(The following article by Sascha De Gersdorff was distributed by Medill News Service on November 30.)
CHICAGO — As the economy accelerates and rail freight expands, more North American railroads are forgoing the cost of ownership and maintenance by opting to lease, rather than own, freight cars. This benefits the railcar leasing companies, most of which are based in Chicago.
“Business has been picking up,” said Robert Lyons, vice president of leasing company GATX Corp.
Leasing “is a growing trend,” said Tom White, a spokesman for the Association of American Railroads. “In the most recent years, the majority of new cars purchased have been by leasing companies.”
The better railroad cars can run from $100,000 to $200,000, said Howard Tonn, executive director of the Railway Supply Institute Inc. in Chicago. A locomotive costs about $2 million and can pull more than 100 cars. So a railroad could spend more than $22 million on just one freight train.
“It’s a tremendous capital expense to tie up money in equipment,” Tonn said. “Companies are finding ways to cut expenses, and they do that by leasing freight cars.”
GATX, TTX Co. and GE Rail Services Co., all based in Chicago, and St. Charles, Mo.-based ACF Industries Inc. are meeting the demand.
The average railcar lease runs about $500 per month, with a term of from three to five years.
Demand had been soft.
“The freight industry has been at a very low point over the last three years,” said Joe Silverio, a senior manager of American Rail Industries Inc., an affiliate of ACF. It was hurt by an unfavorable economy; the Sept. 11, 2001, terrorist attacks; and a spate of mergers that reduced competition.
“We’ve come through a pretty turbulent time,” said Lyons of GATX. “The last couple of years have been very challenging in the business.”
But rail-freight volume is rising sharply. According to the AAR, the nine busiest weeks in history occurred between Sept. 13 and Nov. 15. Containers mounted on flatbed cars are up 6.7 percent this year.
“There has been a large increase in intermodal traffic as more and more things are moving in containers,” Tonn said.
TTX, which is owned by North America’s Class 1 railroads, is the largest intermodal leasing company in the world. The company, which serves North America’s seven Class 1 and 550 smaller railroads, owns and leases more than 129,000 cars, 30 percent intermodal.
“Intermodal is the engine driving leasing growth,” said Pat Foran, editor of Progressive Railroading magazine.