(Reuters) — A top U.S. railcar maker, The Greenbrier Companies Inc., said on Wednesday a two-year timeline to retire older railcars that carry dangerous flammable liquids, including North Dakota Bakken crude, is “aggressive” but can be done.
Those comments came after the U.S. Department of Transportation proposed new safety standards for moving crude and ethanol by rail in light of several fiery accidents over the past year.
The proposed standards suggest phasing out older cars built before October 2011, which is when the industry adopted a newer design with 7/16-inch thick steel hulls, reinforced valves and head shields on railcars' front, back or both to better protect against leaks in a derailment.
“A two-year timetable for phasing out the use of older DOT-111 cars in the most hazardous flammable service is aggressive, but can be met with appropriate retrofit packages and new car design,” Greenbrier spokesman Jack Isselmann said.
The older models, known as DOT-111s and built since the late 1950s, lack valve protection and heat shields. DOT-111s were the type of railcars in several of the past year's crashes, including a runaway train that careened into a small Quebec town and exploded, killing 47 people.
Several U.S. refiners that receive crude by rail already use only post-October 2011 railcars as their projects started up after that. Others are phasing out older ones this year as post October 2011 models come in.
But DOT's proposed rules suggest several options for tank cars built after October 2015, two of which call for 9/16-inch thick steel hulls. A third option would maintain the 7/16-inch standard in the post-October 2011 models.
James Rader, senior vice president of Watco Companies L.L.C., the second-largest short-line railroad operator in the U.S. with oil-by-rail operations, said at a June conference in Houston that DOT's measures could go beyond the October 2011 industry standard with thicker hulls and other protections.
In his presentation, Mr. Rader said about 40% of cars that carry crude now are newer ones. He projected that by the end of 2015 the fleet of newer cars would be about 55,546 — larger than today's fleet of 48,503 cars carrying crude.
Some predicted capacity constraints but others have said the industry usually overbuilds during boom times.
“That three-year turnaround time — two years from the October 2015 date — is going to be a bit tight based on shop capacity for tank cars,” said Jason Seidl, analyst at Cowen & Co.
Justin Long, an analyst at Stephens Inc., a financial services firm in Little Rock, Arkansas, said at the Houston conference that railcar manufacturers have “a history of overbuilding, and we don't think this cycle will be any different.”
While railcar makers and maintenance companies may see more business from tighter regulations, shipping and leasing companies will see rates rise, Mr. Long said.
They might have to pay about $10,000 in disposal fees to scrap an old car, or more than $130,000 for a new one.
Consultancy Turner, Mason & Co. said this week that retrofitting is estimated to cost $30,000 to $60,000 per tank car.
Most companies that retrofit railcars are privately held, while Greenbrier and American Railcar Industries Inc. are public.
Makers of new cars include Greenbrier, American Railcar, Trinity Industries Inc. and Union Tank Car, owned by Berkshire Hathaway.
Greenbrier in February began marketing a newer tank car design with 9/16-inch thick steel, as well as stronger top and bottom outlet protection and an outer steel jacket with ceramic insulation.
Greenbrier last month said customers had ordered 3,500 of that style of newer tank car.
This week Greenbrier and Watco formed GBW Railcar Services, a joint venture combining their 38 railcar repair, refurbishment and maintenance shops in anticipation of swifter business.