June 3, 2020

Over the past decade we’ve seen dramatic changes in the demand for, and availability of many different car types. As fracking became in high demand, many covered hoppers and even some open-top hoppers were diverted from grain and other uses to frac sand service. Not the perfect car for the application, but they were “available”. More recently, the fall-off in coal shipments in some areas has made many gondola railcars available, and some have been put into alternative service. At the same time, from the 2008 recession and continuing, with some industries falling off and as more modern cars have supplanted railcars not perfect for the “current” application, a great number of railcars have been scrapped including boxcars, hopper railcars, and some tank cars.

We are now in a situation where many railcar types infrequently enter the secondary market, making life difficult for many industries. Buying a new railcar is not only expensive, but it requires getting into the new-build queue.

What does this mean for industries? Well, for one industry need to be willing to consider more flexibility in buying cars in the secondary market, both in terms of price paid (considering work to be done or movement costs) and the potential for investment in further extending the useful life of cars. With the recent Increased Life Status (ILS) allowance, railcars can now enjoy up to 65 years of useful life. A car built in 1980, with ILS could conceivably be in use until 2045. Currently, ILS can only be done within 3 years of the end of life and requires a fair amount of expense. This may change over time as the industry, FRA and AAR continue to adapt to these circumstances.

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