According to the latest North American Railroad Equipment and Deliveries Outlook published by FTR Associates, capacity on railroads remains extremely tight. This facilitates the need for additional railcars since strong freight demand is being coupled with further declines in railroad productivity. North American rail car loadings surged 5.2% in 2004, the strongest rate since 1994. Demand is being further driven by the inability of railroads to increase productivity levels. Calculated train speeds declined further in 2004 with no expected improvement until at least 2006.
The number of railcars in use relative to the total fleet is at its highest level since merger problems back in 1997 and 1998. Railcar capacity in use will be at elevated levels over the next two years. Eric Starks, president of FTR Associates, expects that, “We will see the capacity in use number coming down over the next two years, but it will still be well above its historical norm.” The demand in the market place would suggest the need for deliveries of 65,000 to 70,000 units over the next few years. However, physical constraints by the equipment manufacturers will limit this to 61,700 units in 2005 and 63,100 units in 2006.
Railcars continue to age, according to FTR. Nearly 50% of all railcars in North America are more than 20 years old. As railcars start to approach 30-40 years of age, replacement of this equipment is imminent. Already, capacity is constrained at the supplier level. While the average age is not likely to impact short-term demand, it will influence the longer-term forecast. Around 2015, FTR estimates 300,000 railcars will need to be retired over the next five-year period. This translates into an average 60,000 railcars needing to be replaced per year between 2015 and 2020.
For more information, contact FTR, Nashville IN.