Demand for coal cars will increase, but so will Freightcar America’s competition for orders

Implications: Overlooking the author’s tendency for hyperbole and his greatly distorted timeline of history, his conclusion that demand for new coal cars will soon return is right on target. He is also right in highlighting the current danger to those builders who might be exposed to fixed price contracts and escalating steel and specialty parts costs. However, he overlooks one crucial new element in the market for coal cars that Freightcar America (FCA) did not face the last time demand surged for its products: competition. In 2004, the last time buyers changed course and began ordering cars, FCA enjoyed an almost 100% market share. This time however, they will have to contend with a resurgent Trinity Industries (TRN).

Analysis:

Demand for coal cars surged in 2004 after being dormant for a few years due to overproduction in the late 1990s when coal sales were either flat or barely growing. The demand for cars during those years was due to railroad operating problems and slow train speeds, one of the main reasons demand for coal cars was so strong in recent years. As they did in 1999, the railroads improved their train speeds again in 2007/08 and made many of the cars built after 2004 surplus, causing the current downturn in orders even as coal traffic on the railroads surges once again.

 

Hopefully, the traffic will keep growing and demand for new aluminum cars will return to historic levels. Unfortunately for FCA, this time around they will have to contend with a more aggressive Trinity Industries in the coal car arena. Since the middle of last year, Trinity has increased their market share for this car type from around 20% to almost 50% through aggressive pricing, leasing, and new product designs.

 

Freightcar has kept control of one type of coal car however, and demand for it is soaring. In conjunction with Norfolk Southern Railroad a few years ago, FCA developed a hybrid stainless steel/aluminum car for the export coal traffic. Low utilization rates and the need to use open flame heaters to thaw frozen coal through the manually operated gates of the coal cars used in export traffic required special cars to replace the aging fleets at both NS and CSX. FCA’s hybrid cars was a success and is contributing to much of that company’s performance this year.