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AMERICA RUNS ON TIES, WOOD TIES

By Nate Irby, Railway Tie Association, and Petr Ledvina, Economist

The demand for wood crossties will remain strong in 2023 due to (current) insufficient railroad crosstie inventories, sawmill operator marginalized production (for a variety of reasons), and ongoing supply chain/ equipment shortages coupled with labor inconsistencies. Further, the demand for pallet lumber is easing and the price of cants has equilibrated. The decline in residential housing construction manifested itself in the decline of lumber, wood products and building material shipments. Slowing consumer demand resulted in lower intermodal shipments across railroad networks. Railroad intermodal traffic declined from its peak in

June by 4.3% compared to December 2022. During the second half of 2022, container shipments also declined by 3.5% from the first half (see Business Trends, Crossties Magazine, rta.org). Also, there are some mills that finally caught up with back orders for pallet lumber (Hardwood Market Report 1/20/2023 issue). Going forward, the demand for pallet/ consumer lumber could further soften as consumer demand declines further due to the economic slowdown.

Railroad intermodal headwinds were partially offset by shipments of automobiles, grain and food products as well as coal and fracking sand, as natural gas prices were well above average (various Class I Q4 earnings conference calls; AAR weekly reports). Despite lower shipments, the railroads managed to increase earnings through favorable pricing and cost savings measures. As a result, the aggregate railroads’ CapEx should be somewhat higher in 2023 and give precedence to re-invigorating crosstie inventories through aggressive tie purchases.

In conjunction with slow demand for board roads/mats and the aforementioned consumer-type lumber products, crosstie production is at the forefront of many sawing solutions. The crosstie inventory-to-sales ratio has been depressed for many months, mainly because of low tie inventories (see Tie Statistics & Trends, Crossties magazine, rta.org), and will bolster the need for continued crosstie production for the foreseeable. With wood ties and timbers still 90%+ of railroad track infrastructure in North America today, our railroads depend on sawmills to keep freight moving safely and reliably.

WHAT IS YOUR VIEW OF CROSSTIE COMPETITIVE POSITION RELATIVE TO OTHER HARDWOOD PRODUCTS?

REGARDING YOUR ABOVE ANSWER, PLEASE PROVIDE CONTEXT FOR MARKET, WEATHER OR OTHER CONDITIONS.

EASTERN US

LAKE STATES

Minnesota, Iowa, Wisconsin, Michigan, N Indiana, N Illinois: Logging conditions are poor. Heavy snows followed by rain have made conditions extremely difficult for loggers. Pallet Cant prices and production are low. One of the larger sawmills in the area was lost to fire this month. Grade lumber and in particularly H. Maple and S. maple are very hard to move at this time.

ATLANTIC

Virginia: Log inventories remain low due to bad weather conditions and market prices for some products. Pallet prices and demand remain low.

North & South Carolina: Cross tie prices are still high, and very competitive, with everything else in the industry

West Virginia: Hardwood production has been cut back, some weather related and some market driven.

NEW ENGLAND

New England 1: Log inventories are still low. Mud season is approaching which will further slow logging production. Pallet prices and demand continue to drop. Lumber prices are still low, but demand is starting to trend upwards on some items.

Pennsylvania: Brief freeze up have allowed some logging. Ties are pretty much the only thing keeping mills running at this time.

MIDSOUTH

E Texas, NW Louisiana: Crosstie's is holding up great to the mills if we can get a early logging season and production catches up some we can maybe see daylight ,we just need a dry spring.

SOUTHEAST

Mississippi: Tie markets remain stable. Winter weather is impacting log inventory.