Oil Tank Car Manufacturing to Remain Steady Despite Decline in Shipping
As the amount of crude oil being shipped by rail declines, it is unlikely that Watertown-based New York Air Brake will see a drop in business for the time being.
The American Association of Railroads reported in December that 48,978 carloads of crude oil were shipped in the third quarter of 2016, down 7,476 carloads from the second quarter of 2016 and down 52,189 carloads from the third quarter of 2015.
As a result of the decline, Global Partners, an energy company with business in New York state, announced it would prematurely end a contract to lease 1,610 oil railcars from a third party. The company will incur a one-time $81 million expense, resulting in $10 million in savings from lease agreements that would have been paid out until 2019.
But for companies such as New York Air Brake, which produces train brakes and control parts, the decline will not have much of an effect on manufacturing for now.
Air Brake President Michael Hawthorne said that, even with a crude oil transportation decline, a large backlog of oil tank car production still exists because of anticipation of increased use of railroads for crude oil shipments instead of pipelines. As crude shipping decreases due to the collapse in oil prices, these railcars will still be manufactured, but they will be underutilized.
“[Oil] production went down, therefore the demand for cars went down,” Hawthorne said,“but the backlog for them was secured.”
Hawthorne said oil transportation standards also could change under the administration of President-elect Donald Trump. If the current crude oil railcar backlog dried up and oil production remained in decline, Air Brake still would find business through producing parts for railcars designed to carry other commodities, he added.
“That different mix of cars would create more demand,” he said.
But there are other declining commodities besides crude oil that could affect railcar manufacturers. Hawthorne said that as the nation moves more toward natural gas, coal use is dropping significantly, taking many train cars used for coal transportation off the rails.
