Why Railroads Can’t Keep Enough Boxcars in Service
Aging symbol of U.S. economic might is being scrapped faster than replacements are built
A trainyard in Tacoma, Wash. Boxcars—once the ubiquitous symbols of U.S. railroads—are dwindling in numbers. PHOTO: LUI KIT WONG/TACOMA NEWS TRIBUNE/ASSOCIATED PRESS
A shrinking supply of boxcars—once the ubiquitous symbols of U.S. railroads and a rolling bellwether for the economy—is causing a freight-hauling crunch for industries that continue to use them.
The number of boxcars in service in North America fell by 41% in the past decade to slightly less than 125,000 last year as 101,600 cars were scrapped and only about 13,800 replacement were added. That downsizing accelerated a decadeslong shift by railroads to more specialized railcars and intermodal carriers that allow shipping containers to hop from trucks to trains.
While the transition has worked fine for many shippers, paper manufacturers, lumber producers and other companies that rely heavily on boxcars to protect and move heavy shipments say the fleet has declined so much that they’re struggling with a boxcar shortage.
Paper and building products maker Georgia-Pacific LLC. has had to periodically slow production at some paper mills, and idled one mill for a short time recently when it couldn’t obtain boxcars to move its paper. The paper industry accounted for half of the 1.25 million boxcar loads in North America last year.
“I can’t get more cars,” said Glen Courtwright,director of strategic operations for Atlanta-based Georgia-Pacific, which leases about 1,500 boxcars at any given time. “The boxcar supply is less than demand.”
Federal regulations limit boxcars to 50 years in service. More than 75,000 will reach that age over the next 15 years. Without significantly more new boxcars, paper company executives say they will have to rely more on trucks, which by some estimates cost 20% more per ton than shipping by rail. But the railroads, railcar-leasing companies and the companies that use the cars have shown little enthusiasm for big investments in new boxcars.
“There is a looming crisis,” said David Friedson, director of logistics and distribution for Memphis, Tenn.-based Evergreen Packaging Inc., which specializes in paperboard for milk and juice cartons. “The next three to five years is when we go over the cliff and boxcars just come out of service.”
Railroads attribute the difficulties with boxcars to congestion and operational problems at individual railroads rather than an overall shortage. The railroads say they are eliminating traffic bottlenecks and making other improvements that will enable faster round-trip times for railcars to better meet demand.
“A lot of the service metrics are moving in the right direction,” said Michael Rutherford,assistant vice president for industrial products at Jacksonville, Fla.-based railroad CSX Corp.
The boxcar’s origins stretch to the earliest days of railroading in the 19th century, when flatcars and open wagons were enclosed with wooden shells. Boxcars’ versatility made them indispensable for shippers and railroads, which introduced longer, steel-bodied cars last century. They remained kings of the rails until the 1960s, when businesses began shifting packaged freight to truck trailers and bulk commodities to specialized railcars.
Lower freight volumes in the wake of the 2008 recession and high prices for scrap steel hastened the boxcar’s decline-providing incentives for railcar owners to junk older boxcars—although such scrapping recently has slowed.
Today, boxcars account for only 3% of North American freight-rail traffic, but generated about $6.3 billion in revenue for the rail industry in 2014, or 8% of industry’s total revenue, according to AllTranstek LLC, a railcar management-and-consulting firm.
Railroads say they won’t stop running boxcars, but their capital spending is mostly devoted to locomotives and route expansions rather than new railcars. The railroads are backing a standard boxcar model that is 60 feet long, with maximum loaded weight of 286,000 pounds—10 feet longer and about 23,000 pounds more than many boxcars now in service. The added size means railroads could service customers with fewer cars, easing congestion.
‘Either the rates have to rise or the cost of a new boxcar has to come down. ’
“The larger and more versatile we can make these cars, the more [money] we’re going to make off them,” said Mike McClellan, vice president of industrial products for Virginia-based railroad Norfolk Southern Corp., which operates about 14,000 boxcars that include 19 different configurations.
Still, railroads aren’t ordering many new cars. One big obstacle is price. New boxcars cost around $135,000. The rates that paper companies and other shippers pay for boxcar service typically include monthly equipment charges ranging between $450 and $700. That is decent revenue on a 30-year-old boxcar that has long since paid for itself, but well below the $940 to $1,100 in monthly car-hire fees needed to profitably deploy a new boxcar, said Richard Kloster, senior vice president of AllTranstek.
Those low rates effectively kept railcar leasing companies from soaking up demand for boxcars as happened when railroad-owned car fleets shrank for grain, coal and other commodities.Despite their complaints, shippers say a significant increase in boxcar-hire rates would erode the railroads’ cost advantage over trucks and cause companies to shift their freight to trucks. Some shippers are advocating for a regulatory extension of the service life for existing boxcars service to 65 years from 50. Nevertheless, higher costs for boxcars appear inevitable.
“Either the rates have to rise or the cost of a new boxcar has to come down,” said Mr. Kloster. “There’s just no consensus on what’s required to create an economically viable boxcar fleet.”
The problem perpetuates itself, because low demand prevents the top companies in North America building new boxcars— Greenbrier Cos. and National Steel Car Ltd.—from scaling up production in a way that could bring down the average price of new cars. Industry analysts estimate about 4,000 new boxcars would be needed annually for the next several years to offset those being retired because of age. Manufacturers last year made just 692. During the first quarter of this year, they delivered just 67 and received 120 orders, according to railcar trade group Railway Supply Institute.
Meanwhile, the car manufacturers say they are devoting more assembly-line capacity and engineering resources to meeting a deluge of orders for tank cars to haul crude oil. “Tank cars are taking precedence over everything,” said Tom Jackson, vice president of marketing for Greenbrier. “The boxcar is not a top priority.”
There were more than 52,000 orders outstanding for tank cars at the end of the first quarter compared with just 4,363 orders for boxcars, said Railway Supply.
