April 30, 2012

Report: Railcar manufacturing down last 5 years

In the midst of the global recession, the train, subway and transit car manufacturing industry experienced a slight decline during the five years to 2012, according to an IBISWorld report.

The moderate annualized decrease in industry revenue of 1.7% masks the sharp demand declines experienced during the recession. However, locomotives and railcars are built when ordered, which causes order backlogs that can last an average of three years. Before the recession, the expanding economy led to a large backlog of railcar orders as rail transport companies ordered more industry products in response to growing demand for commodities. In 2009, says IBISWorld industry analyst Lauren Setar, "Most industry players did not receive any orders but were able to generate revenue from backlog railcar production." As such, revenue is expected to reach $13.2 billion in 2012.

The recession hit railroad operators particularly hard. As the U.S. economy entered the downturn, banks were reluctant to hand out loans. Meanwhile, capital-intensive businesses pulled back on investments, waiting on the sidelines for a better investing environment. Additionally, trade slowed to minimal levels, according to the report.

Railroad operators derive most of their revenue from shipping industrial products, including coal, machinery and other industrial mainstays. With dropping demand for shipping industrial products, railroad operators left unused railcars for storage and stopped ordering new locomotives and railcars. The end of the backlog will continue to result in revenue declines for the train, subway and transit car manufacturing industry, and revenue is estimated to decrease 2.9% from 2011 to 2012.

The next five years are expected to be even worse for the industry. Despite expected gains in industrial production and a shift toward sustainable infrastructure like railroads, major players, most of which operate outside the U.S., are increasingly looking overseas for growth opportunities. Emerging economies that were left relatively unscathed from the global recession are growing at much faster rates than developed Western economies. China, which presents the largest growth opportunity for manufacturers, has a booming energy and industrial market and its railroads will continue to increase demand for freight shipments across the country. These shifts to emerging economies will limit U.S. industry growth prospects, leading revenue to fall in the five years to 2017, according to the report.

For more about the "Train, Subway and Transit Car Manufacturing" report, click here.

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