Demand for railcars that can that can transport petroleum rose 35% in 2013, as of Nov. 2013. The strong demand for crude oil will likely reach into 2015, and support volumes of railcar securitizations, according to a roundtable hosted by Standard & Poor’s.
Barbara Wilson, managing director & president at First Union Rail participated on S&P roundtable. According to Wilson, approximately 21,000 tank cars were delivered in the nine months ended Sept. 30, 2013, with the majority of those cars going to crude oil by rail (CBR) service.
Wilson said that “tank car builders are running at full capacity and are backlogged through late-2015, producing both general-purpose and coiled and insulated tank cars. The major CBR volumes for the future are coming from the Bakken [located in Eastern Montana and Western North Dakota, as well as parts of Saskatchewan and Manitoba in the Williston Basin] and Western Canada.”
However the increase in the supply of crude oil tank cars could be met with a decrease in demand once pipeline projects are completed. Wilson cautioned it could cause an oversupply in the tank car market.
“The coiled and insulated tank car market is heavily dependent on the market price spread between Western Canadian heavy oil and imported heavy crude oil in the Gulf Coast from Mexico and Venezuela,” said Wilson. “The timing of large proposed pipelines--including Keystone XL--coming online originating in Western Canada and the ability of heavy oil rail shippers to compete against pipelines will be important factors to watch.”
Gene Henneberry President & CEO, Flagship Rail, and also a panelist on S&P’s roundtable,was optimistic that a market for “crude oil by rail” could exist “even after pipelines are operational.” Flagship completed its first securitization in April this year.
“The question is how large of a market will be available for rail?” said Henneberry. “While we cannot be absolutely definitive on this market yet, it feels like the leasing market should be about 70,000 to 100,000 cars.”
Oversupply is an issue that has dogged other niches of rail car transport. As of Oct. 1, 2013, 19% of railcars were in storage, according to Wilson. Volumes of coal shipped by rail saw a large drop of 10% from 2010, said Wilson. “There are currently approximately 18,000 coal cars in storage, and net lease rates for aluminum coal cars are less than $50 per car per month.”
Low grain prices have contributed to the soft demand for grain cars this fall, with grain loadings down 13.5% from 2012. “Grain shipments have been weak this year, with large amounts of grain going into storage,” said Wilson. “This has resulted in weak market lease rates for grain cars.”
However Wilson is optimistic that demand for grain cars will rebound in 2014 because most grain storage facilities are presently full.
Demand for sand and cement cars comtinues to see steady demand. Wilson said that carloadings in non-metallic minerals were up 7% in 2013 from 2012. Auto sales are driving autos loadings, which are up 4.2%. Intermodal traffic is up 3.7% over 2012, driven largely by domestic intermodal.
“Overall, the outlook for the next one to two years is solid,” said Wilson. “The excess supply of aluminum coal cars will slowly get absorbed, grain car demand will rebound in 2014, and demand for most other rail cars types is stable.”