(The Munster Times published the following story by Andrea Holecek on its website on September 11.)
MUNSTER, Ind. — The economy is getting back on track for the manufacturing side of Union Tank Car Co., one of the nation’s largest builders of railroad tank cars and those who lease them.
Bill Snelgrove, vice president of sales and customer service for the Chicago-based company — which produces railroad tanks cars in East Chicago and Sheldon, Texas — said Union Tank Car is building an average of 80 cars weekly, 20 above the 60-car normal annual average. In 2002, Union Tank built an average of 25 cars.
“In the last three years, the market is a roller coaster for rail cars,” Snelgrove said. “It’s up again and over the last eight to nine months we’ve seen an improvement. … From the perspective of the tank car industry, clearly the market has improved substantially over last year and we would expect that the current improved level of demand for both new and existing tank cars should continue through at least next year.
“The companies that use tanks car are seeing improved conditions and expressing far more optimism,” he said.
Currently, about half of the tank cars are being built at the East Chicago plant and thus injecting revenue into the local economy through material purchases, tax payments and payroll, Snelgrove said.
The tank car manufacturing and servicing businesses support the company’s core business — leasing its 85,000 cars to petroleum, food products and chemical industries — which produces “most” of the revenue of the privately-held company, Snelgrove said. Union Tank Car is a wholly-owned subsidiary of The Marmon Group, owned by Chicago’s Pritzker family, which also owns the Hyatt hotel chain.
Despite the turnaround of the manufacturing side, the economy still is having a negative effect on Union Tank Car’s core business.
According to the company’s second quarter income statement filed with the Securities and Exchange Commission, the performance of the company’s leasing business continues to be adversely affected “by the low level of activity in most major markets.” Union Tank reported second quarter 2003 net income of $5.03 million compared to $26.4 million in the second quarter 2002.
However, “demand for new railcars has improved, resulting in increased production and capacity utilization,” the filing states. “Increased demand for railcars produced for lease has more than offset decreased demand for railcars produced for sale.”
The tank cars, which have an average economic life span of 30 years, cost between $45,000 and $250,000 depending on their use. The average general purpose car is in the $60,000-$75,000 range with materials comprising 70 percent of its cost and steel comprising the largest percentage of material.
There are about 280,000 tank cars in the North American fleet with new demand being produced by a combination of factors including the age of the cars and the need for their replacement; technology improvements — which allow the cars to carry more weight — and market demand. A year ago, the economy “was tougher,” resulting in smaller demand and a lot of unused capacity, Snelgrove said.
“The economy ebbs and flows,” he said. “People are now investing in additional capacity. The surplus of existing cars has been absorbed, some through attrition, and there’s been growth because of the turnaround in the marketplace. As a result, most of existing fleets are being used, and to meet demand, we have to build new cars.”