Railway Supply Institute files petition with Surface Transportation Board over looming ‘boxcar cliff’

Railroad boxcar availability is front and center in a recent petition filed by the Washington, D.C.-based Railway Supply Institute (RSI), an organization focused on advancing safety, innovation, technology, and sustainability within the freight and passenger railway supplier industry, both in North America and global markets, to the Surface Transportation Board (STB).

In its petition, which was formally filed with the STB on March 25, RSI is calling on STB to review and assess the existing Arbitration Rule that governs car hire rate negotiations in the railroad industry, at a time when RSI said that concerns are mounting regarding what it called the “unsustainable trajectory of boxcar supply, where investments have not kept pace with the looming retirement of a substantial portion of the North American boxcar fleet.”

And RSI added that the existing framework that is used to establish car hire rates, especially for default rates set by the Arbitration Rule, is negatively impacting private investment into both new and existing boxcars that could lead to a future shortage.

The data bears that out, too, with RSI citing the coming retirement of 22% of the North American boxcar fleet by 2030, with current investment levels coming up short for replacement. What’s more, it also pointed out that the methodology of the Arbitration Rule used to determine default lines is flawed, which RSI contributes to a disincentive for creating new boxcars. Other observations made by RSI included: TTX’s market dominance, coupled with competitive concerns related to the company’s expanding share in the boxcar market; and RSI calling for the STB to reassess and potentially revoke the Arbitration Rule to restore a competitive and economically viable boxcar fleet.

“In light of the current economic models and market dynamics, RSI demonstrates the pressing need for STB’s involvement to avert an imminent deficit in boxcar availability by advocating for a market-based solution that reflects the true state of supply and demand,” said RSI. “This change is vital for ensuring a reliable and sufficient boxcar fleet that supports America’s industrial and infrastructure health. Furthermore, the dominance of TTX, a railcar pooling company with unique anti-trust exemptions, has also been highlighted as a concern for competitive balance within the market.”

In an interview with LM, RSI President Patty Long provided some additional context regarding this situation, explaining that there are about 100,000 boxcars on the North American rail system, with the majority of those box cars on per diem leases. Long noted that in terms of how boxcar owners get compensated, there are private negotiated leases, for tank cars and hopper cars, or per diem leases, with the majority of box cars on per diem leases.

Boxcars on a per diem lease, she noted, are subject to the aforementioned Arbitration Rules established in 1995 after the Interstate Commerce Commission was disbanded. Long also said that the default boxcar rate is a formula under the Association of American Railroads (AAR) code of car hire rules set about three months before a car is built, with the rate not changing over the life of the car (the life of a car can be as much as 50 years regardless of the market, inflation or other factors).

“The result of this has just been that there is this artificially low rate that has not been updated,” said Long. “And it's become this disincentive to build new box cars or to buy those build box cars and be an owner of them and there's no economic motivation. There's been this sort of slow downward trend over the last two decades. More boxcars have been retired. In fact, the box car fleet sizes have declined about 39% since 2008.”

This coming boxcar cliff has to do with the fact that between 1975 and 1983, there was a huge buildup of box cars, observed Long. Assuming 50 years is the natural retirement age, that has been what’s led to the current situation that she described as huge percentage of boxcars that are going to be retired.

“So, what happens is, for shippers of end products, like paper, pulp, canned goods, beer or wine, and any shippers who use boxcars, this shortage of boxcars means that obviously, there is going to be less supply,” said Long. “It's going to result in a few different things: either higher prices, which are ultimately passed on to the consumer, or a switch from moving products to truck.

Long said that there already has been a bit of a switch in moving products to trucks and some of that has to do with service issues, while adding that a disadvantages in moving products to truck is sustainability, with three heavy-duty trucks required to replace one boxcar.

“If you are Molson Coors or Constellation Brands and staked your reputation on lower greenhouse gas emission targets, this is a huge issue,” said Long. “More trucks on the highway means more wear and tear on the roads and bridges. That's at the expense of taxpayers versus privately funded railroads.”

In order for progress to be made going Forward, Long explained that the AAR needs to come to the table on this issue.

She cited a 2019 Brattle study conducted by RSI for the AAR’s Equipment Assets Committee, whom has jurisdiction over this issue. Upon releasing the study, in which RSI found that car hire levels have been artificially suppressed, and stressed the importance of this issue, Long said that feedback from the AAR was limited, with the organization stating it would not take action based on the study’s findings.

AAR officials did not reply to LM for comment on this by press time.

“We just want [AAR] to come to the table and acknowledge this and address the other sort of elephant in the room—TTX which is owned by the Class I railroads,” she said. “TTX is not bound by the arbitration rules. So, for example, the same box car which is, say, an A606 which is the most common boxcar…by the default rate, the owner, basically pays $0.17 an hour on this one boxcar.  That is the default rate, which is basically how we are compensated as owners of the cars. The exact same car—because TTX doesn't need to abide by the default rate—goes on the open market for about $0.86 to $1.10 an hour. People will argue and say there's not a boxcar shortage. TTX continues to make boxcars. But they're not making as many as we think are needed and you never want just one business out there having the monopoly.”  

With the 20-day comment period running since RSI filed its petition with the STB on March 26, Long said that there is a possibility it could be extended another 30 days at that point, should AAR request an extension to submit comments.