Photo courtesy of Association of American Railroads (AAR).

Photo courtesy of Association of American Railroads (AAR).

The Great Recession affected Class I* railroads just like it did all other companies. Total carloads dropped about 20 percent, layoffs occurred, and the railroads reduced their fleets by about 10 percent from a high of 1.57 million freight cars. Now numbering only 1.43 million vehicles, railroad fleets still have yet to recover.

The box car fleet, which is responsible for moving auto equipment and vehicles, is the smallest and oldest sub fleet, and it keeps getting smaller by the year.

The box car fleet suffered the most during the recession of 2008-2009 due to it being the oldest fleet. In 2006, the plain box fleet was 20,136 and the equipment box car fleet was 112,009 for a total of 132,145 box cars. The current fleet at the beginning of 2014 has reached slightly less than 99,000 — a reduction of 25 percent — reducing the availability of box cars to both deliver parts and finished vehicles in North America.

While this is the largest contribution of congestion for the auto industry, this is not true for the other industries because not all rail cars are built the same.

Understanding Gross Rail Load

Each rail car is built to be a specific weight fully loaded, referred to as the gross rail load (GRL). Currently, the fleet weights range from 222,000 pounds to 286,000 pounds. After a study done on the effects of heavy axle loads in the early 1990s, GRL 286 cars became the standard.

Currently, a GRL 286 grain hopper can carry 11 metric tons more than a GRL 268, and the same tonnage of a 100-unit GRL 268 could be carried in a 90-unit GRL 286 train. This means the fleet reduction doesn’t necessarily come at reduced fleet tonnage capacity, as upgrading from GRL 220 to GRL 286 can bring almost a 40-percent tonnage improvement.

30,059 of the 420,115 non-private rail cars are more than 40 years old. The average age of the non-private box car fleet is 28.9 years for non-private cars, with 42,027 between 31-40 years old. Data via AAR/UMLER.

30,059 of the 420,115 non-private rail cars are more than 40 years old. The average age of the non-private box car fleet is 28.9 years for non-private cars, with 42,027 between 31-40 years old. Data via AAR/UMLER.

Today, the box car fleet is the oldest at more than 20 years old, on average, and this fleet is mainly GRL 263 or GRL 220, greatly reducing the total maximum carrying capacity that could be carried by upgrading the fleet.

While it’s not clear why the box car fleet is the oldest sub fleet, it has been dropping for more than two decades and owners may not see the need to buy new rail cars due to decreased demand. The GRL might be a good thing, though, as not all rail lines can handle the higher GRL cars.

Challenging Rail Line Weight Limits

Just as rail cars are not all equal, rail lines are not built all the same either. This is actually a huge problem when you start to look at North America, and not just the United States.
The automotive industry has been building car parts and cars in Mexico for years and has been increasing the amount of car and equipment factories in our southern neighbor for a variety of reasons.

Mexico is becoming the new China. Over the past decade, industries in China have been facing large increases in wages, fuel costs, and cyber attacks. This has increased the competitiveness of Mexico as an industrial hub. Mexico has become a huge manufacturing hub for many industries as they face increasing costs from manufacturing in China, of which the largest element of the last decade has been fuel costs.

Lately, this has increasingly become a bigger issue with port strikes all across California reducing the total amount of traffic that ports can handle, and increasing the cost of transportation across the U.S. as traffic backs up.

According to the Mexico rail weight map, nearly all rail traffic has to go through Texas, due to GRL 286 being the standard rail car in the U.S. This is causing huge rail congestion in Mexico, with trains traveling on average at low as 7 mph across the country.

The problem is that trade between the U.S. and Mexico is booming (Mexico is our largest trading partner at nearly $500 billion and growing fast); however, nearly 50 percent of Mexico’s rail lines are below GRL 286 — meaning the new U.S. standard rail car cannot travel to Mexico except through Texas, causing congestion on Texas rail lines.

Improvements are being made, including the new Union Pacific Santa Teresa intermodal facility and Mexico rail companies that are investing significant amounts of money in upgrading rail lines; however, even with these upgrades, nearly 85 percent of the trade done with Mexico is done by trucks — not by rail — with Texas highways suffering the most from this, as Texas handles more than 80 percent of the trade with Mexico.

This is a huge investment opportunity for the U.S. and Mexico to reduce pollution and costs of trade between the neighboring countries, yet this has not been a priority of any of the presidents or congresses in the past 20 years. A single, 100-unit train can reduce the amount to truck on the road between Texas and Mexico by up to 200 trucks. This would reduce the cross-border traffic, delays, and costs significantly, and reduce the costs to our highways significantly as trucks cause the most wear and tear to our highway system.

Even though there is actually a connection through Western Mexico to California, this route is not used as much because it cannot handle the newer rail cars. If the western route were upgraded it could massively cut transit times to the West Coast and decrease congestion flowing through Texas.

This problem isn’t just limited to Mexico, because both the U.S. and Canada suffer from the same problem of not all rail lines being GRL 286.

Most Class I rail main lines have been upgraded to GRL 316 or GRL 286, but the Class I rail lines only control about 80 percent of the total rail lines in the U.S. The feeder rail lines that are owned by Class II and Class III rail lines are about 50-percent upgraded to GRL 286 lines or GRL 316. If these lines continue to stay at below GRL 286, traffic coming from these lines will always need to use cars rated below GRL 286; however, these cars are being retired in great numbers and replaced with GRL 286 cars, causing the demand and price for these cars to go up due to supply dropping.

It’s possible to see this happening currently with grain hoppers in the Midwest where the lines with below GRL 286 are not getting the cars they need, and lines able to support GRL 286 are not facing severe delays. Government regulations are forcing this even more as Canada enacted tonnage requirements for movement of grain. Since a GRL 286 can carry 11 metric tons more grain then a GRL 263 car, when the government enacts tonnage requirements, such as Canada has done, then the train companies are going to focus moving the largest amount of GRL 286 cars they can.

Record-Breaking Bumper Crops

In 2013, a record bumper crop was grown in the U.S. and Canada. In total, these bumper crops were 20 million metric tons larger in Canada than in 2012 and 80 million metric tons larger in the U.S. than the year before.

To further complicate matters, in 2014 the total crop production in Canada dropped back down by 17 million metric tons, but the U.S. increased yet again by an estimated 15 million metric tons for yet another record harvest with a difference of nearly 100 million metric tons of grain from 2012’s harvest of 354 million metric tons.

Due to these problems, with the reduction in fleet sizes and new cars not able to go on all tracks, there just simply aren’t enough cars available when they need to be able to haul 440 million metric tons of grain per year for two years. This is a 25-percent increase in production from 2012 levels and has happened two years in a row, but the cheapest and easiest way to move grain is by rail.

A GRL 286 car can carry roughly 80 metric tons of grain, and a GRL 268 car can carry roughly 70 metric tons. To move this new 100 million metric tons of grain would take 1.25 million GRL 286 carloads or 1.43 million GRL 263 carloads, which would require roughly a weekly increase of 25,000 to 27,500 carloads. This is simply an impossible amount to move on such short notice.

Currently, railroads are moving approximately 20,000 cars per week of grain. To move the new bumper crops they would need to more than double this weekly amount, which is why there are such huge problems moving grain right now because there is simply nowhere for it to go.

2014 was a record year for rail carloads, as there had been roughly a 40,000 carload increase, per week, over 2013, Average distance was also expected to increase from 990.5 miles in 2013 to over 1,000 miles in 2014. Chart via AAR.

2014 was a record year for rail carloads, as there had been roughly a 40,000 carload increase, per week, over 2013, Average distance was also expected to increase from 990.5 miles in 2013 to over 1,000 miles in 2014. Chart via AAR.

While this demand for grain hoppers has increased dramatically, so has demand for everything else with the economy recovering.

Also, 2014 was a record year for carloads, as there had been roughly a 40,000 carload increase, per week, over 2013. Also increasing is the average distance, which, in 2013, had reached an average of 990.5 miles and was expected to exceed 1,000 miles in 2014. This is increasing the amount of traffic on the lines, as the carloads and distance continue to increase, while decreasing the average speed of the trains from nearly 28 mph in January 2013 to 23 mph currently.

The average tonnage is also falling, which is being caused by the huge demand making companies use even the old GRL 220 cars they had in storage. All of these things are good news for the rail companies, as the longer the haul is the more money the companies make and the more economical it becomes compared to trucking, but the speed and delays are causing issues to customers.

Record Revenues & Investments

U.S. railroad revenue for 2013 reached a new record at $70.5 billion, up from 2011’s total of $64 billion. The record revenues continued to help set record capital investment records at an estimated $17 billion for 2014, and 2015 expenditures are expected to be above $20 billion.

While other industries are typically spending less than 3 percent of revenue on capital investments, railroads are spending more than 18 percent of revenue upgrading rail lines and buying new equipment; however, this sometimes is part of the congestion issues in very small sections of the country. As more and more investment goes into rail lines, an increasing number of miles of lines are taken out of service temporarily for maintenance and upgrades.

This surge, however, is feeding massive industrial growth as all locomotives, rail cars, rail ties, and rail lines are built here in the U.S. The average yearly number of rail cars built has been roughly 45,000 to 50,000 per year, as 2014 deliveries are expected to be above 80,000 and 2015 is looking to go above 100,000 with roughly 200,000 cars on back order currently.

Locomotives are also being bought in record numbers, with UP and BNSF ordering 700 locomotives in 2014 and the total expected to be above 1,000.

An average of 800 locomotives total has been purchased per year for the last decade, yet UP and BNSF alone nearly reached that average. This surge of manufacturing doesn’t just affect the U.S., but Mexico and Canada as well. Mexico rail companies are spending the largest amount of revenue on capital expenditures, but they are also the furthest behind the U.S. with a long way to catch up. In 2013, the Mexican government announced a $100-billion spending package aimed at building new rail lines and improving ports, with a significant amount of the equipment coming from the U.S.

This will not only benefit all the industries in Mexico but also drastically reduce emissions across North America.

In 2015, Tier IV emissions standards for railroads become law, which new locomotives will need to meet. These laws require the amount of all NOx, particulate matter, and other non CO2 emissions from locomotives to be roughly 90 percent less than what it was in 2000. With train shipments already costing roughly 20 percent the cost of trucking and producing 10 percent of the emissions of trucking, this will only increase the benefits of moving freight by train instead of by trucks.

The Bottom Line

As we have seen, the problems of congestion are not limited to one single area, but rather encompass the entire span of North America, as traffic and demand continue to grow significantly.

Fleet size, rail weight limits, massive unexpected bumper crops, and growing demand across all industries are all affecting the railroads simultaneously.

While many people blame the rail companies for prioritizing oil shipments, there will be only an estimated 800,000 carloads of oil in 2014, a small percent of the 23 million total carloads projected. What was unexpected was the huge demand simultaneously across all industries as the U.S. has been recovering from the recession.

What is needed is for the North American governments to come together and create a continental rail plan to solve this congestion. All lines across North America need to be upgraded to GRL 286 or GRL 316 which by itself would reduce the amount of cars needed on the tracks by as much as 40 percent if upgrading from GRL 220. Mexico has taken the lead on this issue, with the U.S. government stuck in gridlock while we continue to subsidize highways. The latest White House report estimates that our highway system needs $3.6 trillion by 2020 to reach acceptable status on top of the $50 billion ($18 billion from federal, $32 billion from states in 2014) per year transferred to the highway fund outside of the fuel tax and vehicle fee revenue.

Yet, we could solve much of the congestion and reduce pollution across North America by simply providing assistance to our railroads. Sadly this probably won’t happen, but as our highway infrastructure continues to degrade, congestion and toll roads will continue to increase, driving more demand to railroads in the next decade.

Chris Blumberg is a software engineer working with the Advance Digital Media Group in Jersey City, N.J., he can be reached via e-mail at [email protected]

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