New build locomotive market

There are numerous circumstances that contributed to this situation. Let’s begin with Precision Scheduled Railroading (PSR). Since dieselization and multiple unit (MU) control, railroads have understood longer, heavier trains reduce fuel and crew costs, which are railroads’ two primary expenses. When a lower Operating Ratio (OR) is management’s objective, you cannot beat this combination. Along the journey, the advocates of PSR realized the next lever to pull for longer trains was Distributed Power (DP), which allows the continued progression of closely matching the tractive effort of a locomotive consist to train weight, yielding lower costs. While there has been much negative publicity about the longer trains of the PSR era, DP use has many tangible benefits.

Railroads buy new locomotives for two reasons: renewal of their fleet and new business. Presently, the demand for new units generated by new business is zero. The pandemic certainly put the chill on new locomotive orders, and we have not recovered since.
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On top of this, Class I carriers have a limited enthusiasm for the new Tier 4 emissions-compliant locomotives. Their higher purchase price and increased maintenance expense are a deterrent to acquisitions. Contributing to the current situation, in 2014, the highest year of new domestic deliveries since 2008, there was a surge in the purchase of road units before Tier 4 took effect (Jan. 1, 2015). About that time, significant volumes of Bakken crude oil were also moving by rail.

Returning to the fact that major railroads buy new locomotives for purposes of fleet renewal, the railroads have been more actively addressing the health needs of their locomotive assets than it may appear. For the first time in 65-plus years of diesel freight operations, the “capital” rebuilding of road units has surpassed new locomotive purchases for fleet renewal.
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All the Class I railroads have participated in this capital rebuild activity, although neither BNSF nor Kansas City Southern have been active recently. While this rebuild process was originally envisioned to convert DC road units to AC traction motors (sometimes referred to as DC2AC conversions), most units processed thus far are what is often called “AC upgrades.” In other words, first-generation AC units (such as the SD70MAC or AC4400) were upgraded, retaining their AC traction motors.

Let’s go into more detail about how this works. Both locomotive builders adopted a strategy where the operator’s cab and inverter (electrical) compartment are replaced with new modules. In this way, existing assembly lines are used to produce configurations for both modules that are identical to those for new locomotives. This results in a new microprocessor control system, new relays, power contactors, wiring, IGBT inverters, electronic air brake systems and associated hardware such as air conditioning and cab seats. The diesel engine, traction motors, traction alternator, air compressor, and sometimes the truck assemblies are also rebuilt, after which the locomotive is painted and sometimes renumbered. From the viewpoint of an operator, the locomotive looks and feels like a new unit. The additional useful life of these renewed assets is estimated to be 15-20 years. It is believed these capital rebuild locomotives have demonstrated reliability equal to new Tier 4 locomotives at 50% of the cost.
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Historically, railroads chose to retire locomotives based on issues with the diesel engine or overall locomotive reliability. When new diesel engines offer little fuel savings advantage, railroads are more willing to restore engine longevity with overhauls. When overall locomotive reliability declines, it is often driven by declining traction motor reliability. Rather than buy new traction motors, railroads have chosen to buy new locomotives, because replacement traction motors are quite expensive.