By Bob Tita – Dow Jones Newswires – Aug 17, 2014
Thousands of tank cars will probably be scrapped or redeployed as a result of recently proposed federal regulations to make cars hauling flammable liquids safer and sturdier.
The loss of those cars could exacerbate the current shortage of rail cars needed to transport oil and extend the wait times for new cars beyond the current 2016 delivery dates. It could also make it more expensive to ship oil and other fuels at a time when crude-by-rail shipments have been soaring along with U.S. oil production.
Industry groups and car owners have 60 days to comment on the regulations proposed by the U.S. Department of Transportation last month and are discussing responses to what they consider are the most expensive or onerous provisions of the government’s proposals.
Implementing new standards for tank cars will hinge on the capacity of the rail-car industry to complete upgrades on existing cars or replace entire fleets with new cars. Demand for replacement cars is likely to collide with growing need for additional cars from the crude-oil industry. The backlog of orders for new tank cars totaled 52,589 at the end of the second quarter, according to the Railway Supply Institute.
With production capacity for new tank cars at about 35,000 cars annually, industry analysts say the car industry could have difficulty expanding production fast enough to accommodate the short time frames proposed by regulators for ushering older tank cars out of flammable liquid service. Meanwhile, the capacity for conducting extensive retrofits on cars is even murkier. Most rail-car repair shops in the U.S. are regional operations that are sized for small-scale work. Carmaker Trinity Industries Inc. is ramping up a new maintenance shop in Arkansas to conduct retrofits on tank cars.
Many of the cars that would be most at risk for being scrapped under proposed regulations are owned by rail-car leasing companies or ethanol producers. Almost all of the nearly 30,000 tank cars now used to haul ethanol would have to undergo extensive retrofits or be replaced. The government estimates the retrofits alone will cost the industry about $1 billion. Bob Dinneen, president of the Renewable Fuel Association, which represents the ethanol producers, figures the cost would be significantly higher than $1 billion.