SIC 6517
LESSORS OF RAILROAD PROPERTY



Establishments in this classification are primarily engaged in leasing railroad property.

NAICS Code(s)

531190 (Lessors of Other Real Estate Property)

This industry consists of lessors of new and used rail car equipment (both single and double-stack), locomotives, and often, as part of the lease agreement, the refurbishment and maintenance of these items. Rail cars are categorized as grain cars (covered hopper cars most often carrying grain), boxcars, gondolas, and intermodal cars, which carry products in a trailer or container. Three types of leases are common: short (which includes per diem), middle, and long term.

Rail property lessors primarily provide transport of such commodities as grain; farm products; metallic ores; coal; crushed stone; nonmetallic minerals; grain mill products; food and kindred products; primary forest products; lumber and wood products, pulp, paper, and allied products; stone, clay, and glass products; military equipment; and waste and scrap materials.

The railroad industry is subject to complicated safety, environmental, structural, and financial regulations. A deregulation movement in the 1980s resulted in loosened restrictions that had a positive impact on the vigor of the leasing industry. Deregulation permitted negotiated, rather than statutory, freight rates and terms. This trend culminated in the abolition of the Interstate Commerce Commission (ICC) effective January 1, 1996; in the process some regulatory functions were eliminated altogether. Prior to 1996, the ICC was a key regulatory agency overseeing the industry; in its demise the remaining functions—those that were not abolished—reverted to the U.S. Department of Transportation. The Federal Railroad Administration within the Department of Transportation deals with safety issues surrounding the industry, rehabilitation of rail passenger services, consolidation of federal funding, and support of research and development. The Association of American Railroads, a trade organization, represents the interests of the vast majority of Class I railroads, including the leasing of railroad property, through legislative activity and support. The Equipment Leasing Association of America represents the equipment leasing and finance industry in general, including many railroad lessors.

Railroad property leasing is highly competitive, as lease agreements are often sought by several lessors. Competitive pricing strategies, technological advancements in equipment, and issues of the compatibility of advanced information systems are areas of competition among lessors. At the center of the financial health of railroad property leasing is a lively debate about whether railroads should lease or buy their own railcars and locomotives. Opponents of leasing tout the tax advantages of owning rail property. Lease proponents, however, cite the ability to use equipment without incurring additional long-term debt, as well as the lack of maintenance costs. Valuation issues also influence the industry; end-of-lease and early-buy-out prices determine if lease offerings are competitive against full purchase. A poor economy generally bodes well for railroad property lessors because railroads do not invest capital to buy new equipment in lean times. Primary competition to railroad property lessors comes from direct railroad equipment purchases, as well as from aircraft lessors, who experienced vulnerability to competition at the end of the 1990s because of failures on the part of the airline companies. Additionally, at the turn of the twenty-first century, expansion into foreign markets remained an option not fully explored. The passage of the North American Free Trade Agreement (NAFTA) combined with the privatization of the Mexican railroads presented fresh opportunity for a slumping U.S. railway economy to experience renewed growth.

A cyclical atmosphere propels the economy of the entire railroad industry. Thus, despite NAFTA, poor airline performance, and a vigorous U.S. economy in the late 1990s, a cyclical downturn plagued the railroads. The normal tendency toward slowdown, combined with poor performance at the customer level brought the entire industry to an economic low. Blame for the situation went largely to poor on-time service by all major railroad lines. Yard congestion and disruptions of service attributed to persistent merger activity by the railroad companies, and poorly integrated computer systems contributed to the downturn. Loadings remained stagnant throughout the late 1990s. Only the rail fleet remained stable at 1.17 million cars in 1999, just under the 1996 peak of 1.2 million. Mergers characterized the industry at the turn of the century. Among the industry leaders, Westinghouse Air Brake and Motive Power merged late in 1999. The two corporations combined to offer a diverse assortment of railcar and locomotive component services. Two months later, in mid-January of 2000, The Greenbrier Companies Inc. of Lake Oswego, Oregon, expanded its European operations with the acquisition of the Freight Wagon Division of Daimler Chrysler Rail Systems GmbH of Berlin (Adtranz). The Greenbrier fleet included 33,000 cars, and the addition of Daimler Chrysler introduced an $82 million (U.S. dollars) catalog of wagons to Greenbrier's European selection.

Other prominent rail car and locomotive lessors include Chicago Freight Car Leasing Company of Rosemont, Illinois; First Union Rail, also of Rosemont; and GE Capital Railcar Services of Chicago.

Further Reading

"CFCLC History," 18 February 2000. Available from http://www.crdx.com/history.htm .

"Equipment Leasing Association of America Home Page." Equipment Leasing Association of America. March 1997. Available from http://www.elaonline.com/ .

"Federal Railroad Administration Home Page." Federal Railroad Administration. March 1997. Available from http://www.fra.dot.gov/ .

"First Union Rail," 18 February 2000. Available from wysiwyg://57/ http://www.firstunion.com/rail/ .

"Freight Car Fleet Grew During Third Quarter." Association of American Railroads Press Release, 19 December 1996. Available from http://www.aar.org/ .

"GE Capital Rail Services," 18 February 2000. Available from http://www.ge.com/capital/rail/whoweaare/rcwho.htm (February 18, 2000).

"Greenbrier Reports Increased Revenues, New Orders, and Purchase of Minority Interests." PR Newswire, 8 January 1997.

ICC Termination Act of 1995. Pub. L. No. 104-88, 109 Stat, 1 January 1996, 803.

Kruglinski, Anthony D. "1996 Guide to Equipment Leasing." Railway Age, July 1996.

"Railway Supply Industry," 18 February 2000. Available from http://www.rpi.org/supply.htm .

"Todays News—Greenbrier Completes Acquisition of Adtranz Freight Wagon Division." 24 January 2000, available from http://www.prnewswire.com/cgi-bin/stor…STORY/www/story/01-24-2000/0001121434 .

"Wall Street Transcript Publishes Special Railroad Stocks Report." Yahoo! Finance, 12 January 2000, available from http://biz.yahoo.com/prnews/000112/ny_twst_ra_1.html .

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