SIC 3743
RAILROAD EQUIPMENT



This classification covers establishments primarily engaged in building and rebuilding locomotives (including frames and parts not elsewhere classified) of any type or gauge; and railroad, street, and rapid transit cars and car equipment for operations on rails for freight and passenger service. Establishments primarily engaged in manufacturing mining cars are classified in SIC 3532: Mining Machinery and Equipment, Except Oil and Gas Field Machinery and Equipment. Repair shops owned and operated by railroads or local transit companies that repair locomotives or cars for their own use are classified in various transportation industries. Establishments primarily engaged in repairing railroad cars on a contract or fee basis are classified in SIC 4789: Transportation Services, Not Elsewhere Classified; and those repairing locomotive engines on a contract or fee basis are classified in SIC 7699: Repair Shops and Related Services, Not Elsewhere Classified.

NAICS Code(s)

333911 (Pump and Pumping Equipment Manufacturing)

336510 (Railroad Rolling Stock)

Industry Snapshot

In 2001 the railroad equipment industry reported total shipments of approximately $8.6 billion to the nation's rail systems. That year, the industry employed 34,719 persons, down from 35,578 in 2000.

The railroad equipment manufacturers that supply the nation's railroads with cars and track are slowly recovering from several extremely difficult decades. Despite new light-rail projects across the nation and an increase in federal money targeted toward mass transit projects, domestic demand was not regarded as a strong enough motive to attract new American manufacturers to the business until the mid-1990s. As part of an effort to shore up the industry, the U.S. Department of Transportation promulgated a "Buy America" program that required rail passenger vehicles purchased with federal funds from foreign companies to have a "domestic content" of 60 percent. Also of great import to the manufacturers of rail equipment was the improved financial performance of several major rail carriers during the early 1990s.

The need for high-speed ground transportation (HSGT) prompted the Department of Transportation Federal Railroad Administration to finance the upgrade of existing railroads to magnetically levitated vehicles. One such contract was awarded to Morrison Knudsen in July 1999 to provide the technical and support services for future deployment of the first magnetic levitation, high-speed-rail service in the United States.

Organization and Structure

The nation's freight railroads carry more than one-third of all intercity ton-miles of freight. Their rails are used for all commuter rail traffic and for Amtrak's longdistance passenger traffic, except for the Northeast corridor, which Amtrak owns. The railroads rely upon suppliers to provide equipment, supplies, many services, and the research and development required to help them improve productivity.

Railroad equipment manufacturers sell products not only to the railroads, but also to leasing companies, manufacturing concerns, farmers, and other entities that use the rails for the transportation of their commodities.

Unlike flatcars and boxcars, which are purchased or leased by the railroads, rail tank cars are owned primarily by chemical manufacturers and other manufacturers, such as food and fabricated metal products/machinery companies, that use the rails to transport goods on a regular basis. Recent proposals by the U.S. Department of Transportation (DOT) requiring more expensive, better-protected cars for the transportation of hazardous waste have caused concern among the nation's railroad carriers, who worry that forcing shippers to pay for these more expensive cars will force them to use trucks as the first choice of transport. Rail market share has already suffered attrition at the hands of the trucking industry and other transportation sectors. Since 1945, the railroads' share of the freight business has fallen almost in half to 37 percent, whereas the truckers' share has climbed from 5 percent to more than 25 percent.

The rail industry is the transport method of choice for commodities that are not "time-sensitive," such as nonperishable products, and for goods that need to be transported over distances greater than 500 miles. For short-haul food shipments, trucks have captured most of the traffic in the freight market. Recently, there has been an increase in intermodal transportation where manufacturers use the railways to transport their goods for a leg of the journey via trailers and containers and then switch to another form of transport such as trucks or ships. Intermodal loading has almost doubled in capacity since 1980.

Industry Representation. The Railway Progress Institute (RPI), originally founded as the Railway Business Association in 1908, is the international trade association of suppliers to the nation's freight railroads and rail passenger systems. Headquartered in Alexandria, Virginia, it has more than 100 members. The association's objectives are threefold: to support and promote a strong nationwide free enterprise system of railroads for the United States; to support and promote rail rapid transit and light rail systems in major metropolitan areas; and to represent and further RPI members' interests.

In 1992 the Rail Supply and Service Coalition (RSSC) was formed to act as a lobbying group to Washington and state governments. The group consists of the National Railroad Construction and Maintenance Association, the Railway Engineering-Maintenance Suppliers Association, the Railway Supply Association, and Railway Systems Suppliers, Inc. The coalition actively represents the interests of its member groups to further their bargaining position on federal and state issues affecting the industry.

Background and Development

The railroads were one of the nation's first big businesses. With their intricate network of lines, these companies gave inland points access to navigable waters and joined these waters to the seaboard, linked farms and villages to the growing industrial cities, opened millions of acres of land to cultivation, provided the means to ship raw materials and finished goods quickly and cheaply, and created billions of dollars in capital for reinvestment in the nation's economy.

At the outset of the 1830s the steam locomotive made its arrival. On Christmas Day of 1830, the Best Friend of Charleston, the first locomotive built for sale in the United States, made its maiden run. The nation's rail system grew rapidly during the next several decades. The lines largely served cities along the Atlantic coast. New England and the mid-Atlantic states had over 50 percent of the total track mileage in the United States. American railroads, however, did not have a uniform track gauge (distance between the rails). This confusion of gauges necessitated expensive and inefficient transshipment of goods where lines of different gauges intersected.

Early Advances. Throughout this time period, the companies constantly improved tracking and rolling equipment. The first railroads were built on tracks of iron straps or bars fastened to wooden rails that were attached to blocks of stone embedded in the earth. The iron straps often broke loose under the weight of the passing trains and damaged the bottom of the cars. In response to this, the iron T-rail was developed and wooden ties replaced the stone underneath the rails. A roadbed surface covered with crushed stone or gravel supported the track. Originally most of the engines were imported from England, but Philadelphia jewelry manufacturer Matthias Baldwin entered the business in the 1830s, and soon thereafter other locomotive builders emerged in the Northeast. Passenger cars that were once nothing more than stagecoaches with railroad wheels quickly evolved into more spacious, comfortable accommodations. Diminutive four-wheeled freight cars were replaced by longer and heavier eight-wheeled cars with greater carrying capacity. Thus the railways spawned auxiliary enterprises in T-rail manufacturing, locomotive works, and car and wheel shops, and gave impetus to the lumber industry that furnished the wooden ties.

During the 1840s and 1850s there was a proliferation of railroad construction. By 1860 many of the shorter railway lines were consolidated through the merger of regional railroad companies. The federal government supported this expansion through land grants and other forms of financial incentives to railroad companies. Land grants became the major form of financial assistance offered to railroad companies to encourage the development of railroads to the West in advance of settlement. Revelations of corruption and bribery caused public opinion to demand that such assistance be ended. By the 1870s, most direct federal aid to the railroads had terminated, and most state and local support was stopped within the next decade. But government aid, in any case, was relatively small in comparison to investment by private capital in the form of stocks and bonds in rail companies. With the continued growth of the railway industry, companies that provided needed equipment to that industry remained prosperous.

By 1880 carriers had standardized their gauge to 4 feet, 8 inches as the railroads established transcontinental operations. To further facilitate the interchange of railroad traffic, railroad companies required standardized coupling devices, car trucks, bills of lading, and classification of products. Larger locomotives and freight cars with increased carrying capacities required that steel rails be implemented in place of the iron rails. The steel rails provided a smoother, safer, and faster track and lasted much longer than wrought iron, saving the railroads significant maintenance costs. The link-and-pin couplers, long utilized to engage railcars together, had over the years cost thousands of men their fingers; these were replaced by more effective automatic safety couplers. Similarly, the hand brake system that required men to run along the top of cars to set the devices was replaced by an air brake system mandated by federal law in 1893.

The railroad industry continued as the primary transportation mode throughout the first half of the twentieth century in America. Throughout the 1920s and 1930s, the railroads generally improved and modernized their operations. New steam locomotive designs were introduced by the major builders, including Baldwin, Lima, and the American Locomotive Company. These designs increased efficiency, raised average speeds for passenger and freight trains and reduced the need for double-headed trains and pusher locomotives in mountainous terrain. Capital improvement programs were begun that increased freight car capacities, length of freight trains, and the net tonnage capable of being carried by the average train. Many of the infrastructure systems installed at this time remained for many years as well. The rise of the automobile and air transportation, however, dramatically impacted the fortunes of rail lines and affiliated industries.

By 1940 the heyday for railroads was over, and many of the railroads were in receivership. Industries that had long had the railroad companies as their primary clients suffered accordingly. The Railroad Credit Corporation was created to aid the carriers, but the problems surpassed this emergency type of legislation. The entry of the United States into World War II temporarily alleviated this problem and brought much needed liquidity to the railroads. During this time frame, the Offices of Defense Transportation coordinated the operations of the railroads. Between 1942 and 1945, the railroads moved more freight each year than they had since 1918, although they did so with fewer freight and passenger cars, locomotives, and employees. The vast increase in traffic produced record profits for the railroads and allowed them to reduce their debts and establish financial health.

Rise of the Diesel. By 1945 many of the carriers had dieselized locomotive fleets. The Electro-Motive Division of General Motors developed separate locomotive units for freight service that was adopted by several railroads. Diesel locomotives cost far more than steam power locomotives to acquire, but operational savings came quickly. The diesels did not need the vast amounts of water that steam locomotives required, a significant factor in parts of the West where water was scarce. Diesels also required far less maintenance, had a high level of availability, were fuel efficient, and could operate for many miles without servicing. The diesel also was less harmful to railroad tracks than the steam engine and when placed in reverse could act as a dynamic braking system. This saved the railroad millions of dollars in freight car brake shoes. By 1955 carriers had spent $3.3 billion for 21,000 diesel locomotives from Electro-Motive, American Locomotive Company, Fairbanks-Morse, and Baldwin Locomotive Works. These manufacturers provided the carriers with a wide range of diesel products to choose from for passenger and freight service.

The revolution in transportation opportunities available to the general public, however, made these railroad advancements seem insignificant. The internal combustion engine placed the automobile in the hands of virtually every family. As a result, the long-distance passenger train almost died. The diverse railroad-reliant industries also suffered from the emergence of airlines, which provided speedy service between major cities. Pipelines, barges, trucks, and intercoastal shipping companies carried a large percentage of commodity products as well.

By the 1960s the rail industry as a whole was in a state of decline. In 1971 Congress created the National Railroad Passenger Corporation, known as Amtrak, to operate virtually all of the nation's remaining rail passenger services. In 1976 the federal government created the Consolidated Rail Corporation (Conrail) to salvage Penn Central and other bankrupt lines in the Northeast. Several carriers prospered by focusing on long-haul freight lines and piggyback trailer traffic.

The railroads survived by scrambling for market share, often establishing services for special product niches. Carriers introduced unit trains dedicated to one cargo—coal, wheat, sulfur, or chemicals that moved in continuous runs from the production site to docks, generators, or factories. The unit trains often utilized specially designed equipment to accommodate the transport of different commodities such as grain or liquid chemicals, resulting in reduced freight rates. Railroads also established "run through trains" that stopped only for crew changes and retained the locomotives of the original carriers. To succeed, the carriers acquired pipelines, barge lines, and trucking companies and invested in air-freight forwarding to obtain a total intermodal position.

Dieselization, the utilization of new technologies, the introduction of new services, the renewed emphasis on marketing, and the end of money-losing passenger business failed to prevent a massive restructuring of the nation's railroads. The Staggers Act of 1980 provided significant relief for the railroads in rate development as the federal government moved into an era of deregulation. This brought giant mergers, massive line abandonment, and shrinking locomotive and equipment fleets. Railway managers in an era of deregulation continued line rationalization, sought new technologies, and placed a major emphasis on marketing transportation.

The railroad equipment manufacturers that supply the nations' railroads with cars and track and other equipment recovered slowly from the lean decade of the 1980s. Capital expenditures by the railroads for equipment contracted went from $2.3 billion in 1980 to $995 million in 1990 for a total decline of 58 percent. Moreover, carriers were not purchasing new locomotives; 70 percent of locomotives in operation in 1990 were more than 15 years old, with another 15 percent constructed prior to 1984. The number of freight cars in service dropped as well, falling almost 30 percent between 1980 and 1990 from 1.7 million to 1.2 million.

As 1997 began, James J. Unger, chairman of the Railway Progress Institute, assured his membership that RPI had on its agenda several legislative issues crucial to the railway supply industry. "You can be sure that the Railway Progress Institute and its staff will diligently work at 'tracking the issues' on behalf of you and your company," Mr. Unger wrote in his annual letter to members. "RPI activities undertaken in 1997 will be handled by a staff with almost one hundred years of cumulative experience working with Congress, the Department of Transportation, and the railroad and railway supply industries."

RPI's chairman said the organization marked 1996 as a successful year for the rail supply industry. "We knew back in 1995 when Congress began calling for fiscal responsibility and budget cuts that it would mean cuts in transportation, so we were prepared. We are fortunate to have fared as well as we have." In 1996, RPI worked with the DOT to recognize the supply industry's issues as DOT began working on legislation reauthorizing the Intermodal Surface Transportation Efficiency Act (ISTEA). During the year RPI monitored several congressional hearings on this subject. Mr. Unger noted that the 1996 national elections had brought changes to the Clinton Administration and Congress, where there were many new members and new staff who needed to be introduced to the rail supply industry's issues. He wrote that 1997 was likely to be an extremely busy year for the railway supply industry with the reauthorization of ISTEA being on top of the agenda.

The railways' steady return to health has helped equipment manufacturers supporting the industry climb out of a prolonged slump, although it will be difficult for the industry to reach 1980 levels of production, when more than 93,000 railcars were built.

A major problem facing the railroad industry as it moved into the new century was designing equipment able to handle larger payloads more efficiently. The American Railway Car Institute reported that builders delivered 75,704 new cars in 1998, the most delivered since the 1980s. The average cost per car was $63,000, putting the freight car market at a value of almost $5 billion. High-level production continued through 1999 because of utilization of the new technologies, new services, renewed emphasis on marketing, and the restructuring of the nation's railroads. The Economic Planning Associates predicted that the years 2000 to 2005 would see production levels between 55,000 and 60,000 cars each year. This stability is a welcome change from the inconsistent cycles of the early 1990s.

The increase in production has seen existing companies merge and new companies begin. One such merger is that of Motive Power Industries, Inc. and Westinghouse Air Brake Company in 1999. This merger was called a "merger of equals" creating a "one-stop shop" for locomotive and freight car components and services. First quarter net sales for 1999 were $107.3 million for Motive Power Industries, Inc. and $191.2 million for Westinghouse Air Brake Company. A new company named Clinton County Economic Partnership began making container cars for bulk commodities and waste products in 1999. The company also manufactures mill gondolas in their plant, a former freight car manufacturing facility in Renovo, Pennsylvania.

The upturn in equipment manufacturing was more reflected in subtle design changes to existing technology, as well as car types that provided the shipper with rapid loading and unloading capabilities, sanitary cleanout, and a large carrying capacity. The three major types of cars in demand were covered hopper cars, intermodal cars, and tank cars. Most of the design changes in the last years of the 1990s occurred in the tank car manufacturing arena and were brought about by concerns about environmental safety and product liability. Changes in the tank car design included sloping bottoms, improved heater systems, better gates and hatches, new kinds of insulation, and better interior coating. These changes helped to protect the product from contamination while also serving to insulate the tanker from corrosion.

Current Conditions

As many sectors of the leisure and travel industry, railroad equipment manufacturing was negatively affected after the events of September 11, 2001 and the subsequent economic recession. Travel was down nationwide, subsequently affecting this sector to a large degree. After a 1999 high of approximately $10.4 billion in shipments, followed by $9.7 billion the following year, 2001 saw a major decrease with some $8.6 billion in total shipments.

The large demand for freight cars and record deliveries of 1998 and 1999 came to a screeching halt as the new millennium dawned. Freight car demand declined dramatically, with a 25-percent drop to 55,791 railcars being delivered in 2000, according to the American Railway Car Institute. An estimated 35,000 new cars were delivered in 2001, a 37 percent decrease and the lowest number of deliveries reported in nearly a decade. Prices for railroad equipment remained relatively unchanged.

According to the Association of American Railroads, there were 19,745 locomotives in service in 2001, compared to 20,029 in 2000. Freight cars in service operated by Class I railroads numbered 499,860 in 2001, a decrease from 560,154 in service the previous year. There were more than 1.3 million freight cars in service in the United States in total that year. There were also 121,013 miles of road operated in 2001, compared to 120,597 in 2000, and 97,817 miles of road operated less trackage rights, compared with 99,250 in 2000. Average tons per carload was 64.

Industry Leaders

Trinity Industries, Inc., based in Dallas, Texas, continued to lead the railroad equipment industry at the end of the century. Trinity produces a wide range of railcars, including railroad tank cars, gondola cars, intermodal cars, and hopper cars. The initial cost of their composite-body boxcar is somewhat higher in price, but Trinity is looking to increase the market volume for frozen foods and other commodities requiring cooling or heating. Trinity is involved in a wide variety of other metal product manufacturing, including marine products, such as tugboats, ferries, barges, as well as construction products like airport conveyor systems and highway guardrails.

Johnstown America Corp. became an independent maker of railcars after being sold by former parent company, Johnstown America Industries, Inc. Headquartered in Johnstown, Pennsylvania, the company has been making railcars since 1901. They are credited with designing a new, more efficient two-platform car. These lightweight Articulated Bulk Containers can carry a total weight capacity up to 354,000 pounds of structural steel, timber, and other nonhazardous products.

Electro-Motive, a division of General Motors Corporation, was the originator of diesel-electric motive power for locomotives. The company is headquartered in LaGrange, Illinois. Electro-Motive's onboard locomotive management systems, along with the introduction of new models and technology, made 1999 a "banner year" for the company.

Thrall Car Manufacturing Company of Chicago Heights, Illinois, is the leading manufacturer of freight cars including intermodal equipment, auto racks, aluminum coal cars, center beams, coiled steel, pressured differential, plastics, and wood chip cars. Thrall Car's new Q2 motor vehicle carrier is designed to carry all sizes of cars except the larger trucks and sports utility vehicles. Two prototypes were tested with Union Pacific in 1999.

Workforce

Projected employment for the railroad equipment industry by the year 2005 is expected to include 35,000 employees. That number is up 4,000 from 1993. The railroad equipment industry consists of less than 2 percent of the total railroad industry's workforce. In 2001, there were an estimated 27,920 persons employed in the railroad equipment industry with a estimated median hourly wage of $16.15.

America and the World

Overseas, European and Japanese manufacturers have developed extensive rail lines using high-speed rail technology. This thriving domestic market has provided these countries with an industrial base that they have used to expand internationally. This manufacturing base enabled these countries to capture a large percentage of the U.S. freight and passenger car market. In North American, for instance, the Canadian Bombardier Corporation has had a virtual monopoly on the U.S. passenger railcar business. An example of this is Bombardier's 1999 contract with MTA Long Island Rail Road valued at $515.0 million by November 1999 for 192 electric multiple-units. This contract supplies the Long Island Rail Road with the design, manufacture, and delivery of new M-7 cars and could total 808 units by contract end.

Union Pacific, North America's largest railroad, faced many lawsuits because of service problems related to The North American Free Trade Agreement (NAFTA). These problems have cost the U.S. economy almost $2 billion in lost production when over 5,000 railcars awaited entry into Mexico in 1997. As a result of this, the rail line hired more than 1,000 workers, purchased new locomotives, and improved their infrastructure in the late 1990s.

Compliance with EPA emissions regulations will be a major challenge facing locomotive manufacturers during the first decade of the twenty-first century. The three-tier program begins in 2001 and will be completed by 2005.

Research and Technology

The U.S. intermodal rail system is undergoing significant change through the use of information technology. Carriers are going high-tech with innovative electronics equipment and computers designed to improve tracking of shipments and make the railroads increasingly user friendly for commodity transfer. Information technology changes are proposed for nearly every aspect of the railroad industry as follows:

Automated Equipment Identification. This program mandates that all railroad equipment be outfitted with electronic identification tags that allow each freight container to be identified by a trackside laser scanner. This system will track freight container shipments among multiple carriers and eliminate the need for railroad staff to visually identify containers and manually type in shipment information.

Computer Systems. Railroads are working together to create a single computer hardware package that allows customers to communicate with all their carriers. In addition, railroad locomotives are being outfitted with computers that communicate via wireless technology with the railroad's mainframe or central computer. It is hoped that data radio technology will improve shipment information and increase operational efficiency and productivity.

On-Board Locomotive Diagnostics. Electro-Motive Division's Functionally Integrated Railroad Electronics (FIRE) and GE's Integration Hub (IHUB) support multiple systems from multiple vendors to help standardize the industry.

EPA Emissions. Electro-Motive Division and GE Transportation Systems are working to develop equipment to meet EPA standards without affecting fuel efficiency and horsepower on locomotives.

In addition to innovations in information technology, changes in the industry's traditional hardware such as locomotives, freight cars, air brakes, and couplers have taken place or are undergoing redesign. For example, high strength, lightweight materials are providing the industry with the ability to ship more product at one time. Locomotives are bigger and faster.

After six year and $200 million, GE Transportation Systems unveiled its new Evolution Series locomotives in 2002, which reportedly had the same horsepower as existing locomotives but used less fuel and reduced emission by 40 percent. The new models, two years ahead of the deadline for tougher emissions standards issued by the EPA, will be bought by all of GE's customers by 2005. They will range in price from $1.8 million to $2.5 million.

Quebec-based Bombardier, with its Bombardier Transportation division, was the world's largest producer of railway equipment. The company launched its JetTrain locomotive in 2002, a nonelectric 150-mph passenger train reported to be faster, lighter, quieter, and more environmentally friendly than its diesel competitors. The development was expected to hearken the onset of high-speed rail across North America not served by electrified tracks. The trains boast jet engines—as opposed to the diesel engines found in most current rail equipment—that are one-tenth the size and 38,000 pounds lighter than diesel engines of equal power. The company expects to sell its first JetTrain in 2003 and deliver the first train with cars prior to 2005.

Further Reading

"All Aboard the Jet Train." Design Engineering, November 2002.

Association of American Railroads. Railroad Statistics, 10 January 2003. Available from http://www.aar.org .

Bureau of Transportation Statistics. Producer Prices for Transportation Equipment, 2003. Available from http://www.bts.gov .

Challenges Accepted—The Story of Railroading, Association of American Railroads. Available from http://www.aar.org .

Cremeans, John E., ed. Handbook of North American Industry: NAFTA and the Economics of its Member Nations, Lanham, MD: Bernan Press, 1998.

Longman, Phillip J. "Rail Crisis Imperils NAFTA Trade." U.S. News and World Report, 6 April 1999.

Panepento, Peter. "GE Rolls Out New Locomotive." Knight-Ridder Tribune Business News, 24 December 2002.

Railway Age. "Supply Side," July 1999.

Railway Age. "Motive Power Industries and Westinghouse Air Brake Company Will Merge," July 1999.

Standard & Poor's Industry Surveys. New York: Standard & Poor's Corporation, 1999.

U.S. Census Bureau. Annual Survey of Manufactures, 20 December 2002. Available from http://www.census.gov .

——. Description of Industries and Summary of Findings: Industry 3743, Railroad Equipment. Available from http://www.census.gov .

"U.S. Industrial Manufacturing—Rail Supply: Railcar Demand Cont." ING Baring Furman Selz LLC Brokerage Report, 26 April 2001.

Vantuono, William C. "Cars and Locomotives: Building for Bigger Capacity." Railway Age, September 1999. Available from http://www.railwayage.com .



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