Eastern Railroad Discussion > WSJ article "Why RRs Can’t Keep Enough Boxcars in Service"

Interesting conundrum. Perhaps box car owners should be able to sell ad space to create a bit more revenue per car.

http://www.wsj.com/articles/why-railroads-cant-keep-enough-boxcars-in-service-1434879182?cb=logged0.6455850086743908

 



Edited 1 time(s). Last edit at 06/21/15 05:51 by JPB.

JPB Wrote:
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> Interesting conundrum. Perhaps box car owners
> should be able to sell ad space to create a bit
> more revenue per car.
>
> http://www.wsj.com/articles/why-railroads-cant-kee
> p-enough-boxcars-in-service-1434879182?cb=logged0.
> 6455850086743908
>
That's a nice thought; however the railroad police will have to step up even harder to keep the graffiti criminals from ruining the ads.

WSJ not allowing access to the article.

http://www.wsj.com/articles/why-railroads-cant-keep-enough-boxcars-in-service-1434879182

 

Paper and pulp industry accounted for half the boxcar demand, according to the article.  Unlike other industries, where shippers control or lease their own rail car fleets, paper relies on carrier supplied boxcars. They can be profitable for the railroads, with 3% of the volume producing 8% of the profits.

The inside view:“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.

Just to add a related thought.

If the paper companies are spending billions to construct high tech paper plants with state of the art technology etc, why aren't they investing a small slice of that money in modern logistics (ie boxcars) to expedite product output to market?
 

So I suppose the railroads' answer is to run the existing boxcar fleet as long as possible and then hope to retain the shippers after a price increase to provide a decent ROI for the new boxcars. Will be interesting to see whether the paper companies just go to trucks at that point. I assume that the existing outbound paper shipments also contribute to the railroads' overhead, so if they lose the traffic to trucks they will probably face a profit squeeze in inbound shipments of materials and chemicals.
 

Wasn't there a similar situation with Mechanical Reefer cars a decade or two ago? Obviously the market dynamics there changed enough to make strategic purchases of RPL cars worthwhile.

Posted from iPhone

If the paper companies bought or took dedicated leases on new bocars, they'd assure themselves a supply. But, as the article mentions, the fully depreciated and  worn out box cars still produce a fat profit for the railroads, and low charges for the paper companies.

Given how many cars are being scrapped, it's just a matter of who blinks first. The railroads, which see an opportunity to make a steep price increase for new car shipments stick; or the paper companies who don't want to see their expensive new plants shut down awaiting boxcars.

boxcars cost the railroads money due to higher cost by means of less.revenue per movement in switching them for local service whereas unit trains require no siwtching, yarding, extra handling

My 3 biggest customers in intermodal service were paper companies.  Much of that business came from boxcar movements where the fast transit was such a benefit that it covered the higher freight rates.

gmojim

And the paper industry isn't exactly booming in North America with reduced production of print magazines and newspapers and proliferation of on-line bill paying and email. Demand for toilet paper is still strong, however!

JPB Wrote:
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> And the paper industry isn't exactly booming in
> North America with reduced production of print
> magazines and newspapers and proliferation of
> on-line bill paying and email. Demand for toilet
> paper is still strong, however!

LOL.....!!!! Now, that IS important!!!

People seem to buy a lot of paper towels too......

The same article ran in Marketwatch.com and they showed an old WABASH boxcar as their visual. Really shows the ignorance of the media on railroad issues. They will have to look forever to find one of these in a train.

Here is a link to the phot on the atricle.


http://s.wsj.net/public/resources/MWimages/MW-DO529_Wabash_MB_20150621105114.jpg



Edited 1 time(s). Last edit at 06/21/15 15:48 by BruceStikkers.

There are now 52 comments to the original article.

One item was the average box car in paper service makes nine turns per year, about once every six weeks. The person posting concludes the low cost of the box car results in a cheap storage facility. If the box car moved from A to B, was unloaded promptly, and returned to A, there would be no shortage.  Another poster acknowledges that the fully depreciated, already paid for box car is essentially "free" until it runs out of meter time. So why spend a hunded grand to replace something which does the job acceptably now?

Once unloaded, these cars tend to sit around, especially if the mother yard they eventually go to is clogged. Also, they are often not a priority for an otherwise busy local, so they get pencil whipped into cyber space (shown as pulled when they weren't, so they are physically sitting in a track that the mainframe says is now empty). Same thing goes for cars that carry sand, roadsalt, grain, lumber, you name it. Many have said that if RR's put more effort into pulling and moving empty cars, the bottom line would increase, as the shippers wouldn't need as many cars online, and the yards would be more fluid. A crew could make the rounds in a terminal pulling empties on the weekend and get them going back to the shippers on Monday and Tuesday, which tend to be lighter traffic days in some parts of the nation.

By doing so, the cars would make several more round trips per year. Evidently, Wall St. doesn't keep track of such details, but if they did, the investors that actually own those cars might be pretty upset about it.

NYC6001 Wrote:
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> (snip)
>
> By doing so, the cars would make several more
> round trips per year. Evidently, Wall St. doesn't
> keep track of such details, but if they did, the
> investors that actually own those cars might be
> pretty upset about it.


Funny you should use that example.

I received a PM from a guy who handles specialized car leasing in the energy industry. His firm shoots for what they describe as 80% activity. Moving, loading or unloading, etc. Making money for the shipper and the lease company. He pointed out that some of the leasing companies make money hand over fist with 40% activity. With old cars like the paper industry uses, it seems you can make money at 15% in motion, from what the article says.

But, if you own a lease car, and the activity cycle drops off for the industry, you're up the creek. Your spot lease vanishes. Some refinery companies that had 10-12 car sets in motion now have 6-8 in motion with the rest stored. You still have some depreciation benefit, but the income has dropped off. Unless you have a long term lease, and some income still coming in.

A good introduction to car hire can be found in AAR circular OT-10.   Its a good introduction on how the game is played...and how a railroad can make money on car hire by turning them quickly....  The link is here:

https://www.railinc.com/rportal/alf_docs/Circulars/OT-10.pdf

JPB Wrote:
-------------------------------------------------------
> And the paper industry isn't exactly booming in
> North America with reduced production of print
> magazines and newspapers and proliferation of
> on-line bill paying and email. Demand for toilet
> paper is still strong, however!

A lot of paperboard is produced to make boxes.  Huge volumes moving on intermodal and in boxcars. 
Large volume of paper cups also,                                                             

gmojim

While true, in theory, railroads charge demurrage to recover car hire expenses and to otherwise encourage the efficient movement of railcars.  Daily rates are anywhere from $30 up to over $200 depending on the location and circumstances.  Cars that sit too long in the wrong spot end up not being cheap storage.

Customers that need this kind of storage-in-transit typically build or lease track capacity to avoid these kinds of daily charges.
-Alex

Lackawanna484 Wrote:
-------------------------------------------------------
> There are now 52 comments to the original
> article.
>
> One item was the average box car in paper service
> makes nine turns per year, about once every six
> weeks. The person posting concludes the low cost
> of the box car results in a cheap storage
> facility. If the box car moved from A to B, was
> unloaded promptly, and returned to A, there would
> be no shortage.  Another poster acknowledges that
> the fully depreciated, already paid for box car is
> essentially "free" until it runs out of meter
> time. So why spend a hunded grand to replace
> something which does the job acceptably now?