Tuesday, July 15, 2014

Score! Tank Car Manufacturers To Benefit From Railroads Phase out of Older Rolling Stock (TRN; ARII; GBX; BRK)

Trinity Industries is the largest manufacturer.
In addition to owning the largest oil hauling railroad, Warren Buffett's Berkshire Hathaway also owns the Union Tank Car Company. Carl Icahn owns a big chunk of American Railcar Industries Inc. Greenbrier Companies rounds out the top four.
We've been cheerleading this trade for a couple years.
From Bloomberg:
Older Tank Cars to Be Phased Out Under Industry Proposal 
The oil industry and the railroads that haul its crude have offered U.S. regulators a joint plan to phase out a type of older tank car tied to a spate of fiery accidents, according to two people familiar with the proposal.
The plan also calls for slightly thicker walls for new cars to make them less vulnerable to puncture, according to the people, who asked not to be identified discussing private communications. The parties agreed to scrap a fleet of thousands of DOT-111s within three years if manufacturers agree they can replace or retrofit the tank cars in that period.

Representatives of the American Petroleum Institute and the Association of American Railroads met with officials of the Transportation Department and Office of Management and Budget on July 11 to present their plan, one of the people said.

The joint plan represents a change from recent history, where oil companies and railroads have sparred over design and safety proposals. Rail companies said new tank cars were needed, while oil companies stressed greater attention was needed to avoid derailments. The Transportation Department had encouraged the groups to forge a common position.

U.S. regulators, along with their counterparts in Canada, are weighing steps that can be taken to increase the safety of trains moving oil by rail in the wake of a number of accidents, including a wreck a year ago in Quebec that killed 47.
Investment Needed Transport Canada in April mandated a three-year phase-out of tank cars ordered before October 2011, when the industry introduced a car design to include shields at the ends and protection for valves on the top. The agency also immediately banned tank cars that have weak underbelly support, those built before the mid-1990s, from carrying dangerous goods.

The deal between API and the railroad group also would require that new cars be built with a half-inch steel shell, or 1/16th of an inch thicker than newer car designs now being produced, known as the CPC-1232.
Officials from the Washington-based API and AAR didn’t respond to requests for comment. API’s members include Exxon Mobil Corp. (XOM) AAR represents companies such as Berkshire Hathaway Inc.’s (BRK/B) BNSF railway. Ryan Daniels, a spokesman for the Transportation Department, said he can't comment on a continuing rulemaking...MORE 
The three stand-alone manufacturers have done quite well with Greenbrier leading the pack at a better-than-quadruple in two years: