Across the country, tens of thousands of railcars — particularly those that once hauled coal and crude oil — are sitting on the sidelines, forced into storage by changing energy markets and declines in overall rail traffic.

The situation has weighed on nearly every part of the rail transportation industry, from energy companies that own cars to eastern rail lines that had moved coal as their biggest commodity.

It has also affected businesses like The Andersons Inc., the Monclova Township agribusiness that maintains a fleet of more than 23,000 railcars it leases out to firms across the nation.

“One of the single largest commodities that move on rail is coal. Coal has continued to go down,” said Rasesh Shah, president of The Andersons rail group.

“America has unleashed so much of the shale gas and oil that natural gas is really displacing much of the coal,” Mr. Shah explained. “It’s cleaner burning. You don’t have to move as much, a lot of it moves by pipeline. The price is significantly better compared to coal in the overall energy output.”

Those changing winds have put the basic economics of the industry — supply and demand — wildly out of whack, pushing down lease rates and forcing companies like The Andersons to pay high storage fees.

While The Andersons’ rail group has remained relatively strong, operating profits did fall by 36 percent last year to $32.4 million. 

The percentage of cars it owns that were under lease at the end of the year also declined, falling to 87.8 percent. At the end of 2015, the rate was 92.4 percent.

The Andersons reported a companywide profit of $11.6 million last year, on revenues of $3.92 billion. Of that, rail was about $164 million. In addition to its rail division, The Andersons has a grain group, a plant-nutrient group, and an ethanol group. 

The company is closing its retail unit this week

Though Mr. Shah noted last week that overall rail traffic has been improving since late last year, the steep decline in coal is unlikely to be abated any time soon, if ever.

According to data from the Association of American Railroads, 22 percent of the country’s 220,000 coal gondola cars were in storage as of May 1. The association said 26 percent of the 142,000 hopper cars had not been used in the last 60 days. 

Hopper cars have openings at the bottom of the container and are used to carry bulk freight, such as coal.

About 59 percent of The Andersons’ cars are covered hoppers. Fourteen percent are tankers.

Experts say the rail industry is coming to terms with that and trying to find other opportunities.

“They’ve been hurting for years on that. It’s just taken a good portion of volume away,” said Taylor Robinson, president of PLG Consulting in Chicago, who noted that railroads are being forced to alter their freight strategies and find new commodities on the weakness of coal. 

“That train’s out of the station, literally,” Mr. Robinson said.

For a while, that replacement looked to be one of the very things that was killing coal — the huge increase in drilling for natural gas and crude oil.

In January, 2010, shipments of oil by rail were running at 39,000 barrels per day. By January, 2015, shipments had surged to 1 million barrels per day.

That created a huge demand for tank cars that could ship oil from the Western oil fields to refineries in the east and south.

“Crude by rail was the way to get it out of the Bakken three or four years ago,” Mr. Robinson said, referencing the oil field that spans South Dakota, Montana, and southern Canada.

Today, not so much. 

In January, shipments of crude by rail in the United States fell to 464,000 barrels per day..

“As the downturn hit and more pipelines became available, and East Coast competition from foreign crude — all those things combined to take a huge hit out of crude by rail while people were still ramping up,” Mr. Robinson said.

The most recent report from the Association of American Railroads found 28 percent of the nation’s 405,000 tank cars were not in use, even as oil prices and production have rebounded.

“Those things are parked all over the place,” said Charles Clowdis, an analyst with IHS Markit.

Even so, Mr. Shah said The Andersons has been able to benefit from the drilling boom.

Hydraulic fracturing requires an enormous amount of sand, and some of The Andersons hopper cars are now hauling sand to the drilling pads. Some of their tank cars, meanwhile, can be converted to haul away the water and drilling chemicals to disposal sites. 

Drillers also need pipe, which is frequently hauled by rail.

Rail stocks do well

Still, experts concede it hasn’t been enough for the industry to make up what it lost in coal.

“I think right now the railroads are trying to make up as best they can there,” Mr. Clowdis said.

Despite the somewhat challenging environment, railroad stocks have generally performed well this year.

CSX Corp. shares have jumped about 50 percent year-to-date. Norfolk Southern Railway shares are up 10 percent. Shares of The Canadian Pacific Railway are up 12 percent. 

And at The Andersons, where its rail operation accounts for just 4 percent of its total revenues but last year was the most profitable segment, shares are down about 22 percent.

That compares to the Standard & Poor’s 500 index having gained about 8 percent year-to-date.

Mr. Shah didn’t offer any hard numbers for The Andersons’ outlook on the industry, but he seems optimistic both for the industry and for his company. 

During downturns, he said, there can also be opportunities to buy.

“We continue to invest in this business,” Mr. Shah said. “Our management and the board is very supportive of this business. We looked at ways to diversify and grow this business and if the right opportunities come through, we won’t be capital constrained. 

“But it has to be the right opportunity,” Mr. Shah said.

Improvement forecast

The Andersons recently completed a deal to buy more than 600 railcars that are currently under lease. Chief Executive Officer Patrick Bowe said during the company’s first quarter earnings call this year that it was the largest rail deal for the company in nearly two years.

Analysts also have said The Andersons is one of the most respected players in the segment. 

One analyst told The Blade that The Andersons is the only rail leasing outfit about which they have never heard complaints. The company is reportedly the eighth largest privately owned leasing company in the nation.

Mr. Shah said the nation’s overall economic picture looks strong, which should mean more consumer consumption. 

He said if auto sales remain strong, good grain crops continue, and other consumer goods are shipped by rail, things should improve in that sector.

“Once the [rail] market starts tightening up, the lease rates start going up. 

“Trains, planes, and automobiles all work the same way. It’s not different than if you walk up to Avis and they have 500 cars in their parking lot. They’re going to charge you one price. If they have 50 cars sitting in their parking lot because that market is hot, they’re going to charge you a lot more.”

Mr. Clowdis said rail leasing is like any other business — it has good times and bad. 

But overall, he said the outlook has generally been strong.

“It’s a tough business, but it’s a good business to be in,” Mr. Clowdis said.

Contact Tyrel Linkhorn at tlinkhorn@theblade.com or 419-724-6134.

First Published May 28, 2017, 4:00 a.m.