Railcar deliveries will fall again in 2009 by a significant amount

Implications: The stock prices of all railcar builders declined after a recent prediction by a KeyBank analyst that railcar deliveries will fall in 2009. He estimated that deliveries in 2009 would fall to around 37,000 cars from the 45,000 to 50,000 cars expected this year. It is hard to argue with this forecast except that it might be a little too optimistic if there is a severe economic contraction in 2009. However, several more weeks will be needed before such a dreary scenario can be painted.

Analysis:

What made Mr. Barger’s comments so interesting to me was that he heard me make the same call in a presentation at the recent RailTrends meeting in New York on September 30^th. When I had made the Power Point slides for the presentation a month earlier, I had estimated that deliveries in 2009 would be around 42,000 cars in 2009, using guesses for 3^rd quarter data to feed the statistical models we use at Rail Theory Forecasts LLC. During my presentation, I indicated that the events of the recent weeks have led me to believe that I was too optimistic in my assumptions and that deliveries in 2009 might be as low as 37,000 cars, unless there was a severe recession. The reason for the reduction in deliveries was due to credit factors and did not reflect any economic contractions, especially a worldwide economic slowdown.

 

Most economists think we are in a recession right now, although few have ventured to predict a worldwide contraction in 2009. Such a scenario however, appears to be a very real possibility and it would indeed affect railcar deliveries in 2009. However, since most car types are already being produced below the replacement rate of equipment being retired, the additional decrease in deliveries would be small compared to what has already been forecasted.

 

Since most car builders specialize in just a few car types, the contraction in deliveries will affect some companies more than others, although all will suffer some decrease in production. Moreover, some builders also produce other products, such as the ocean barges at Greenbrier and the rive barges and wind turbine towers at Trinity Industries which should help them weather the coming contraction. Trinity has previously announced the conversion of two of its railcar facilities to wind tower production, apparently anticipating the expected slowdown in railcar deliveries.