Railway equipment group warns of boxcar shortage

The Railway Supply Institute (RSI) is urging federal regulators to help avoid a so-called "boxcar cliff," fearing lower compensation rates are contributing to a shortage of boxcars in the US.

Boxcars are essentially rented to railroads, which compensate the owners by paying car hire rates. US rail regulator the US Surface Transportation Board (STB), with a regulation known as the Arbitration Rule, has established a default rate for railcars, primarily boxcars, that do not have a negotiated rate. Those cars are assigned a rate that is equal to the lowest negotiated rate in effect for that equipment type at the end of the previous quarter. Other cars, such as tank cars and gondolas, usually have rates set in negotiated agreements to move various commodities.

The problem is that the default rates can often be as low as 17¢/hour for a boxcar, which often costs more than $150,000 to build, according to RSI. It is difficult to negotiate a higher car hire rate with railroads because are very aware of that 17¢/hour default rate, said Paul Titterton, president of North American operations at railcar leasing company GATX.

Those car owners also have to compete with TTX, a railcar pooling company owned by the largest railroads, that are exempt from these rules. TTX did not respond to calls for comment.

Because they control TTX, railroads can invest and set boxcar rates they consider to be remunerative, Titterton said.

There are about 100,000 boxcars in North America, and the low compensation rate is disincentivizing shippers from building and buying new boxcars, said Patty Long, president of RSI, which represents rail car makers and parts manufacturers.

The existing "car hire system discourages investment in this integral component of our rail transportation fleet, with boxcars providing efficient shipping for crucial American commodities," she said. Boxcars are used to haul a wide array of goods including pulp, paper, beverages and canned goods.

The default rate does not respond to changing market conditions, such as the shrinking equipment fleet, Long said.

That low compensation rate contributed to a 38pc decline in the number of boxcars in the US since 2008, RSI said. And the aging boxcar fleet is expected to decline another 22pc by 2030.

RSI has petitioned the STB to revisit its Arbitration Rule and reevaluate the way compensation is determined.

Industry trade group the Association of American Railroads said it is reviewing the petition and deciding on its next steps.

STB's Railroad-Shipper Transportation Advisory Council last year urged the agency to look into ways to head off the "boxcar cliff." The group noted that most railcars have a 50-year lifespan, and the retirement of boxcars built in the 1970s and 1980s is accelerating.

"As a result, the North American railroad system and shippers across the US face a devastating boxcar shortfall without sufficient new production to replace thousands of mandated and other planned boxcar retirements," the group said in a March 2023 white paper.

By Abby Caplan