Why is the number of cars in stock important?

Railway equipment manufacturers, suppliers and industry watchers will talk about the increase or decrease in the number of cars in storage. But why is this number important?

It is important to know how many cars are in storage, as this number helps observers understand the capacity of the network in relation to the economy at large. Industry participants are also looking at the number of cars in storage by car type to gauge expectations for the direction of car rental rates and the volume of orders manufacturers will receive for newly built cars.

A number of organizations, such as the advocacy group Railway Supply Institute and the data company Commtrex, keep track of the number of wagons in storage, including the type of wagon, as different wagons can carry different goods. The types of cars that can be stored can range from mass fleets and automobile racks to coal cars and tank cars.

One of the reasons there are so many cars in storage is that the cars are very specific to the type of freight being transported. There are often shortages of certain types of cars and surpluses of other types of cars at the same time.

For example, if more grain has to be shipped domestically and exported, then more hopper cars will be needed to move that grain. If there is less grain to ship, car owners can temporarily store some of these hopper cars.

Sometimes a commodity will see its volumes face a systemic decline and this will be reflected in the type of wagons stored. The sand used in the natural gas fracking process was transported in small hoppers covered with cubes. But when companies started using local sand instead of shipping it by rail, it reduced the number of small cube-covered hoppers on the rail network – and increased the number of those cars in storage.

In addition, when natural gas began to replace coal as the main raw material for generating electricity, the volumes of coal plummeted, resulting in the storage of coal rail cars.

“As demand decreases, some of these cars are in storage, which increases the number of cars in storage,” said Lee Verhey, director of regulatory and industrial affairs at the Railway Supply Institute.

The economy at large can influence the number of cars in storage. When the COVID-19 pandemic first hit in the spring of 2020, manufacturing rates and in-store consumer activity plunged amid social distancing measures. As a result, US rail volumes fell in April and May 2020. As there was less rail traffic, more cars were put into storage.

“The market really determines the availability of cars,” Verhey said. ” Like he asked [to haul certain commodities] breaks down, some of these cars go into storage and that results in the number of cars in storage. “

The number of cars in storage reached more than 525,000 cars in July and August 2020, an official at railcar builder Greenbrier (NYSE: GBX) recently said. This number has steadily declined over the past 14 months to less than 400,000, which is more in line with normal levels.

“As the economy starts to gain momentum and we start to see manufacturing start to increase and supply starts to become more available, then the demand for cars is greater,” Verhey said.

Some of the cars in storage are older and less efficient than newer cars because they have lower payload-to-weight ratios. As a result, some stored cars may never be returned to service.

Car rental companies own about 70% of the US fleet, while freight railroads own about 30%. A customer, such as a chemical company, will need rail cars to transport the products, and that customer will get quotes from the rail car rental companies for the rates. Leases can be short or long term.

Meanwhile, railways tend to own box cars or rail cars to transport grain or agricultural products. TTX is a railroad-owned joint venture that serves as a railcar pool. But the railways do not have tank cars, which have their own special regulations for handling.

Finally, a handful of companies will own their cars, such as Exxon Mobil, Shell and ConocoPhillips. The decision to own wagons depends on the company’s financial strategy, according to Verhey. Some may lease cars because they don’t want to invest in the cars, but some might find it financially beneficial to own their cars if they serve a niche market.

FreightWaves market expert Mike Baudendistel contributed to this report.

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