surprises lurking around the corner that will to spoil the economic recovery everyone wants so badly. Until they materialize, we’ll just have to keep our fingers crossed and continue to hope for the best.

Rail Theory Forecasts is a consulting company specializing in North American rail freight traffic and freight car demand forecasting. Publisher of the annual North American Freight Car Market

Rail Theory Forecasts (RFT) was founded in 2001 to advance the art and science of predicting future developments and trends in the railroad industry, especially with regard to the demand and supply of railcars. The basic premise which has guided the company’s efforts is that current developments can only be understood and evaluated within an historical context, and that forecasts and projections of future developments must be soundly based on the interplay of the factors that have most influenced past events

http://www.glgroup.com/Council-Member/Toby-Kolstad-85066.html?obj=search&Keyword=kolstad