Boxcar Quality – Win – Win – Lose

A while back I attended a conference that featured a shippers panel on boxcars.  I was expecting to hear a major bitch session on car quality.  Much to my amazement, the panel was generally pleased with the quality of the cars being received.  They were more concerned about the declining inventory of their preferred car versus the new cars being offered.

Historically, boxcars were the primary railcar supplied by railroads to their shippers.  Unfortunately, they were also one of the most neglected car types Fork truck drivers take great pride in their ability to open boxcar doors without ever leaving their seat.  Much like the knights of old, they see dismount from their stead (fork truck) a sign of weakness.  As a result, boxcar doors get harder to open, almost impossible to close completely and result in constant complaints from shippers and a maintenance headache to car owners.

The industry has frequently foretold the demise of the boxcar.  It might be finally here

Boxcars are routinely graded on their condition [AAR Rule 1.6.c]. New boxcars are graded “A” and can generally state in that condition, if properly handled.  Grade C cars would translate for a car that isn’t weather tight, the doors mostly close and you needed to be careful to keep from stepping thru holes in the floor.  Finally, cars reach “U” – unfit for loading.

Railroads had “Cleaning Tracks” or pre-trip locations to inspect and prepare cars for shippers that need grade “A” cars.  The cost of the inspections, cleaning, grading and extra switching are factored into the freight rate for these shippers.  The net result was the shipper received good cars and the railroads received good revenue from these shippers – everybody wins.

Today, the rules regarding prepping the cars for loading have changed.  AAR Rule 1 was expanded to permit railroads to make repairs “for subsequent loading” [AAR Rule 1.2.a.(5)] without owner’s authorization up to 16 hours, with no restriction on material costs.  There is a further allowance for repairs to boxcar doors, door track and hardware of up to 8 hours per car, again with no restriction on material costs.

Railroads now have a means to provide quality boxcars to their shippers and pass the costs back to car owners.  Shippers win by getting good cars.  Railroads win by getting good revenue from these shippers.  But, who pays?  the car owner.

Score –

  • Shippers – Win
  • Railroads – Win
  • Car Owners – Lose

The railroads will make the argument that the car owner is a beneficiary of this practice.  Their boxcars are getting door and other repairs, avoiding out of service time at repair shops. It is a good argument, if and it’s a big IF; the repairs meet their standards.

There is a considerable cost difference between straightening a door for loading versus replacing a door.  But when repairs are limited on hours, but not material; doors get replaced versus straightened.

The net result is that car owners are getting hit with $2,000 to $3,000 new door replacements versus lower cost door straightening.

Boxcars are one of the most universal rail car types.  They come in a wide range of lengths, heights, door type and cushioning.  Railroads are fighting for boxcar freight traffic against highway trailers and 53’ domestic containers on double stack trains.

We applaud the efforts to win more freight back from trucks and containers.  We fully support the actions to improve the quality of the aging boxcar fleet.  There just needs to be a more equitable means of sharing the revenue to cover the preparation expenses with car owners.

In addition, we need to start thinking about how to address the continued decline of available quality boxcars.

In the 1970’s, the quality of boxcars were so bad that “incentive” per diem was created to provide an extra financial inducement for railroads to make the investment in new boxcars.  About this time, the West Coast leasing companies, ITEL, BRAE and others started providing new boxcars to shortlines. Shippers were happy, getting newer cars for their use.  Car owners were happy, getting good returns for their investments. Unfortunately, the railroads were getting flooded with boxcars which resulted in clogged yards and empty backhauls.

Score –

  • Shippers – Win
  • Railroads – Lose
  • Car Owners – Win

When railroads lose, they change the rules.  The Staggers Act deregulated car hire rates resulting in the elimination of incentive per diem and zero rating.  This virtually killed the financial incentive to invest in new boxcars.

There are still some of the old boxcars built in the late 70’s and 80’s in use today.  But we are quickly getting to the end of the line of cars built during that period. TTX has stepped up to address the issue, but there needs to be more investment.

We need to come to grips with the prospect of more freight moving to intermodal unless we find a way to create a financial incentive to make the investment in new boxcars.  We also need to ensure that car owners are not being slammed with repair costs that become a disincentive to supply cars.

The industry has frequently foretold the demise of the boxcar.  It might be finally here, death due to escalating repair costs and lack of financial incentive for new cars.  I, for one, would be very disappointed for that to happen.

I welcome your comments on this or other topics.  Visit my website at www.railassetadvisors.com or email me at rthomure@railassetadvisors.com

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