There is no slippage in the push to build more railroad tank cars for transporting crude oil and other energy products, the CEO of a leading railcar manufacturer told financial analysts.
New federal regulations (see Shale Daily, May 7, 2014) for rail tank cars should come later in the first quarter, further boosting the market, executives at railcar maker Greenbrier Companies said.
During a quarterly earnings conference call with analysts, Greenbrier CEO Bill Furman and other senior executives at the Oregon-based designer, manufacturer and marketer of railcars and equipment concluded that the market is still upbeat for their business because of tank car design requirements due to be released soon by the U.S. Department of Transportation and other factors.
Other market pushes include increased interest in crude oil shipments by rail and the need for other energy-related shipments of products, such as ethanol and sand used in hydraulic fracturing proppant.
"The tank car of the future that we've designed parallels what we expect the government to require," Furman said. "There will be mandated changes in certainly crude-by-rail and probably over time also ethanol. We don't see any change; we have a car that is eight times safer, so we're building the tank car of the future today."
Safety -- not economics or commodity prices -- will drive the push for newer tank cars, according to Greenbrier CFO Mark Rittenbaum, who said the new federal requirements are expected to come out this quarter. "We continue to believe when [the regulations come] notwithstanding the price of oil, people will [order more new cars] because safety matters, and for many of our customers out there, safety cannot be denied," Rittenbaum said.
For legal and risk management reasons alone, customers are expected to order new cars, such as Greenbrier's, Furman said, adding there will also be a retrofit market to upgrade existing cars to meet the new safety requirements.
So far, oil prices have only spurred one of Greenbrier's customers -- a small one -- to ask about an order cancellation. "We haven't seen any surge or really considerable activity in that area," Furman said. "We have seen a delay in action due to the uncertainties on tank car regulation," he said, while acknowledging that "the new tank car order book has slowed somewhat from its earlier phase, as one would expect."
Furman added that Greenbrier's strategy assumes that new tank car requirements will "create quite a lot of replacement demand. We think that over the next few years, safety will sell and it's going to be required, and we have a number of very substantial customers who have embraced the tank car of the future and/or retrofit programs."