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Progressive Railroading | Rail-car Outlook: Where Did the Momentum Go?

09.06.17 | Richard Kloster

Going into 2017 the rail-car fleet outlook was promising. Most freight segments were showing improvement and much of the lost 2016 volume was expected to be recaptured. Many of the fleet surpluses had begun to decline and utilization was on the rise. And while the new car order rate remained subpar, deliveries were still projected to be almost 40,000 units - a respectable number.

But halfway through the year, 2017 didn’t look a whole lot different than 2016. Yes, the steep year-over-year freight declines are gone, but focusing on this measure alone can be misleading since 2017 was bound to be better, considering the low 2016 base.

Of course, 2017 was going to be better freight-wise, and with it fleet performance was going to improve. But a funny thing happened on the way to a fleet recovery: Our hero named “Freight” ran out of steam, and so far, it doesn’t look like Freight is going to help “Fleet,” the heroine of the story.

While Freight was relatively strong in 2015, it had a 1.6 million carload drop-off in 2016 " a big number! The expectation going into 2017 was that 75 percent of these losses would be recovered this year. But so far, we’re on pace to recover only 55 percent. And therein lies the problem for the Fleet. As the “Gods of Transportation” have decreed, Fleet demand follows Freight demand. But in this story, some freight segments have not been playing their part. So, who are the villains?

Who are the bad guys?
Meanwhile, the box-car fleet continues to be a neutral player. Freight volumes are about what they were expected to be, but the long-running fleet decline has taken a bit of a timeout during a mini-build cycle that started last year and will continue into 2018. But once this subplot plays out, the box-car fleet will return to its old storyline.

That leaves the flat- and tank-car fleets as the main bad guys. While intermodal shipments have been a little higher, they are still below expectations, and the auto-rack fleet has been suffering from a significant drop-off in freight volumes. Both have conspired to increase the fleet surplus and push out any interest in new equipment.

That leaves the tank car fleet as the arch-villain. Despite a severe drop in crude shipments that pushed tens of thousands of tank cars into storage, freight increases were supposed to drive a comeback for the rest of the fleet. That hasn’t materialized and the surplus has gotten bigger, with over one-third of the fleet in storage. New car demand is extremely low, but because of a still-high backlog, new tank cars continue to be added to the fleet " which exacerbates the problem.

So, for now we will have to wait and see if in the Second Act of the 2017 story, the hero named Freight will be able to get his many different segment-plots together and save our heroine named Fleet. Here’s hoping he does, for everyone’s entertainment!

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