Tuesday, May 31, 2011

Railinc: Fleet remains young

Written by  David Humphrey, Ph.D., Senior Analyst, Railinc

Despite a higher average age, the revenue-earning fleet comprises mostly “young” freight car sub-fleets, based on a 50-year life span.

Railinc’s analysis of the North American revenue-earning fleet reveals that while the total fleet size remains below previous years, reductions were proportionate across car types, and the fleet remains relatively young overall.

The revenue-earning fleet is a subset of the North American rail fleet that is largely composed of freight cars that can be used in interchange service and against which an interline waybill can be placed. It is made up of six sub-fleets: hoppers, covered hoppers, gondolas, flat cars, tank cars, and boxcars.

Of the 11 equipment types reported in the total fleet, the three largest segments of equipment were covered hoppers at 26%, tank cars at 16%, and gondolas at 14%.

Detailed analysis reveals the following trends:

1. The economic recovery has yet to return the revenue-earning fleet to pre-recession levels. As the number of freight cars in every segment of the revenue-earning fleet declined during the year, the total fleet size is down 3% from year-end 2009 to year-end 2010.

2. The average age of the revenue-earning fleet increased as fewer new cars were added throughout the year. This is consistent with past records showing that during economic dips, such as in 2002 and again beginning in 2009, there were fewer new additions to the fleet.

3. Despite a higher average age, the revenue-earning fleet comprises mostly “young” freight car sub-fleets (young for equipment generally intended to have a 50-year life span). The average age of a freight car in the revenue-earning fleet is skewed by the boxcar sub-fleet, which is much older than the others in the revenue-earning fleet.

Closer look: Freight car sub-fleets

The economic recovery has yet to return the revenue-earning fleet to pre-recession population levels. At the end of 2010, the revenue-earning freight car fleet totaled 1.54 million units of equipment, down 3% from the previous year. The number of freight cars in every segment of the revenue-earning fleet declined during the year—covered hoppers, gondolas, flats, and tanks each by 2%; hoppers by 5%; and box cars (including refrigerated cars) by 8%.

In addition to the economic reason, there is a second factor behind the decline in fleet size. When Railinc replaced the legacy Umler™ equipment registry with its new state-of-the-art system in 2009, the Umler data was scrubbed and out-of-date information was removed. For example, a scrapped car might have appeared in legacy Umler as being in service because the owner had not updated its status. The new Umler system corrected this bad data which contributed to the decline in the number of cars in each sub-fleet in 2009.

Fleet age: Two perspectives

By one measurement, the revenue-earning fleet got slightly older in 2010 as fewer new cars were added throughout the year. After three consecutive years of decline, the average age of the revenue-earning freight car fleet increased 0.3 years, to 19.2. As older cars were removed from the fleet in 2010, few new cars were added.

Historically, the average age of the fleet and the number of cars added to the fleet mirror the economic environment. When the economy is strong, the fleet tends to be refurbished with the addition of new equipment. During periods of economic decline, such as those that started in 2002 and again around 2009, less new equipment is added to the fleet. About 65,000 40-year cars appear poised to leave the system in the next four years, which is roughly in line with the rate of equipment added during 2009 and 2010. The majority of new cars introduced into the fleet in the last six years were tanks and covered hoppers.

Though the average age of a freight car went up, this change does not necessarily indicate an aging revenue-earning fleet. It is also useful to look at the fleet’s median age—the age at which half the fleet is older and half is younger. This approach shows that the revenue-earning fleet is made up of several younger sub-fleets, each with a median age between 13 and 19 years old. The exception is the box car fleet. Approximately 7% of the boxcar sub-fleet is expected to be retired in the next four years.

In-depth quarterly equipment index

Railinc provides a quarterly analysis of the North American rail fleet’s total makeup through the Umler Equipment Index. Published four times each year during the first week of the business quarter, this index contains rail equipment data from Railinc’s Umler system. Data in the index is comprehensive, representing all equipment units on file across 11 types and includes pre-registered, restricted, and scrap units. The Umler Equipment Index is published electronically at www.railinc.com.

Railinc is a wholly-owned subsidiary of the AAR. For more information, visit www.railinc.com.