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Railcar Orders Signal Economic Growth

July 25, 2018 By Young Research

By TTstudio @ Shutterstock.com

American companies and rail operators are preparing for economic growth by ordering many more railcars than they did last year at this time. Railway Age reports that railcar orders increased 130% in the first quarter of 2018. Tank cars, usually used for moving oil by rail, and hoppers for moving rock, gravel and sand accounted for the bulk of the new orders. William C. Vantuono writes:

“We think improved tank car orders could reflect stronger CBR (crude by rail) economics due to higher crude prices and limited domestic takeaway capacity,” observes KeyBanc  analyst Steve Barger. Together, tank and covered hoppers accounted for about 80% of total orders in the quarter vs. about 65% last quarter.”

2Q18 tank car deliveries increased about 15% sequentially, and were up about 2% year-over-year. “Current deliveries imply the industry has roughly 10.7 quarters of tank car backlog visibility at current production levels,” notes Barger.

The tank car backlog increased to 24,154 cars vs. 16,506 in 1Q18; the non-tank-car backlog increased about 6% to 41,007, vs. 1Q18’s 38,710. “On current deliveries, we think the backlog implies about five quarters of theoretical production visibility,” says Barger. “The industry backlog continues to trend toward a more ‘normalized’ concentration of car types, consisting of 37% tank, 18% small-cube covered hopper, 11% medium-cube covered hopper, and 16% large-cube covered hopper. The implied cancellation of 772 cars could be cars from multi-year orders converting from low-demand to high-demand railcar types.”

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