A focus on sustainability could be a boon for railcar manufacturers as European and North American customers pursue larger, higher-capacity railcars as a means to optimize rail shipments while reducing their carbon footprint by using rail, according to executives with railcar manufacturer Greenbrier.

“Already we’re seeing customers that are very interested in that environmental aspect. … It’s being driven by higher capacity, more efficient cars, fuel-efficient cars. And the current administration is going to be emphasizing that very much in some of the policy things that are going on,” said Greenbrier CEO Bill Furnman during his company’s third fiscal quarter earnings call last Friday. Greenbrier’s third quarter ended May 31.

While market attention on higher-capacity railcars to support companies’ sustainability efforts might signal a longer-term trend, the railcar market right now is seeing demand for all types of railcars. 

That demand for all types of railcars comes as Greenbrier (NYSE: GBX) sees itself in a “strong” position going into its fiscal year fourth quarter and into 2022 amid an improving market outlook and an economic recovery.

“What we’re seeing in the market today is really probably one of the most diverse order backlogs that I’ve witnessed in my 40-plus years in the industry. It really is all segments. There isn’t a single commodity” leading the demand for railcars, said Brian Comstock, Greenbrier’s chief commercial and leasing officer. “As you guys know in typical recoveries, there’s usually something, some impetus that drives it. We’re not seeing that. We’re seeing a very, very broad-based need across all sectors and all businesses, which quite frankly is very encouraging.”

Comstock continued, “We finally hit some of those big blocks of cars that were built many years ago. So you’re seeing a lot of replacement in that, but you’re also seeing organic growth. Inventories are at all-time lows. The PMI index is in expansion territory. And as a result, you’re seeing people ramp up kind of across North America. And then kind of a tailwind to all of that is also the continued driver shortages and a lot of the early retirement of experienced drivers that trucking companies implemented during the COVID crisis. So you’re seeing more conversion to rail or at least attempts to convert to rail. It’s really a good story.”

Greenbrier expects to see continued near-term demand through 2022 for intermodal units and covered grain hoppers amid increased volumes for grain, intermodal and automotive, according to Comstock.

A slowdown in U.S. rail network velocity takes railcars out of storage and increases demand for new railcars. As a result, certain railcar types, such as intermodal units, boxcars and gondolas, are in tight supply with these fleets deployed at a utilization rate of over 95%, Comstock said. More railcars could come out of storage amid higher scrap prices and proposed tax benefits to construct more efficient and environmentally friendly railars, he said.

Although steel prices are three times higher than they were in August 2020, Greenbrier is using price indexing and material escalation pass-throughs to protect gross margin dollars, Comstock said.

Greenbrier’s purchasing and sourcing group “is ensuring that our facilities have the materials and components to continue uninterrupted production. At times, that means even collaborating with our suppliers to work with their suppliers to make certain that we have the material we need for our customers,” Greenbrier President and COO Lorie Tekoris said.

Earnings for the third quarter of 2021 have put Greenbrier “solidly into the black for fiscal 2021,” Greenbrier CEO Bill Furman said during his company’s quarterly earnings call last Friday. 

The company is adding new production lines, which include product changeovers, manufacturing line additions and new designs, Furman said.

Greenbrier delivered 3,300 units worldwide in its third quarter, which is up 57% from the second quarter. New railcar orders for 3,800 units in the third quarter were valued at $400 million. 

Greenbrier’s new railcar backlog consists of 24,800 units with an estimated value of $2.6 billion. 

Net earnings were $19.7 million, or 59 cents per diluted share, in the third quarter of 2021, compared with $27.8 million, or 83 cents per diluted share, in the third quarter of 2020.

(Greenbrier)

Subscribe to FreightWaves’ e-newsletters and get the latest insights on freight right in your inbox.

Click here for more FreightWaves articles by Joanna Marsh.

Related links:

Greenbrier optimistic for back-half recovery

Greenbrier forges railcar leasing joint venture with Longwood

Greenbrier pins hopes on market recovery later this year