(Adds quotes, details throughout)
By Kristen Hays and Terry Wade
HOUSTON, July 23 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
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 head 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 LLC,
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, Rader said about 40 percent 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 tankcars," 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
SCRAP, RETROFIT, OR BUILD NEW
While railcar makers and maintenance companies may see more
business from tighter regulations, shipping and leasing
companies will see rates rise, Long said.
They might have to pay some $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
Most companies that retrofit railcars are privately held,
while Greenbrier and American Railcar Industries Inc
Makers of new cars include Greenbrier, American Railcar,
Trinity Industries Inc and Union Tank Car, owned by
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
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.
(Additional reporting by Sagarika Jaisinghani; Editing by Ken