KeyBanc: ARCI figures trending toward "normalization"

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Written by: William C. Vantuono, Editor-in-Chief
The Railway Supply Institute American Railway Car Institute Committee railcar industry fourth-quarter 2016 order, delivery and backlog statistics indicate 12-14 months of backlog visibility and a move toward a more “normalized” concentration of car types, according to Steve Barger of KeyBanc Capital Markets.

Orders in the quarter declined sequentially to 4,866 cars from 5,526 cars in third-quarter 2016. The industry delivered 14,914 railcars, following last quarter’s delivery figure of 15,375 railcars. The backlog now stands at 66,681 railcars, down 14.1% from the prior quarter’s level of 77,640. “Industry book-to-bill came in at 0.3x, slightly lower than last quarter’s figure of 0.4x,” according to Barger. “In the quarter, respective book-to-bill for tank and non-tank activity was 0.2x and 0.4x (vs. 0.2x and 0.4x, respectively) in 3Q16.”

Freight car orders totaled 3,977 railcars in the quarter, vs. 4,645 non-tank cars in 3Q16. Covered hoppers, which showed the largest concentration in orders, totaled 2,629 railcars, or 54% of the total above last quarter’s 44%, with mid-cube covered hoppers representing the majority of the orders at 1,284 cars, vs. 1,678 cars ordered in 3Q16. Orders for large-cube and small-cube covered hoppers were 1,150 and 195 cars, respectively, vs. 744 and zero, respectively, in 3Q16. Industry orders for tank cars totaled 889 vs. 3Q16 orders for 881 tanks. Together, tank and covered hoppers accounted for more than 72% of total orders in the quarter vs. 60% last quarter.

Deliveries came in at 14,914 in the quarter (3,872 tank cars and 11,042 freight cars). 4Q16 tank deliveries increased about 3% sequentially. “We think current tank deliveries imply the industry has about 4.7 quarters of tank backlog visibility,” said Barger.

The industry backlog stands at 66,681 railcars, down from 3Q16’s level of 77,640 railcars. “On current deliveries, we think the backlog implies just under 4.5 quarters of theoretical production visibility,” said Barger. “The tank backlog decreased about 14% sequentially to 18,344 cars. The freight backlog moderated to 48,337 railcars, down from last quarter’s 56,323 railcars. We think industry backlog continues to trend toward a more ‘normalized’ concentration of car types consisting of 28% tank, 24% small-cube covered hopper, 19% medium-cube covered hopper and 11% large-cube covered hopper.”

“Additionally, the industry data implies a net cancellation of 911 railcars primarily within the covered hopper car type,” Barger noted. “Specifically, the data implies a cancellation of 376 large-cube covered hoppers, 245 medium-cube covered hoppers, 200 small-cube covered hoppers and an addition of 10 tank cars back to backlog. We think railcar OEMs continue to have limited discussions with customers regarding deferrals of deliveries or cancellations, particularly for customers serving the energy patch.”

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