From Site Selection magazine, March 2007
Beyond the Car
n just one of many economic cycles involving supply chain, ethanol needs more railcars. So does coal. Shipping companies need them too, as well as more ships to fill. So somebody has to make the vessels to hold all that freight, right?
Transportation equipment is traditionally a globe- leading sector in investment and in number of annual corporate projects. But the non- automotive components of that sector can easily be overlooked, even as their products play such a vital role in helping that very industry thrive. Two rail firms in particular are following the same path to Mexico that their automotive brethren have trod.
In January, Trinity Industries, whose five principal business segments are in equipment for rail, inland barges, construction and energy, reported that its rail group's backlog had reached an all- time high of 35,850 railcars on Dec. 31, 2006. That was up 90 percent from the approximately 18,700 railcars backlogged on that date one year earlier.
One way the company is meeting that demand is through its US$80- million investment in a 1,300- employee railcar plant in Sabinas, Coahuila, Mexico. The plant started production in 2006, as the company makes a move toward low- cost production in a division
In West Baton Rouge Parish, La., Trinity's marine division is pursuing a $10- million, 400- employee shipyard expansion.
Though railcar manufacturing in North America has consolidated from 20 companies to a handful in the past 25 years, one of the others still standing is also making additional investment in Mexico. And it too has a marine division.
The Greenbrier Companies, based in Lake Oswego, Ore., announced in October that it would form a joint venture with Grupo Industrial Monclova (GIMSA) to build new freight railcars at GIMSA's facility in Monclova, Mexico, where Trinity has operated a plant since 1998. Initially focused on covered hopper cars, the plant's capacity will grow to 3,000 cars per year, with employment of 1,200. GIMSA's Monclova facility, built in 1951, is located adjacent to the FerroMex main rail line, with eight industrial bays and 370,000 sq. ft. (34,373 sq. m.) of production space on a 59- acre (24 hectare) site. FerroMex was among the first customers served by the Trinity plant in the same city.
"Consistent with our stated strategy, we continue to emphasize lower- cost production out of the U.S. and Mexico, rather than our Canadian facility, which is currently being used for specialized capacity," said William A. Furman, president and CEO of Greenbrier, in October. He said the company would invest less than $10 million in one production line in Monclova.
The new operation boasts good rail connectivity and close proximity to key suppliers and customers. While Trinity's Sabinas facility is 60 miles (96 km.) from the border, Greenbrier- GIMSA's is twice that distance, along the same route into and out of Coahuila. Among the leaders of the new Greenbrier facility is Jesus Gil, COO of GIMSA's industrial division, whose 20 years of experience include seven years working for Trinity at its Sabinas and Monclova facilities.
In addition to being a major supplier of lime and fluxes for steel production as well as a consumer of steel, GIMSA currently manufactures and assembles heavy equipment assemblies including drilling platforms, power generator facilities, locomotive parts and pressure vessels at its Monclova complex. Greenbrier builds railcars in the U.S., Canada, and Mexico and marine barges at its U.S. facility. It also repairs and refurbishes freight cars and provides wheels and railcar parts at 23 locations across North America, and builds and refurbishes railcars for the European market through operations in Poland and subcontractor facilities across Europe.
American Railcar Industries (ARI) in 2006 approved the construction of a new railcar manufacturing plant to be built adjacent to its tank railcar manufacturing plant in Marmaduke, Ark. The new plant would have an initial capacity to produce 2,500 tank railcars annually, with production expected to begin in early 2008. This new plant comes in addition to a tank railcar production expansion at Marmaduke to increase capacity by 1,000 railcars annually. The primary Marmaduke operation was hit by a tornado on April 2, 2006, but had resumed operations by August 7. ARI recently received orders for 2,000 railcars per year for 2008- 2009, ratcheting up its backlog of 12,790 railcars as of June 30, 2006.
In related activity, in Japan, on Jan. 9, Sumitomo Metals announced it is increasing capacity at its Osaka Steel Works in Konohana- ku in response to the demand for railcar wheels in North America. The company in August 2006 had just completed a $5- million upgrade to raise its capacity by 30,000 units per year to 200,000 total units per year. "Demand for wheels in North America is estimated to be in the region of 1.4 to 1.5 million units per annum," said a company release. Sumitomo said its end users had requested the further capacity increase, as manufacturers in North America can only supply around 1.2 million wheels per year.
Roll 'Em Out
This time around, the wheel maker will spend $16.5 million on such upgrades as a new shearing machine, furnace upgrade, new processing machinery and new production lines. Annual production capacity will climb to 240,000 units when the expansion is complete in April 2008.
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