Should you own or lease freight railcars, or just ask the railroad to provide cars? The question does not apply if you are shipping chemicals or petroleum products; railroads don’t typically offer this car type for use by industries. However, for other industries, the issue can often be more complex.
Questions to consider:
– Will you always be shipping your freight by rail; is it likely to be part of your permanent operation?
– Do you ship products or raw materials at regular intervals or does your need vary widely from time to time?
– Do you see your shipments as likely to increase, stay the same, or decrease over time?
– Are you a well-established industry or do you have a short or non-existent credit record?
– Do you have a good banking relationship?
There may be other key questions or issues specific to your business that come forward, and clearly the decision is not always easy. Many industries are able to begin shipping by rail by using railroad owned railcars. This approach may work out however customers tell us that this has proven unreliable; just when your business is booming, so too are others in your sector and railroad-owned railcars can suddenly be “unavailable”. Also, there may be a higher rate associated with the use of the railroad’s cars, as compared to a private railcar (either owned or leased.) It is generally reported that railroads own well under one-half of the freight cars, and those cars are highly concentrated in certain industries.
As a general matter, for industries that will always be shipping by rail, we recommend owning your own fleet:
– A typical railcar in the secondary market can still have many years of useful life left; more than enough time to fully capitalize on the purchase, have a useful period without further capital cost, and still have some value at the end even if only for scrap purposes.
– Owning your own railcars means you are not dependent upon another party to supply an element critical to your business.
Leasing can also be an excellent way to have a captive fleet at a reasonable monthly cost. For many companies, this option works well in that it can provide a steady cash flow (particularly when the leasing company pays for rail maintenance under a full-service lease) and preserves capital.
To explore these issues, please contact us – we’d be happy to talk to you about the decision process.
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