Why Rough Riders Should Be Taxed

This editorial addresses the significant impact of AAR truck standards S-286 and M-976 on the rail industry and why tariffs should be applied to railcars loaded to 286K GRL (Gross Rail Load) that don’t have these track-friendly trucks.

In Railway Age Financial Editor David Nahass’s October 2020 article addressing the latest legislation floating around offering tax incentives for railcar modernization (Reason Not The Need: 2021 Financial Desk Book), he mentioned that “about two-thirds of the national fleet has been built since 1993, which was around the time cars began to be stenciled 286,000 pounds GRL. (The modern 286K truck design came around beginning in 2004).” He essentially was implying that the vast majority of the fleet was already “modernized” with increased capacity and/or equipped with track-friendly trucks. While both viewpoints are somewhat factual, there is far more to the story that has resulted in a significant impact on operating performance and profitability to all railroads since 2004.

Commencing in 1994, AAR standard S-259 was implemented, allowing 263K GRL railcars be loaded to 286K. As this fleet grew, the industry and the AAR began to realize the impact of heavier loads on wheel/rail infrastructure. While capacity was increasing 8%, there was no free lunch. The industry started to experience elevated wheel/rail wear, along with associated higher fuel consumption and accelerated component fatigue.  The AAR, and Dr. John Samuels of Norfolk Southern (Chairman of the AAR Railway Technology Working Committee at the time) identified in early 2001 that elevated loadings were increasing the “stress state” of the industry, which in turn led to the creation of AAR Standard S-286 and Specification M-976. A massive effort to develop better railcars and trucks ensued.

Put simply, S-286 mandated the structural integrity of railcars loaded to 286K, including increased fatigue resistance of the components and carbody. M-976 addressed the elevated stresses heavier cars were imparting to rail by implementing stiffer trucks with finely tuned suspension systems that allowed “steering” through corners. Together, both of these standards set the stage for dramatically reduced rail and wheel wear, along with greater railcar structural integrity. Lower fuel consumption has been achieved through lower rolling resistance through curves, while maintaining stability on tangent track.

Fast-forward to 2021. During the past 17 years, approximately 740,000 railcars have been built to S-286/M-976, or less than half of the North American fleet (and currently about 120,000 are in storage). Comparing rail and wheel replacement costs today vs. 17 years ago, with similar car loadings, reveals a significant improvement in expense. Add to this less fuel consumption due to lower rolling resistance. In fact, there were several landmark economic studies conducted prior to the implementation of S-286/M-976 that predicted that half of the benefit of S-286/M-976 would flow to the railroads, and half would benefit car owners through lower wheel and carbody maintenance expense. This has become a reality. S-286 / M-976 are significant contributors to the decline of railroad operating ratios and improved profitability, while full-service leasing companies enjoy lower maintenance costs through lower wheel and carbody replacement and repair.

It could be strongly argued that the fleet of cars that were stenciled as 286K but are not S-286/M-976-compliant are causing undue harm to rail infrastructure and present elevated levels of risk. (After all, they were the motivation behind S-286 and M-976.) Combined with cars built prior to mid-1994, with lower carrying capacities, the cost impact to the industry is severe. In fact, as older cars are removed from storage to be placed into service as traffic improves, we can expect increased operating expense due to their inferior suspension systems and carbody designs. 

Lease expense is one of several expenses that drive operating ratios, and the motivation to extend asset life is compelling for leasing companies. However, wheel, rail, infrastructure and fuel costs are also key drivers in railroad operating expense. Perhaps it’s time for railroads to implement a tariff on 286K cars that don’t have track-friendly, M-976-compliant trucks to account for their elevated wear and tear on track infrastructure?

Robert H. Cantwell spent the first 26 years of his rail industry career growing a successful company, Hadady Corp., a designer and manufacturer of truck (bogie) components and systems for locomotives and transit railcars. Following the sale of his business, Bob helped transform Amsted Rail, holding various executive positions for 16 years. He has been active in the Rail Transportation Division of the ASME (American Society of Mechanical Engineers) and is past Chairman of the Division. He has also actively advocated with members of Congress in support of the rail and rail supply industry. Bob holds degrees in Mechanical Engineering from the Georgia Institute of Technology and an MBA from the University of Chicago. He possesses a unique perspective on the rail supply industry, combining his engineering experience along with robust economic and financial acumen. As an active investor in the rail industry, he has a vested interest in the success of the industry.