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Could the Decline in Railcar Coal Freight Impact Rail Tie Replacement Demand?

As one of the largest suppliers of creosote in North America, we’re keenly interested in trends that may impact (positively or negatively) the demand for this important wood preservative. In today’s blog post, we look at whether the decline in coal shipped by railcar may affect long-term replacement demand for the millions of creosote-treated wooden railroad ties that support our nation’s massive rail infrastructure.

We’ll start off by stating that creosote remains the product of choice for treating wooden railroad ties. Creosote’s efficacy as a wood preservative and ability to provide lubricity is exceptional. In fact, creosote is so effective that the North American railroad system is built on some 700 million creosote-treated ties. These ties can last anywhere from 30-35 years, depending on weather decay, insect damage and wear-and-tear from freight trains. In any given year, some 20 million wooden crossties, on average, are replaced (although 2013 may be an exception, however, as the Railway Tie Association predicts demand will reach 23.3 to 24.0 million ties.)

Because rail ties are subjected to significant compression and vibration from rolling trains, it stands to reason that reductions in train traffic could prolong the useful life of wooden rail ties, thereby reducing the number of replacement ties purchased in a given year. Is this a plausible scenario? The fact is that total freight carloads did decline 3.1 percent in 2012, according to the Association of American Railroads (AAR). What’s more, the single largest cause of this decline was a 10.8 percent decrease in coal shipments. Coal accounts for approximately 40% of all freight tons shipped by rail in the U.S., making coal the single largest category of rail freight. In the wake of more stringent environmental regulations and the substantial increase in shale energy production, demand for coal has indeed fallen – perhaps permanently.

But does that mean overall rail traffic will remain weak by historical standards? We don’t think so. For one thing, the U.S. economy continues to plod along at below-average rates of GDP growth. When the economy improves, rail traffic will improve as well, boosting total carloads even as coal shipments may not return to historic levels. In addition, the U.S. is currently in the midst of a boom in fossil fuel production thanks to drilling technology known as “fracking.” These new energy supplies need to be transported throughout the U.S., prompting railroads to expand or upgrade their lines to accommodate these new energy-related shipments. (Here’s a good article on the topic.) Railroads also continue to experience strong demand for intermodal shipments, which should help to boost overall traffic levels. Finally, we would note that a large number of rail ties must be taken out of service and replaced each year simply as part of railroads’ ongoing maintenance programs.

So while the decline in coal freight carloads is certainly not a positive development for railcar traffic volumes, we don’t believe it will have an impact on annual replacement demand for wooden creosote-treated crossties. Here at KMG, we continue to expect some 20 million ties, on average, will be replaced each year. As always, you can be sure that we’ll have the creosote supplies and distribution capabilities necessary to support that demand.

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