New Safety Regulations to Boost Railcar Sales

Due to recent catastrophes and anticipated federal regulations, there could be explosive demand for new rail cars.

Feb 12, 2014 at 12:46PM

Recently, a train derailment near Casselton, ND, caused massive explosions. The catastrophe occurred when a train carrying soybeans derailed and fell onto an adjacent track, blocking the path of another train carrying crude oil. Federal authorities quickly investigated the incident, concluding the explosions were caused by the rupturing of an aging model of railcar, the DOT-111.

In response, lawmakers are considering new legislation that would outlaw these types of tank cars, among others. According to the American Association of Railroads, 85% of the 92,000 tank cars currently moving flammable liquids in the United States should be phased out or upgraded. Because of this, railcar manufacturers, including Trinity Industries (NYSE:TRN), American Railcar Industries (NASDAQ:ARII), and The Greenbrier Companies (NYSE:GBX), will see a large increase in sales.

Proposed regulations
"If this train happened to be the newer cars, the explosions may very well not have occurred" said John Risch, a legislative director for the International Association of Sheet Metal, Air, Rail and Transportation Workers.

These derailments are not rare events. Last November, a similar incident occurred in Alabama when a tanker carrying crude derailed and spilled oil into a nearby marsh. In August, a train derailed in Quebec and killed 47 people while demolishing dozens of homes. As one might expect, this has drawn the interest of regulators.

Some of the proposed changes include thicker tank cars to help prevent punctures and more strict identification and processing of oil moved by rail to reduce its flammability.

Sen. Ron Wyden (D-OR) and John D. Rockefeller recently co-wrote a letter to the Department of Transportation in which they stated, "the recent derailments and accidents involving crude oil are alarming and demand increased vigilance." The two believe it is important that the Departments of Energy and Transportation "understand and properly evaluate the safety of transporting crude oil by rail."

Companies that will profit
In its last quarterly report, Trinity Industries reported a backlog of 40,050 railcar orders worth nearly $5.1 billion. This represents a 52.3% year-over-year increase. The only problem for Trinity moving forward will be keeping up with demand. American Railcar Industries has a similar problem. Although it is a much smaller company, it still has a backlog worth $814.5 million.

Similarly, The Greenbrier Companies is sitting on a massive order backlog worth $1.5 billion. It is also getting ahead of regulators by offering safer tank cars before they are mandated. In a recent press release , Greenbrier claimed its new "Tank Car of the Future" design is "intended to meet anticipated new industry and government standards for tank cars transporting certain hazardous material."

The company goes on to say that it expects new regulations and is preparing to retrofit old cars with new parts to make them safer. This is great news for Greenbrier – the organization knows refineries will be looking to replace their outdated cars with new ones that will meet the anticipated government regulations. Further, it is very likely that Trinity and American will follow suit in the following months and offer safer tank cars or the ability to retrofit old DOT-111 models.

The bigger picture
It is important to remember that all of these safety regulations will come in conjunction with an already booming railcar industry. As Forbes magazine puts it in "The New Rail Boom," "thanks to leaps in technology the rising price of diesel and improved delivery speeds, more and more freight traffic has moved from roads to rails where trains can move one ton of goods about 500 miles on a single gallon of fuel."

According to the Federal Railroad Administration, tonnage of freight shipped by the U.S. rail system will increase 22% by 2035.

Adding regulations to an already booming rail industry means one thing: It looks like it's time to buy into railcar manufacturers. Many companies already have backlogs of shipments and, as more and more emphasis is placed on railcar safety, demand will continue to rise. As it does so, manufacturer revenues will continue to grow and profits will continue to expand. Don't miss your chance to hop on the railcar manufacturer train.

Another way to capitalize on surging American oil and gas production
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don’t miss out on this timely opportunity; click here to access your report -- it’s absolutely free. 


Bryan Thomas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers