That U.S. demographic trends favor ever-increasing cement consumption is almost painfully obvious. The conversion of more than 10 million acres of forest to suburb over the past 25 years, according to the U.S. Census Bureau, has been the result of an increasingly rapid rate of population growth fueling expansion. Factoring in the homes, schools, sidewalks and streets that such development entails provides a sense of the magnitude of cement demand.

CONSTRUCTION ON THE RISE

In contrast to original projections, residential construction this year grew at a stronger pace than nonresidential and nonbuilding construction, which was expected to gain leads for first quarter 2005, according to the Portland Cement Association's (PCA) June 2005 report. Declining mortgage rates contributed to a 5.2 percent increase, up from 2004 levels, in 2005 sales for new and existing homes. As long as interest rates remain low, single-family construction will continue to gain momentum throughout the year. Accordingly, demand for cement in this sector will increase by two million metric tons more than the amount previously projected.

After a five percent increase in the first few months of 2005 alone, nonresidential construction is predicted to grow to eight percent by year's end, due to economic growth sparked by employment gains. Public construction, responsible for 50 percent of domestic cement consumption, will likely climb even higher, owing to a law passed by the Bush Administration funding highway and transit programs in fiscal year 2005.

With demand for cement already at higher-than-anticipated levels and growing, U.S. cement manufacturers are planning aggressive expansion programs to be executed over the next few years to reduce costs resulting from foreign dependency. Today, approximately 22 percent of U.S. cement is imported, mainly from countries like Canada and China. As expansion plans expected to be in place by 2008 increase U.S. cement capacity to a projected ten million tons, reliance on foreign countries is likely to decline.

CARRIERS' CHALLENGE

The onset of new cement production and a decline in foreign dependency will generate significant demand for cement carriers able to reach U.S. coastal regions currently managed by ship. Transportation opportunities will extend also to heartland regions requiring greater cement supply. Yet, the escalating demand for cement carriers will exacerbate capacity issues already threatening the transportation infrastructure.

Most likely feeling the brunt of the capacity crisis will be rail services, which currently handle more than 50 percent of shipments. Over the past several years, rail has experienced an increase in cement transport, while barge and truck service in the powder market has fluctuated and declined. With expanding cement industry rail use, the fleet presently at producers' disposal is functioning at 99 percent of capacity — and aging fast. Today, 32,000 gravity and 3,600 pressure differential railcars haul cement for the industry. However, the national gravity fleet — at an average age of 21 years old — reflects aging assets that need to be retired and replaced over the near term.

REPLACEMENT STRATEGY

Formerly a staple of cement transportation, trucks will not be able to keep up with the massive volumes to be moved over the next several years. The demand thus created for a faster, more efficient means to get product to its destination provides an opportunity for rail services.

Recognizing growing market needs and trends, GE Equipment Services — Rail Services prepurchased 600 new gravity hopper cars to serve the cement industry by first quarter 2006. The new fleet of railcars is equipped with higher capacity utilization and the latest technologies; and, it can also haul such commodities as sand, fly ash and roofing granules.

The advance-purchasing strategy of proactively planning for future trends by beefing up its railcar fleet is the product of experience with forecasting efforts that have proven profitable for GE. The new strategy first came into play when company executives, observing a potentially booming ethanol market, prepurchased 400 all-purpose tank cars. Like cement, ethanol was set to experience a steady growth in capacity and demand. Having the cars and added capacity on hand paid off, for example, when GE was able to supply global agribusiness leader ADM with the cars it needed in eight weeks — instead of the 12-month minimum for new car delivery common in the industry at the time. Consequently, product was on the move 600 percent faster than the norm. Says Sameer Gaur, food/agriculture/mineral segment leader for Rail Services, “We did our homework, and when we saw a demand, we didn't hesitate.”

THINKING AHEAD

Proactive planning coupled with market experience enables Rail Services to better serve its cement customers as one of few rail lessors providing a solution to the looming capacity crisis. Operating now at almost full capacity, its fleet will likely grow as the company aims to meet growing demands of the cement market. Like cement companies, leading providers of rail services must recognize opportunity, anticipate demand, and make investments to keep up with the pace of progress.