By Bob Tita
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 the industries that continue to use
them.
The number of boxcars in service in North America fell by 41% in
the past decade to just under 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.
"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 is 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 grain, open-topped
and other railroad-owned car fleets shrank. 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.
Write to Bob Tita at robert.tita@wsj.com
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