GBW Railcar Services Aims to Meet Anticipated Demand for Retrofits for Tank Cars
June 4, 2014 12:08 a.m. ET
Railcar builder Greenbrier GBX +11.96% Cos. and short-line railroad operator Watco Cos. formed a railcar-repair company in anticipation of surging demand for retrofits to strengthen tank cars that carry crude oil and other flammable liquids.
The 50-50 joint venture, known as GBW Railcar Services LLC, is the first big move in the rail industry to increase capacity to retrofit tens of thousands of tank cars to meet tougher standards being formulated by U.S and Canadian regulators.
GBW would begin operations during the third quarter with a workforce of about 2,100, and have 38 repair shops in the U.S. and Canada, including 14 devoted to tank cars. Annual revenue is projected at $325 million.
"We're getting in front of a general need for tank car fixes," said Greenbrier Chief Executive William Furman. "This is right in the sweet spot of where we think the industry need is."
Regulators are considering expedited phase-ins for making cars that carry crude oil and ethanol more puncture-resistant in event of derailments. Greenbrier estimates about 68,200 general-purpose tank cars, known as DOT-111s, that carry crude oil and ethanol would need significant modifications, which would cost an estimated $15,000 to $80,000 a car. An additional 12,000 cars built after 2011 have sturdier tanks and components and would likely require less extensive work.
Canadian regulators have proposed that all of the older DOT-111s carrying flammable liquids be retrofitted or removed from service within three years. U.S. transportation officials are expected to adopt a similar timetable.
A series of derailments involving tank cars over the past year, punctuated by a catastrophic accident in Quebec last July that killed 47 people, have undermined confidence in the rail industry's ability to safely haul flammable liquids. Shipments are also surging from remote areas of North America not served by pipelines.
GBW will be headed by veteran executive Jim Cowan, currently senior vice president of operations for Greenbrier and former CEO of railcar manufacturer American Railcar Industries Inc. ARII +3.09% in St. Charles, Mo.
GBW will be able to perform maintenance and repairs on a full spectrum of railcar types, giving Greenbrier and Watco a large business platform in a repair-shop industry with few nationwide players.
Railroads hauled about 400,000 carloads of crude oil last year, compared with 4,700 in 2006. As tank cars haul more crude oil they rack up high mileage, requiring more frequent maintenance and repairs.
"We believe the [maintenance] business will grow tremendously," said Watco CEO Rick Webb. "We see the opportunity to be an industry leader."
Greenbrier manufactures tank cars and is the second-largest builder of railcars behind Texas-based Trinity Industries Inc. TRN +2.54% The Lake Oswego, Ore., company would be major beneficiary of tougher standards for tank cars, since some car owners would opt to purchase new cars, rather than invest in retrofits.
Mr. Furman earlier this year proposed a set of stopgap retrofits for older tank cars including installing sturdier valves and steel plates on the ends of cars to make them less susceptible to crumpling and leaking during collisions. GBW would be able to perform this work.
Watco, headquartered in Pittsburg, Kan., operates more than two-dozen shops for servicing railcars and locomotives. The company, which Mr. Webb's father started 30 years ago, operates 30 short-line railroads with 4,400 miles of track that connect railroad-dependent shippers with major railroads. The company also operates terminals where oil is transferred. Pipeline and energy storage company Kinder Morgan Energy Partners KMP -0.04% LP made a combined $150 million equity investment in Watco in 2010 and 2011.
http://online.wsj.com/articles/greenbrier-watco-form-new-railcar-repair-venture-1401852404
*Note that this JV will create 2,100 new and good paying AMERICAN jobs baby!! Right On!...Love it!! This is how America needs to heal its economic woes...not Gov't handouts and programs.
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