Idle cars mean cutbacks are coming for railcar builders.

Implications: The decline in trailer and container shipments, especially those originating at West Coast ports, has resulted in a large surplus of railroad intermodal cars, specifically the doublestack well cars used to handle containerized imports. BNSF (NYSE:BNI) has been reported to have parked thousands of well cars around its system. Other railroads are reporting, however, that surplus quantities are no greater than might be expected at this time of year due to the seasonal nature of this traffic. Nevertheless, with traffic down significantly from last years’ levels (-4%), it’s hard to imagine how the seasonal railcar surplus looks normal.

Analysis:  A number of forces are affecting railcar demand: (1) traffic is down for most commodities, including intermodal containers; (2) excessive deliveries of new railcars in recent years are still being worked off; (3) train speeds are increasing and making cars built for the slow trains of the past few years redundant. Surplus quantities of all car types are plaguing both railcar builders and railcar lessors and will be a drag on new railcar demand for more than the coming year unless railroad traffic rebounds in all segments and train speeds decrease because of congestion once again. Since that is not likely to happen until we are well into 2009, it is unlikely that strong demand will return to the railcar sector for many months.   It should be noted that grain and coal shipments are up in 2008 and will continue to drive overall railroad carload totals up for the rest of the year. Railcars that handle these commodities were built in large quantities in recent years, more than could be justified by traffic demands. The resulting surpluses will have to be worked off before more are needed.