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Rail car builders ramp up but stay cautious

Keywords: Tags  Greenbrier, William Furman, FreightCar America, American Railcar Industries, James Cowan, Trinity Industries, Tim Wallace, energy plays Corinna Petry

CHICAGO — U.S. rail car manufacturers are riding the wave of strong demand for tankers and other types of rail cars for shipping fracking sand, chemicals, steel pipe and crude oil to and from burgeoning energy plays across North America.

High order backlogs have led four North American rail car manufacturers—Greenbrier Cos., Lake Oswego, Ore.; FreightCar America Inc., Chicago; American Railcar Industries Inc., St. Charles, Mo.; and Trinity Industries Inc., Dallas—to step up production, although they remain cautious about overbuilding.

"The market is considered to be very hot," Greenbrier president and chief executive officer William Furman said. "(But) it’s difficult to interpret bookings beyond 2015. How much pipeline capacity has been added? Past 2014, will demand continue for transportation at the same pace it is today for oil tanks?"

Even as Furman predicts very solid demand for tank cars throughout the rest of the decade, "history demonstrates that it’s not a good thing to believe something that’s blowing up like a balloon is going to last forever," he said.

Greenbrier’s rail car manufacturing backlog as of Nov. 30 was 9,700 units, and it expects to deliver 13,000 units this year. It has ramped up production at its two Mexican tank car plants.

"In response to increased demand from the strong energy markets, we have built 11,000 tank cars and hopper cars for the transportation of oil by rail and for the frac(king) sand markets over the past three years," Furman told investors late last year.

About 87 percent of the industry’s backlog is for tank and hopper cars, American Railcar president and chief executive officer James Cowan said last quarter. Its current output schedule has new orders through the first quarter of 2014.

"The tank cars we’re building now are rather large, have got a lot of steel on them, and, in some cases, special, expensive steel," American Railcar senior vice president, chief financial officer and treasurer Dale Davies said.

Trinity Industries, which has also noted "consistent demand for products that transport and store crude oil and other energy-related liquids," recorded a rail car backlog of $3.3 billion at the end of the third quarter.

"The size of these backlogs gives (us) production visibility into 2014 for products that serve the oil, gas and chemicals market. We are in the early stages of extended production runs for these products," chairman, president and chief executive officer Tim Wallace said.

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