C.H. Robinson

Surface Transportation

Research and analysis focused on the declining boxcar fleet and the effects it will have on other modes of surface transportation in the United

States.

July 31, 2015

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Executive Summary

Trends of a declining boxcar fleet have been observed, and have caused concern among shippers that rely on boxcars to

transport their products. C.H. Robinson tasked Iowa State University’s CyBIZ Lab to investigate these trends further, and

help determine the effects boxcar retirement has on different modes of surface transportation in the United States.

CyBIZ Lab created this report detailing research and predictions on how U.S. shippers may be affected by reduced boxcar

availability.

Our research has identified some concerning facts:

● Approximately 57% of current boxcar fleet will retire in next 15 years

● 14% of the current boxcar fleet will retire in 2029 alone - the most dramatic yearly loss

● New boxcar manufacturing orders account for only 0.49% of all freight car1 orders

There could be economic implications due to the declining boxcar trend. Other surface transportation trends (bulk rail,

intermodal, and trucking) will possibly be affected as well. Important findings include:

● Industries utilizing boxcars have reduced shipments in the last decade

○ Approximately 42% reduction in lumber/wood rail ton-mile shipments in last decade2

○ Approximately 42% reduction in motor vehicles/parts rail ton-mile shipments in last decade

○ 13.2% reduction in pulp/paper rail ton-mile shipments in last decade

● New rail technology and new rail safety requirements recently introduced

○ Purpose-built freight cars (center beam, intermodal carriers) are now moving freight previously hauled

in boxcars

● Tanker car fleet size has increased 10.25% in last decade

● Covered hopper car fleet size has increased 21.06% in last decade

● Intermodal volume increased 37.5% since the year 2000

Based on our research, we believe boxcar users have reason for concern regarding the declining boxcar trend, in

addition to the upcoming rapid retirement dates for the majority of the current boxcar fleet. Taking steps to plan ahead

for possible service interruptions is a good strategy. Manufacturers and shippers should be prepared to collaborate with

others to improve overall network velocity and increase transportation productivity in order to decrease the possible

negative effects of reduced boxcar freight capacity. While there could be noticeable implications in the near future, we

do not believe this issue is a crisis yet. The declining trend in boxcars can be correlated to the economic concept of

“supply matching demand”, as boxcars are being used less frequently to haul freight. Combining these economic effects

with technological innovations that increase a boxcar’s freight capacity, fewer boxcars are needed to service the same

number of customers. Despite the non-urgent current state of the overall boxcar situation, manufacturers and shippers

should start strategically planning the steps they will take before this boxcar issue worsens. In addition, the effects of

boxcar retirement will be exaggerated in regions with older infrastructure, as the newer and larger boxcars being

manufactured are unable to service places originally built to optimally accommodate smaller freight cars.

1 Throughout the report, “freight car” refers to any rail car that is designed to carry commodities or goods.

2 Rail ton-mile shipments are defined as the length freight travels. Source: Association of American Railroads

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Objective:

● Research the magnitude of rapid boxcar retirement, legislative influences, and economic influences on four

surface transportation modes (bulk freight car, intermodal, truckload, and less than truckload).

● Offer related influences and collaborate with CHR on inclusion of related influences.

● Create an output that is clear, citing possible influence magnitude, including industry statistics and references.

Findings:

● Surface transportation is constantly being affected by many factors in the industry.

● Boxcar numbers have declined; however, this may be due to economic responses and technological

advancements rather than a shortage or crisis.

● Bulk rail transportation will remain one of the most economical methods to transport commodities until/unless

intermodal methods are able to handle higher freight capacities at a lower cost.

● Railroad routing problems, delays, and train velocity improvements would fix most capacity shortages currently

being recognized by concerned shippers.

● Due to legislative and economic influences, absorbing any shortage in boxcar capacity through other modes of

surface transportation will be infeasible if more boxcars are not manufactured before the years 2023-2030.

Process:

The steps taken to complete the report are listed below:

● Initial meeting established feasibility, project outline, and research topics

● Focused research on boxcar transportation and factors that may be affecting a trend in declining fleet numbers

(legislative and economic influences)

● Compared trends and factors affecting boxcars with other freight cars, intermodal transportation, truckload

transportation, and LTL transportation

● Compiled research, created graphs, and obtained industry insight

● Created and finalized report detailing our findings and predicted future implications

Table of Contents

Executive Summary …………………………………………………………………………………………………………………………………… i

Objective ………………………………………………………………………………………………………………………………………. ii

Findings ………………………………………………………………………………………………………………………………………… ii

Process ……………………………………………………………………………………………………………………………………….... ii

The Boxcar Market ………………………………………………………………………………………………………………………………....... 1

Overview ………………………………………………………………………………………………………………………………………. 1

Demographics ………………………………………………………………………………………………………………………………. 1

Boxcar Decline Influences ……………………………………………………………………………………………………………………....... 2

Legislation ………………………………………………………………………………………………………………………………....... 2

Technological Advancements …………………………………………………………………………………………………....... 3

Ownership of Boxcars ………………………………………………………………………………………………………………….. 3

Surface Transportation Trends ……………………………………………………………………………………………………………….... 4

Bulk Rail ……………………………………………………………………………………………………………………………………….. 4

Current Market ……………………………………………………………………………………………………………..... 4

Trends ……………………………………………………………………………………………………………………………… 4

Ownership of Rail Freight ………………………………………………………………………………………………… 5

Intermodal …………………………………………………………………………………………………………………………………… 6

Current Market ……………………………………………………………………………………………………………….. 6

Trends …………………………………………………………………………………………………………………………..... 7

Trucking ……………………………………………………………………………………………………………………………………….. 7

Current Market ……………………………………………………………………………………………………………….. 7

Trends …………………………………………………………………………………………………………………………..... 8

Implications ………………………………………………………………………………………………………………………………………………. 8

Conclusion …………………………………………………………………………………………………………………………………………………. 9

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The Boxcar Market

Overview

Boxcars are relied upon heavily by companies that ship commodities such as paper (primarily brown paper), beer,

plywood, and metals. Throughout the early and mid-20th century, boxcars were an iconic and popular transportation

method, but have slowly lost popularity over the years.3 Boxcar use has decreased due to a variety of factors that can be

largely separated into legislative and economic influences. For example, federal legislation states that boxcar owners

must retire boxcars once they reach 50 years from their manufacture date.4 In addition, boxcars are being retired faster

than they are manufactured due to backlogged orders for higher demand freight cars like tanker and hopper cars. This,

in addition to other factors, creates a growing concern for shippers who use the services of boxcars to haul their

products across the United States.

Demographics

The current boxcar fleet consists of less than 115,000 cars and has been trending downward since the 1960s. There will

be 65,276 boxcars retiring over the next 15 years, which is more than half of the current fleet size. A total of 57,603

boxcars will retire between the years 2023-2030 with the most dramatic loss numbering 16,156 in the year 2029.5 This

rapid rate of boxcar retirement will affect companies and shippers who still rely on the utilization of boxcar

transportation.

The boxcar fleet has declined by 79,379 cars since 2002 (Source: Umler)

3 “Railroad Boxcars." American-Rails.com. N.p., 2007. Web. 23 July 2015.

4 Restricted Equipment, Subpart C— Federal Railroad Administration § 215.303 (2012).

5 Railinc. Umler. N.p., 14 May 2015. Web. 25 June 2015.

194,268 190,339 186,041 187,545 185,261

179,777

162,745

150,479

136,533 126,717

122,292 117,515 115,838 114,889

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Tota

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s

Boxcar Decline in North America

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Between the years 2023-2030, boxcars are expected to retire at an average rate of 7,200 cars per year

(Source: Umler)

Boxcar Decline Influences

Legislation

While boxcars have a service life of 50 years, shippers are able to request an “Increased Life Status” extension from the

Federal Railroad Administration (FRA), which allows the boxcar to be used for 15 more years. The extension increases a

boxcar’s service life to 65 years, however freight car experts have noted that a 15 year extension is very difficult to

obtain due to legislative requirements. Currently, industry leaders in the forestry products sector are working with the

Association of American Railroads (AAR) to change legislation to ultimately make this Increased Life Status extension

more economical and easier to obtain. Boxcars manufactured after July 1st, 1974 are applicable for this extension,

whereas boxcars manufactured prior to June 30th, 1974, had a 40 year life and possible 10 year extension. All boxcars

manufactured before June 30th, 1974, with or without the 10 year extension, have already been retired.6 Throughout

our research, we assumed that all boxcars currently in service have a 50 year life.

6 “Age Information and Valuation.” Association of American Railroads. AAR, n.d. Web. 23 July 2015.

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2037 2039 2041 2043 2045 2047 2049 2051 2053 2055 2057 2059 2061 2063

Source: Umler * All cars assumed to have a 50-year service life

North American Boxcar Fleet Retirement Date*

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Technological Advancements

Technology is constantly changing, and safety innovations in the rail industry occur regularly. New technologies and

more efficient types of freight cars have been created, which has decreased demand for new boxcars. In addition, newer

boxcars with higher freight capacities are slowly replacing older versions. Despite the increased capacity, the efficiency

and services that boxcars once provided have become outdated. This has also happened for some of the commodities

for which boxcars are utilized. Older infrastructure is not capable of handling larger freight cars, which is an issue more

common in the northeast region of the United States. The height and route restrictions abundant in this area are timely

to plan around, and reduce the overall flexibility of the supply chain.

Technology improvements have enabled shippers to increase efficiency by reducing the amount of dwell time of a

freight car. Dwell time is the length of time an asset (a freight car in this instance) spends at a location to unload and

reload. Unfortunately, boxcars have one of the highest dwell times among freight cars, which makes them an

unattractive asset to rail companies. Newer types of freight cars are seen as more ideal investments, and utilize better

technology, efficiency, and safety features. For example, lumber was once primarily shipped by boxcars, but with new

innovations in freight car technology, lumber is now shipped on center beam flat cars. This transition to flat cars

increased the amount of lumber hauled per car as well as decreased loading and unloading times.7 According to boxcar

owners, automobile shipments have been steadily transferred from boxcar shipments to intermodal and trucking

methods. Automakers have developed intricate logistic patterns, and new manufacturing facilities are being built closer

to suppliers, making trucks a more economical transportation choice.

In addition to affecting the equipment used to transport items, technological advancements have also affected the

commodities that are shipped in boxcars. For instance, the amount of graphing paper (white paper products) has

significantly decreased over the last 20 years due to the increased use of digital and computer-based applications. Other

pulp, paper, and allied products have also reduced rail ton-mile shipments by as much as 42%. In fact, these products

only account for 1.8% of total tonnage carried by freight cars today.8 This is one example that demonstrates the theory

that the boxcar fleet is simply accommodating to the decreased amount of shipments, which is a case of matching

supply with demand.

Ownership of Boxcars

A unique trend in the boxcar market is the ownership of boxcars, and the percentage of the fleet that is privately owned

versus those that are owned by the railroad. Railroads own more than 75% of all boxcars, and the average age of

railroad owned boxcars is close to 30 years. Privately owned boxcars account for 22% of the market, and the average

age for these boxcars is 19 years. Boxcar ownership differs from to the total U.S. fleet freight car ownership, because

71% of the U.S. freight car fleet is privately owned.9 When looking at age variances, the railroad owns most of the boxcar

fleet, but only 4% of the fleet is between the ages of 1-10. On the other hand, 41% of the privately owned boxcar fleet is

between the ages of 1-10. When evaluating these statistics, it appears the railroad companies do not foresee a need to

increase their ownership or increase their orders for new boxcars in the near future. Another factor that is affecting this,

however, is the incentives and reduced rates railroads are providing for private freight car ownership instead of utilizing

the railroad’s fleet.

7 "All Door Boxcars." McCloud Rails | Equipment Roster. TrainWeb, n.d. Web. 24 July 2015.

8 "Class 1 Railroad Statistics." AAR - Policy and Economics Department, 26 May 2015. Web. 10 June 2015.

9 "Rail Car and Locomotive Statistics: Fleet Stats 2015." Progressive Railroading. Progressive Railroading, July 2015. Web. 15 July 2015.

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Ages 31-40 comprise a large portion of the boxcar fleet owned by railroad and private companies, but private company

owned boxcars have a significantly larger amount of boxcars between ages 1-10

(Source: Progressive Railroading)

Surface Transportation Trends

Bulk Rail

Current Market

The U.S. rail network is considered to be the most efficient and cost effective rail network in the world. Because of the

efficiency and cost effectiveness, the U.S. rail network accounts for approximately 40 percent of U.S. freight moved in

ton-miles.10 The Federal Railroad Administration (FRA) regulates the railroad industry, but rail infrastructure is primarily

privately funded, unlike the trucking industry. Railroads invest largely in maintaining and improving the efficiency of the

rail network. There are 7 North American Class I railroads that dominate the U.S. rail market. The Class I railroads

typically work together to move freight across the entire U.S.11

Trends

The U.S. freight car fleet has changed over the past 20 years. Typically, when the U.S. economy is rising, the amount of

shipments and freight cars will increase in correlation. While a few industries still rely on short-haul boxcar use, railroads

have found that unit trains are the most economic and efficient way to transport commodities. Unit trains are able to

load at a single point, and travel to a single destination without stopping along the route. These freight cars also have a

shorter dwell time, while boxcars have a significantly higher amount of dwell time compared to other types of freight

cars. When measured in time and labor, boxcars have high cost and low efficiency. Unit trains composed of tanker cars

or hopper cars are more efficient, and typically yield higher profits compared to trains that have a wide variety of car

type with many stops or delays along its route.

10

"Freight Rail Today." U.S. Department of Transportation. Federal Railroad Administration, n.d. Web. 15 July 2015. 11

"Class I Railroads." Freight Rail Works. AAR, n.d. Web. 21 July 2015.

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Boxcars and hopper cars are the only types of freight car that have shown a trending decrease since 1984

(Source: Progressive Railroading)

Ownership of Rail Freight

Private parties now own a substantially larger amount of freight cars than the railroad, but that has not always been the

case. The shift of freight car ownership occurred from 1990-2000. In 1990, 54.4% of the freight car fleet was owned by

Class 1 railroads, 8.6% by other railroads, and 37.1% owned by shippers. In 1995, 47.9% of freight car fleet was owned

by Class 1 railroads, 7% by other railroads, and 45.2% owned by shippers. In 2000, 40.6% of freight car fleet was owned

by Class 1 railroads, 9.6% by other railroads, and 49.9% owned by private companies shippers.

The ownership shift occurred because railroads want to minimize their overhead. Railroads began noticing major cost

savings by reducing the number of capital assets owned. Private owners are now feeling pressure to invest in freight car

manufacturing, even though it might not produce a desired return on investment.12 The cost of purchasing a new, plain

boxcar today costs approximately $135,000.13

12

Corsi, Thomas M., Ken Casavant, and Tim A. Graciano. A Preliminary Investigation of Private Railcars in North America 51.1 (2012): 53-70.

Transportation Research Forum. Transportation Research Forum, 2012. Web. 25 June 2015. 13

Tita, Bob. "Why Railroads Can't Keep Enough Boxcars in Service." The Wall Street Journal. The Wall Street Journal, 21 June 2015. Web. 23 June

2015.

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Opposite of the boxcar fleet, private companies own more total U.S. freight cars than the railroad

(Source: Progressive Railroading)

Intermodal

Current Market

Intermodal is the fastest growing mode of surface transportation because it combines different modes to deliver

products in an efficient and cost effective manner. In fact, intermodal has been the fastest growing segment of the

freight rail industry since 1980.14 Roughly 25 million containers and trailers are moved by intermodal transportation.

Common commodities shipped by intermodal include electronics, mail, food, paper products, clothes appliances, textiles

and auto parts. Due to the increase of globalization and global trade in the past couple decades, intermodal shipping has

grown and improved. Total intermodal loadings have increased steadily since 2010, and there are no signs of intermodal

shipments declining.15

14

"Freight Rail Today." U.S. Department of Transportation. Federal Railroad Administration, n.d. Web. 15 July 2015. 15

"Data & Statistics" IANA | The Intermodal Association of North America. IANA, n.d. Web. 8 July 2015

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Intermodal loadings have continuously increased since the recession in 2009

(Source: IANA)

Trends

The intermodal market is greatly influenced by legislative matters because rule changes in both the trucking and rail

industry have an impact on intermodal. As technology and the capabilities of third party logistics (3PL) providers

improve, so does the attractiveness of intermodal services. Intermodal shipping has been on a steady increase the past 5

years, and quarterly transportation reports have shown even more recent growth.16 Similar commodities shipped by

boxcars are shipped by intermodal, which could be another factor that has caused the amount of boxcar shipments to

decline.

Trucking

Current Market

The trucking industry moves more freight tonnage than any other mode of surface transportation in the U.S. Truck

transport accounts for 70% of all freight tonnage, and needs nearly 3 million Class 8 trucks and over 3 million truck

drivers to accommodate this. Currently, the trucking industry is facing a driver shortage, and changes to legislation could

either hinder or increase the amount of tonnage shipped by trucks. A typical 53 foot trailer has a hauling capacity of 21

tons, which is far less than the hauling capacity of boxcars.17

16

"Intermodal Update." Transportation Intelligence. FTR, June 2015. Web. 27 July 2015. 17

American Trucking Associations. ATA, 2013. Web. 30 May 2015.

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Trends

Economist predictions estimate that total U.S freight tonnage will grow 23.5% by 2025.18 Absorbing a 23.5% increase of

freight tonnage in the next ten years will put stress on all modes of surface transportation, but trucking will have the

greatest sensitivity to network capacity changes. There is currently a driver shortage of between 25,000-30,000 drivers

due to demographics, regulatory issues, and other issues. Truck, container, and trailer manufacturing can accommodate

a spike in demand, but ultimately the trucking industry relies on the truck drivers to transport shipments.19 The trucking

industry may not be capable of absorbing capacity from economic growth or boxcar retirement because of the driver

shortage and other legislative factors, such as hours of service rules. There is currently one piece of legislation that

researchers say will take trucks off the road and improve safety. If passed, the Transportation, Housing and Urban

Development, and Related Agencies Appropriations Act (T-HUD bill) will take effect in fiscal year 2016.20 The American

Trucking Association claims the use of double 33-foot trailers would improve capacity.21 If the bill were to be passed, it

would allow for double 33-foot pup trailers; an increase from the current double 28-foot pup trailers. The most

important overall idea is that the trucking industry is highly affected by legislative and economic factors, and is currently

the most sensitive to small capacity shifts.

Implications

While noticeable service interruptions due to the decline of boxcars may be almost a decade away, it is important for

manufacturers and shippers to start planning ahead. At the current retirement rate versus the replacement rate (692

boxcars manufactured per year), the total boxcar fleet will number 70,373 by the year 2030.22 Using a freight capacity of

100 tons, boxcars will only have 7,037,300 tons of capacity compared to the 11,488,900 tons of capacity that can

currently be utilized. This means there would be a 4,451,600 ton capacity shortage that may need to be absorbed by

other surface transportation modes. While this sounds like a large figure, it is roughly .05% of the total tonnage that

trucks move per year.23 With recent driver shortages and new trucking regulations, it may be difficult for the trucking

industry to absorb the relatively small capacity shortage percentage. If the capacity is absorbed by truck, it would cost

more money per ton-mile than rail. Consumers could see an increased product cost as transportation would cost more

for shippers. If trucking does not absorb the capacity, it would create a market where manufacturers are bidding against

each other for transportation of their products. This could also result in a rise of transportation costs, which would be

ultimately transferred to the consumer.

18

Robinson, Adam. "Freight Outlook." Cerasis, 10 Sept. 2014. Web. 24 July 2015. 19

American Trucking Associations. ATA, 2013. Web. 30 May 2015. 20

Coalition for Efficient and Responsible Trucking. CERT, n.d. Web. 30 May 2015. 21

Schulz, John D. LTL carriers welcome pending 33-foot trailers amid toughening safety standards. 19 June 2015. 22

Tita, Bob. "Why Railroads Can't Keep Enough Boxcars in Service." The Wall Street Journal. The Wall Street Journal, 21 June 2015. Web. 23 June

2015.

23 American Trucking Associations. ATA, 2013. Web. 30 May 2015.

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Conclusion

Manufacturers and shippers should consider planning ahead as part of their middle term strategy. While there may be

some concern and eagerness to act now, it is important to keep in mind that freight car manufacturers have about a

decade to clear backlogged orders and keep total freight capacity needs in accordance with the market. With recent

news of the 2Q15 non-tank freight car orders being above expectations and orders for tank cars decelerating, it is

possible that the manufacturing of boxcars could accelerate.24 In some instances, the declining trend in boxcars is

correlated to the basic economic concept of “supply matching demand”, as boxcars are being used less frequently to

haul freight. Combining these economic effects with technological innovations that increase boxcar freight capacity

means fewer boxcars are needed to service the same levels of capacity needs. Despite the non-urgent current state of

the boxcar situation, manufacturers and shippers should start strategically planning the steps they will take in the event

that this boxcar issue worsens. It is also important to note that infrastructure plays a role, where places with height,

weight, or size restrictions may face capacity shortage implications at an expedited rate. Newer and larger boxcars are

not as compatible with older infrastructure that was designed to accommodate smaller freight cars. The compatibility

issues reduce overall supply chain flexibility, and will force shippers to find alternative transportation methods.

Collaboration between industry leaders, transportation experts, and regulatory bodies will help ensure the delicate

balance of transportation flow throughout the United States continues uninterrupted despite the constantly changing

nature of surface transportation.

24

Stifel Transportation & Logistics Research Group. "2Q15 Railcar Orders Above Our Expectations On Demand For Non-Tank Freight Cars."

Transportation Equipment. Stifel, 21 July 2015. Web. 24 July 2015.

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Works Cited

"All Door Boxcars." McCloud Rails | Equipment Roster. TrainWeb, n.d. Web. 24 July 2015. “Age Information and Valuation.” Association of American Railroads. AAR, n.d. Web. 23 July

2015. American Trucking Associations. ATA, 2013. Web. 30 May 2015. Association of American Railroads. AAR, n.d. Web. 23 July 2015. "Class 1 Railroad Statistics." AAR - Policy and Economics Department, 26 May 2015. Web. 10

June 2015. "Class I Railroads." Freight Rail Works. AAR, n.d. Web. 21 July 2015. Coalition for Efficient and Responsible Trucking. CERT, n.d. Web. 30 May 2015. Corsi, Thomas M., Ken Casavant, and Tim A. Graciano. A Preliminary Investigation of Private

Railcars in North America 51.1 (2012): 53-70. Transportation Research Forum. Transportation Research Forum, 2012. Web. 25 June 2015.

"Data & Statistics" IANA | The Intermodal Association of North America. IANA, n.d. Web. 8

July 2015. "Freight Rail Today." U.S. Department of Transportation. Federal Railroad Administration, n.d.

Web. 15 July 2015. "Intermodal Fact Sheet." IANA | The Intermodal Association of North America. IANA, n.d. Web.

8 July 2015. "Intermodal Update." Transportation Intelligence. FTR, June 2015. Web. 27 July 2015.

"Rail Car and Locomotive Statistics: Fleet Stats 2015." Progressive Railroading. Progressive

Railroading, July 2015. Web. 15 July 2015. Railinc. "Data Specification Manual." Umler. N.p., 14 May 2015. Web. 25 June 2015. “Railroad Boxcars." American-Rails.com. N.p., 2007. Web. 23 July 2015.

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Restricted Equipment, Subpart C— Federal Railroad Administration § 215.303 (2012). Robinson, Adam. "Freight Outlook." Cerasis, 10 Sept. 2014. Web. 24 July 2015. Schulz, John D. LTL carriers welcome pending 33-foot trailers amid toughening safety

standards. 19 June 2015. Stifel Transportation & Logistics Research Group. "2Q15 Railcar Orders Above Our

Expectations On Demand For Non-Tank Freight Cars." Transportation Equipment. Stifel, 21 July 2015. Web. 24 July 2015.

Tita, Bob. "Why Railroads Can't Keep Enough Boxcars in Service." The Wall Street Journal.

The Wall Street Journal, 21 June 2015. Web. 23 June 2015.