In June of 2021, we featured a blog about whether to scrap a railcar or sell it for resale. As a refresher, here’s the link. We’ve been through a lot since June of 2021 and the availability of railcars looks a lot different. Railcar supply is at an all time low and, interestingly enough, we see a lot of customers still facing this same dilemma. Given the drastic decrease in steel prices and the corresponding challenge of the rail transportation industry to truly not have the railcar supply shippers need, a backlog in new railcar manufacturing and delivery, and persistent service challenges from Class 1 railroads, we find it imperative that we update our 2021 blog.

Where Did All the Railcars Go?

Early on in 2021, there was an interesting phenomenon occurring in the railcar market. Back then, there were a bunch of railcars in storage that were expected to never again find a home in the productive transportation world. Just look at the headlines…

The industry went into a clean up mode taking losses on newer covered hoppers, coal railcars, tank cars, etc. The focus was simple: get older assets off its books. In 2021 and in 2022 a significant amount of railcars were shipped to scrappers to be torched or even cut on site. Some of this clean up was certainly necessary. Getting old or under utilized railcars out of storage required the industry to do some careful and diligent assessments. Which railcars needed to be replaced and where were new railcars really need. Keep in mind that at the time, of the  approximate 1.6 million railcars in the North American railcar fleet, about ~70% were privately owned (shippers, lessors, banks, etc.) In that 1.6M railcars, there were many railcars that needed  replacement candidates with fresh build dates on them.

A Perfect Storm

The scrap market surge early on in 2021 created an opportunity for builders and lessors and other private railcar owners to go down this path. At the same time, it certainly was a perfect storm and came with some dire consequences. As an example, have you looked for a 4750 cube covered hopper recently or tried to find an idle mill gondola? Chances are that if you have, you’ve come up empty handed and their replacements won’t be built or delivered for you to load tomorrow…

Although we saw a host of railcars  scrapped from the railroad and lessor community we didn’t see the same enthusiasm to scrap railcars by the private shipping community.  The value of a railcar to them wasn’t defined in earnings per month or per year on a group of railcars.  It was defined as number of shipments made and how big of a dent they could  put into the product pile by moving product out or in and reducing or increasing the stockpile or inventory that needed to travel to create value. Those who kept railcars moving in service just may have saved the industry in the near term.

Scrap Railcars Now?

Fast forward to 2023 and scrap pricing has dropped dramatically and the demand for railcars far exceeds the supply of available railcars.

Advice: Don’t Scrap Your Railcars!

Even more importantly, the supply of available railcars ready to load, ship, and unload has been dramatically impacted. A tremendous capacity gap exists so some new (and familiar) advice exists.  Until the need to move product is satisfied by the railroads ability to deliver railcars to their demand point, consider keeping your older fleet to use for surplus shipments or to simply hold steady under decreasing cycle times. There is also a subset of railcars that are still productive in niche markets but need a little marketing TLC to get placed.

Our 2021 advice is still true for one car type only: out of compliance tank cars that cost more to convert than to replace may still be a valid scrap candidate. But truly take a look at all  of your options before you scrap any other type of railcar. There are homes for most every railcar. Yes, even for older, out of date, end of life, or even damaged railcars. If you need some solid advice, call us. We are focused on identifying homes for all railcars and are certain there is a home for your railcars. And if your railcars do have to be scrapped, we’ll help you manage that process too.

Wherever the future takes us, we’re here to provide value to your business and facilitate your near-term and long-term success.