New York Air Brake Co. is expected soon to get a windfall of business, thanks to rules passed by the Canadian government requiring railways to devote more rail cars to the shipment of grain to the U.S.
Rules passed by the government this month aim to address an acute rail car shortage in Canada that has caused grain exports to drop sharply, driving up the grain prices. Millions of metric tons of oats, canola, wheat and barley are trapped at farms across the Canadian provinces, according to the Wall Street Journal.
The rules impose minimum levels for grain shipments on railroad carriers, backed by penalties. The government will require Canadas two major railways Canadian National Railway Co. and Canadian Pacific Railway to move about 5,500 rail cars of grain weekly. They now move about 2,500 rail cars of grain each per week; that figure is expected to climb by about 500 rail cars weekly until government benchmarks are met.
Canadas railroad carriers will have to purchase more rail cars to meet government quotas, and New York Air Brake will benefit by selling locomotive braking systems needed to build those cars, President Michael J. Hawthorne said.
Canadian railways will have to figure out if their fleets need to be bigger to accommodate requirements, he said. The railways will lease and buy rail cars, and then youll get the actual production of cars. There will be an aggregate demand that will trickle down to the car owner, and then it will come down to New York Air Brake, because we make the braking components that are part of that car buildout.
The two Canadian railroads affected by the rules are among North Americas eight major freight railroads, known as Class I railroads, and account for about 25 percent of the overall railroad capacity across the continent, Mr. Hawthorne said. Other Class I railways include CSX Transportation Co., which has a presence in the north country, Norfolk Southern Corp., Burlington Northern and Santa Fe Corp., Union Pacific Corp. and Kansas City Southern Railway Co.
The volume of rail cars needed by the two railways to meet demand should translate into a steady streak of business at New York Air Brake this year, Mr. Hawthorne said.
I would say its going to be thousands of rail cars, depending on how effectively (railways) can use their assets to make the number of cars available, he said. To meet demand, we would build braking components typically for 100 new cars a day, maybe more. For New York Air Brake to satisfy that demand, in aggregate you would see months of production.
In Canada, the passage of rules to increase grain shipments has been opposed by both major railways. The prairie grain crop last year was the largest in Canadian history, according to a press release from Canadian National Railway Co. As a result, the railway has had to move 10 million more tons of export grain, 50 percent more than any other crop.
No supply chain in the world can reasonably be expected to handle a 10 million tonne increase in traffic on such short notice, Claude Mongeau, railway president and CEO, said in a prepared statement. It takes eight months to on-board and train a crew member, and seven to eight months to acquire cars and locomotives.
Our assessment shows that an upper limit of around 5,500 cars per week may be achievable, but only if all members of the supply chain work together closely, he said.
In the U.S., the steady climb of diesel fuel prices over the past decade has had a major impact on the railroad industry, Mr. Hawthorne said. But he doesnt view that trend as a major downside, because it has resulted in companies choosing to transport product by rail, rather than truck, because of the relatively inexpensive cost.
Thats why rail is doing extremely well, because the cost to move product has been more and more attractive as diesel prices go up, he said. You also have U.S. highway infrastructure that is constantly under assault, and truck traffic makes that worse. I think the use of rail will continue to grow along with the economic recovery.