2015 Midwest Association of Rail Shippers Winter Meeting Recap

3/20/15

CFCL’s very own Scott Baker, Bill Elwess, Rhonda Zielinski, Jim Kennedy & Bill Plavsic recently attended the Midwest Association of Rail Shippers Winter Meeting, held in Oak Brook, IL. The theme of the two-day event was entitled “Meeting the Challenges of High Demand”.  Our five CFCL representatives were among more than 600 attendees, including leasing companies, shippers, railroads, manufacturers, investors, brokers and others that work in the industry. We asked Scott Baker and Bill Elwess to fill us in on the trends and observations from the industry experts who presented at the meeting.

There is an increase in transportation by rail taking place because of the energy boom. As oil drilling escalates, more tank cars are transporting oil from areas like North Dakota and Canada, that had very little rail activity before. Accompanying an increase in oil transport is an increase in the transport of sand, which is a necessary ingredient to extract petroleum from the earth. CFCL and other lessors have seen an increase in orders for both covered hopper cars and tank cars to transport these commodities. However, even since the MARS meeting, the price of crude oil has dropped as has the amount of drilling. The question is, will the prices continue to drop? Whatever happens, rail will be affected!

The announcement of changing regulations for tank cars has been postponed.  Feeling a necessity to increase rail safety regulations following accidents such as the derailment and explosion in Lac-Megnatic, Quebec in 2013, the government is working on new specifications for tank cars that transport crude oil and ethanol. Attendees of the meeting had hoped to learn of the changes which were to be released on January 15, but were told that the ruling has been delayed. The final ruling will be made by PHMSA (Pipeline Hazardous Materials Safety Administration) in mid-May.

There is a backlog in the ordering and production of rail cars. Because of the sudden demand to service the widening North American rail network, the number of cars ordered last year is much higher than years past, specifically in December of 2014. Customers requesting rail cars may not receive them until 2017, especially tank cars and those used to transport sand (3,250-3,300 cubic foot covered hopper cars), which comprise about 75% of the orders. Railroads are trying to balance old and new business and keep up with changing industry needs. For example, while the amount of coal being used falls, so has the demand for open top hopper cars. The increased use of crude oil has caused an increased demand in tank cars. In some areas, this increased traffic has caused more rail congestion and the efficiency of the rail industry is having an indirect effect on energy costs.

Chicago rail infrastructure is changing for the better.  Chicago is the busiest city in North America for equipment rail cars, with 30% of all rail shipments running through the city. In a presentation entitled “Move Chicago”, details were shared about a bypass that is being built around the city to relieve congestion. The long-term project is a collaborative effort of all Class I and regional railroads and is expected to relieve congestion and reduce travel time. The faster travel time will compensate for the increase in travel distance from the bypass.

A strong North American economy is affecting rail. An increase in new home construction is causing a greater demand for concrete aggregate materials, however the weather conditions noticeably affect this demand. For example, the last two mild winters saw an early onset of the construction season while the polar vortex of this year slowed construction and decreased demand for rail transport.

Railroads are improving service. Railroads continue to put resources in place to improve service to their customers and are tracking record amounts of capitol-increasing track capacity. They are buying locomotives and adding crews. They continue to invest in infrastructure in anticipation of a continuation of the oil boom.

There is a shrinking work force in railroad.  If you know someone in need of a job, have them look into rail operations. The seven Class I railroads report that they will lose 20% of their work force in the next five years.  Railroads are having trouble finding quality people that are willing to work shifts, weekends, be on call, and relocate. While locomotive operators are paid six figures, the lifestyle is a stumbling block for many potential applicants.

The next meeting will be held in July 2015 in Lake Geneva, WI. We will then be able to report on the state of the new tank care regulations as well as an ever-changing outlook on the rail industry.