Third quarter 2019 overall railcar industry orders are down 71 percent from the third quarter of 2018 and are off by 54 percent for the year, CEO James Meyer says.
FreightCar America reports more than a 47 percent third quarter downturn of new and rebuilt cars.
“The reasons talked about for the slowdown include the impact of spring and fall weather on the grain market, tariffs on intermodal traffic, general concerns regarding the future strength of the economy, and precision scheduled railroading,” according to Meyer. “Regardless of the reasons, we all know this to be a cyclical and an essential-needs business, therefore it will come back.”
FreightCar America builds gondolas; articulated flatcars; boxcars; open hoppers; and covered hoppers for agricultural products, sand, cement, and roofing granules.
The only strong market demand for a FreightCar America product is for the plastic pellet hoppers, Meyer told an investors’ earnings call.
While Meyer says demand is also strong for tank cars, no tank cars are in FreightCar America’s product line – the company has positioned itself in non-tank car manufacturing.
“When I joined FreightCar America in August of 2017, we were competitive in roughly a third of the North American non-tank car market. In another few quarters we will be competitive in approximately two-thirds of the non-tank car market.”
In its quest for profitability, the company is aggressively involved in cost-cutting, which has consisted of reducing individual railcar production costs by $5,000 since 2018, according to Meyer.
”Cost reduction and lean manufacturing are becoming a key part of who we now are as a company,” he says.
FreightCar America is behind its competitors in establishing a presence in Mexico and a key reason for the joint venture with Fasemex is the cost of labor. “We have made tremendous strides in lowering our material and fixed costs and we have also made tremendous strides in improving labor productivity. Managing labor rates, however, is also imperative to compete in this industry and certain car types are simply infeasable to produce profitably in the U.S.,” Meyer says.
While he declines to be specific regarding investors’ questions about types of cars FreightCar America will build in the future, he says the Mexican joint venture will “open up the ability for us to compete in car types we’re currently not active in today just because of the nature of the economics of those particular car types.”
Production of a key FreightCar America product, intermodal cars, will be at the new Muscle Shoals plant where the company will also upgrade its plastic pellet hopper operations, he says.
“When the new plant is finished, FreightCar America will have the most modern railcar plants in both the U.S. and Mexico.”
FreightCar America’s third quarter revenue was $40.7 million, down from $79 million in the third quarter of 2018.
There is an over supply of the 2-bay covered hoppers.
Greenbrier and ARI have the market cornered on other covered hoppers
UNION TANK CAR and TRINITY RAILCAR have built the most new tank cars.
They would have to find a way to replace all the old box car types to get new business.