Railroad-Owned Cars versus Leasers?

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Railroad-Owned Cars versus Leasers?

Postby NYCS » Mon Feb 24, 2014 10:10 pm

I got to thinking about why, in today's day and age when there are a plethora of leasing companies, railroads still purchase and maintain their own fleets of rolling stock when any lineside customer could simply arrange for a car via ACFX, UTLX, CITX, TTX, etc.? Are the railroads actually in direct competition with these leasing companies? Also, how does it figure into the lease or "rent" a railroad must pay when it hosts a railcar owned by another railroad? (i.e. BNSF pays CSX a "rent" every day that CSX car is on the BNSF system, hence the incentive to return the car to home turf).

How does the arrangement outlined above affect the private leasing industry? I understand that a customer will pay UTLX to "rent" the car, but how do the railroads collect for hosting said car on their respective networks? Does BNSF, for example, charge UTLX a daily rate (or UTLX pays BNSF?) for each day the UTLX car is on BNSF rails? If so, it seems BNSF has every incentive to keep that car on its territory - a completely OPPOSITE scenario had that car been owned by CSX.

I know there must be a difference, and I may have my theory not completely understood as per prototype practices. That being said, can anyone tell why a customer would:

1. Choose a railroad-owned car versus going with a private leaser?
2. What is the term for the "rent" a railroad pays to another RR when that railroad's car is on its own rails?
3. What, if anything, did the "per diem" craze of the 1980s have to do with any of this?
4. How do railroads collect payment when transporting/hosting leaser cars?
5. Are railroads and leasing companies in direct competition when it comes to furnishing rolling stock to customers?

Any information you can offer into this aspect of railroad operations would be GREATLY appreciated. Thanks everyone!
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Re: Railroad-Owned Cars versus Leasers?

Postby ExCon90 » Tue Feb 25, 2014 5:03 pm

In general, any ---X car is leased to a shipper by the lessor, and as far as the railroad is concerned the car belongs to the shipper. The freight rate charged by the railroad is restricted to apply only in cars supplied by the shipper and allows for the fact that the shipper rather than the railroad is furnishing the car, so that in a sense the shipper recovers what he pays the lessor by paying a lower rate to the railroad. As to your questions:

1. A shipper may prefer to lease a car to be sure it meets his exact needs, and not be dependent on a railroad to have one available whenever he needs one. With tank cars in particular, I'm sure a shipper needs to be absolutely certain that nothing has been in that car except what he put in it. Boxcars are used primarily for goods in packages of some kind, but a bulk commodity comes in direct contact with the interior of the car.

2. In the industry, the usual term is "car hire." It used to be called "per diem" because it was assessed per day according to which railroad had the car in its possession at midnight; this led to a frantic traffic jam at interchange points in the late hours of the evening as every railroad strove to shove all cars routed to a connecting railroad over to that railroad before midnight in order to save a day's car hire. If they missed the midnight deadline, they had all the next day to deliver the cars. As data processing became more efficient and widespread it became practical to assess car hire by the hour instead of the day, eliminating the midnight pressure -- any hour saved in interchanging a car was of some benefit to the delivering railroad. However, the term "per diem" continued to be used, erroneously, to denote car hire.

3. When the Interstate Commerce Commission (ICC) controlled such things, they came up with the concept of what they called "incentive per diem": the more complex and sophisticated equipment and appurtenances a car had, the higher the per diem. Understandably, a lot of people's eyes lit up at that, and boxcars with all imaginable bells and whistles began to appear. Since per diem only applied on cars with railroad reporting marks (i.e., those not ending in X), a short-line railroad, preferably one with a fairly large outbound shipper, would be induced to allow its reporting marks to be used on cars owned by various doctors and dentists who were going to get rich (some did) on the per diem paid (of necessity) by the Class I's which received the loaded cars in interchange. A decline in business (I forget what year it began) resulted in large numbers of these incentive-per-diem cars being returned to their (ostensible) owners. I believe there were cases in which the "owning" road literally did not have enough track to accommodate all the cars being returned to it empty. That's when the bubble burst -- the empties were no longer earning any per diem.

4. See answer to question 1.
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Re: Railroad-Owned Cars versus Leasers?

Postby ExCon90 » Tue Feb 25, 2014 5:08 pm

I hit submit before I was ready -- on question 5, I would say there is no direct competition of that kind. A railroad supplies cars suitable for anyone at any time, while a shipper may be concerned with having cars made to his specifications. By the same token, a railroad would be reluctant to acquire specialized cars in the hope that the shipper will route the traffic over its line.
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Re: Railroad-Owned Cars versus Leasers?

Postby NYCS » Wed Mar 05, 2014 6:25 pm

Hey, thanks for all the info :-) Very much appreciated.
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Re: Railroad-Owned Cars versus Leasers?

Postby BAR » Thu Oct 16, 2014 11:44 am

In addition to railroad owned cars and lessor owned cars there are also a considerable number of shipper owned cars. From the July issue of Progressive Railroading some examples of cars owned and used by shippers are: Exxon Mobil 12,980; Cargill 11,967; Dow Chemical 8,668; Georgia Power 4,687; Detroit Edison 3,427; the Department of Defense 2,048, and at the lower ownership end Tropicana Transportation with 425 cars and Midwest Ethanol Transport with 250 . Prior it's breakup the Union Tank Car company was owned by the Standard Oil trust. If you can find a copy an interesting read is "John D. Rockefeller's Secret Weapon" by Albert Z. Carr (1962) wherein the author attributes Rockefeller's success to his control of the tank car fleet and not to his control of crude or refining.

The Progressive Railroading article indicates that at year end 2013 railroad owned cars totaled 420,115 and privately owned cars (lessors and shippers)totaled 1,006,180.
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Re: Railroad-Owned Cars versus Leasers?

Postby umtrr-author » Fri Oct 17, 2014 3:26 pm

Thanks for the information from Progressive Railroading.

Seeing trains go by just about everyday on the Water Level Route and West Shore here in the Rochester area, I can certainly believe that the ratio of private owner cars to railroad-owned cars is now more than 2 to 1.

I'm far too lazy to check but I wonder if this ratio has changed over time-- it seems to me that at some point railroad-owned cars outnumbered privately owned (lessor) cars.
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Re: Railroad-Owned Cars versus Leasers?

Postby BAR » Sat Oct 18, 2014 11:11 am

Railroad owned cars outnumbered privately owned cars until relatively recent times. I researched the private car segment of the railroad industry back in the mid 1960's and here are a few benchmark numbers from my research:

1946 - railroad owned freight cars 1,772,716 and privately owned cars 257,723; average car capacity railroad owned 51.3 tons, privately owned 42.4 tons

1964 - railroad owned freight cars 1,445,548 and privately owned cars 334,695; average car capacity railroad owned 58.2 tons, privately owned 55.4 tons

Progressive Railroading doesn't break out average capacity by ownership but does show that in 2013 the average car capacity of the total freight car fleet had increased to 105.8 tons which is a contributing factor in the decrease in the size of the total freight car fleet from 2,030,439 cars in 1946 to 1,426,295 cars in 2013. The total capacity of the fleet was 103.8 million tons in 1946 and 150.9 million tons in 2013.
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Re: Railroad-Owned Cars versus Leasers?

Postby BR&P » Wed Nov 05, 2014 8:53 pm

Re an earlier post, the incentive per diem bubble burst roughly 1980. Any railroad with a weedgrown siding which was unused was able to land cars for storage. The going rate was roughly a dollar a day per car, with freight charges to apply on the move in and the move out. Naturally that varied a bit but it's typical. A railroad able to store 200 cars could make about $6000 a month for doing nothing, and in some cases it was a couple years before all the stored cars went back out.

A similar situation happened about 8 or 10 years ago when the economy took a nosedive, private car owners were begging and pleading for any storage they could get.
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