Boxcar Fleet Declining at Precipitous Rate

Boxcars are ubiquitous on freight trains having been around for as long as there have been railroads.

In past years railroads used their boxcars as rolling billboards to promote their freight service and in some cases their marquee passenger trains.

That is done far less frequently today but the boxcar remains a staple of manifest freight trains.

However, an analysis published by Progressive Railroading suggests that a shortage of boxcars may be coming as 50,000 cars reach the end of their active service lives.

The report said between 1975 and 1980 railroad equipment manufacturers constructed 110,000 box cars of which 52,000 still exist.

They usually are retired after 42 to 43 years of service  which means most of them are likely to be retired in the coming years because few owners will want to invest large sums of money into maintaining cars that are more than 40 years old.

Some of the best maintained cars might last another five to seven years.

During the past two decades, just one new boxcar has entered service for every 3.9 cars retired.

That would mean that just 13,000 new cars will replace the 52,000 cars facing retirement and leaving a boxcar fleet of 70,000 cars by the mid-2020s.

The analysis said this would result in the box car fleet being in danger of losing its commercial critical mass with its customer base.

Two-thirds of the shipments in box cars are forest products, accounting for $3.5 billion in freight revenue.

Paper shippers rely on about 100,000 of the boxcar fleet with about half of the current fleet having been built since the mid 1990s to Plate F, 100-ton specifications.

The analysis noted that new box cars are expensive, especially when compared with old, depreciated equipment.

It went on to say that the dominant financial model of leasing boxcars, per-diem leasing, has prevented lessors from investing in new box cars because per-diem leasing requires that hourly and mileage car hire rates be negotiated with every railroad that handles the car.

Absent a negotiated rate between a car owner and a car user, a “default rate” is applied.

The default rate is based on the lowest negotiated rate for a class of cars. These default rates tend to be below levels that support investment in new boxcars.

If two parties agree on an extremely low sub-market rate on a single old, dilapidated box car in a class of cars that includes thousands of new investment-grade cars for the purposes of setting a low default “floor” rate in order to give themselves an advantage in future rate negotiations for that particular car class, this makes the downside risk so extreme that lessors have largely abandoned investing in new box cars.

More than 70 percent of the the 1.6 million new rail cars that have been built since 1980s, which the railroad industry was deregulated, have been built for leasing companies.

The analysis contends that all rail car fleets except for boxcars have received adequate levels of new car investment.

It concluded that unless the industry can agree on per diem rate reform the boxcar fleet might some day face a critical shortage of rolling stock.

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