Railcar makers sold off today after railroad and oil lobbyists asked the government to delay the imposition of new rules that would require the use of safer railcars for hauling crude oil: GBX -10.2%, TRN -7.7%, ARII -5.9%, RAIL -4.2%.
Jim Cramer sees a potentially "disastrous" situation for the railcar companies, warning that extended battle could weigh on earnings expectations.
UBS analyst Eric Crawford says it should not have come as a surprise that the users of railcars want more time, as it indicates how important the transportation of crude by rail has become; it also shows there is not an oversupply of tank cars, and the lobbyists' position should lessen worries that railcar orders are at risk of being cancelled.
Proposed U.S. rules to make hauling crude oil by rail safer would drive up costs and put the U.S. energy revival at risk, trade groups representing the oil and railroad industries say.
Jack Gerard, president of the American Petroleum Institute, says his group and the Association of American Railroads are jointly asking the U.S. Transportation Department for 6-12 months for rail tank car manufacturers to gear up to retrofit tens of thousands of cars, another three years to retrofit older cars, and three years after that to retrofit newer tank cars manufactured since 2011.
The agency, which issued its final report on the accident that killed 47 people, says a similar catastrophe could happen again unless more measures are taken to boost rail safety, as crude-by-rail shipments in Canada and the U.S. skyrocket as energy companies try to compensate for a lack of pipeline capacity.
The report says “all older Class 111 tank cars must not transport flammable liquids, and a more robust tank car standard with enhanced protection must be set for North America."
Shares of companies that manufacture railway cars finished mostly higher today: ARII +2.6%, GBX +2.3%, TRN +1.8%, RAIL -0.2%.
With production capacity for new tank cars ~35K cars/year and cars ordered today unable to be filled until 2016 at current production rates, industry analysts say the railcar industry could have difficulty expanding production fast enough to accommodate the short time frames proposed by regulators for ushering out older tank cars for transporting flammable liquids.
Questions remain about whether there is enough production capacity available to retrofit existing cars or replace them in time to comply with the government's schedule to phase out the older cars.
Carl Icahn has resigned as a director and chairman of American Railcar Industries (ARII) because he serves on several boards of directors and wanted to decrease his number of directorships, and not from any disagreement with the company or its board, an SEC filing says.
Icahn's board seat will be filled by Courtney Mather, who has served as a managing director of Icahn Capital since April and once was a managing director at Goldman Sachs.