RAILWAY AGE, JUNE 2025 ISSUE: A few months into the current Administration, the tariff picture remains unclear. If the goal of today’s economic strategies is to increase domestic industrial demand and output, one might be hard pressed to see the results from the railcar orders of the past three months. A total of 5,085 railcar orders in 1Q25 leaves a severe case of dry mouth. The order breakdown follows traditional dynamics: about two-thirds general freight railcars and one-third tank railcars.
Today, at the time when this article is being written, railcars manufactured in North America continue to be exempt from any type of additional tariff or taxation under the USMCA. That has been a relief to companies taking railcar deliveries in the first five months of the year who thought on any given day that the price of their railcar could have gone up by 25% or even 60%.
What has happened instead is that the price of steel, responding to tariffs placed on steel imported from pretty much anywhere outside the U.S., has jumped up considerably since January 2025. How much? Hot rolled coil steel went up as high as $945/ton (from $700 in November 2024) and plate steel has settled above $1,000/ton from a November 2024 price of just over $800.
Component suppliers are also feeling the pinch, and that is having an impact on new car prices. Component suppliers also bear a larger risk of having to use steel in their products that can be subject to tariffs potentially increasing prices.
But the tariff picture isn’t so much about the juice, it’s really about the squeeze. The concern about tariffs, the impact on demand, the worry that the tariff landscape could change at any time, has led to a tangible hesitation on behalf of potential purchasers of railcars that has slowed the market to today’s levels.
Ditto for the impact of interest rates that, contrary to many people’s early-year expectations, continue to remain elevated in anticipation of tariff-related inflation, increasing debt loads and the recent downgrade by Moody’s that stripped the U.S. of the last of its perfect credit ratings. After dipping down to almost 4% in early April, the benchmark ten-year Treasury has settled squarely above 4.6% with all the current economic turmoil.
So, with a tariff picture that makes the situation for railcars clearly unclear (a phrase favored by Theodor Geisel, aka Dr. Seuss), the prognostication for railcars remains quite unclear. The national fleet is shrinking, but loadings generally are up slightly YOY by about 2%, led by (hold onto your chair) coal. Cars in storage are in the low end of the most recent range approximately 295,000 railcars over which they have trended over the past six months, meaning that most of the 1.6 million railcars in North America remain consistently active.
Lessor-owned railcar fleets remain at high utilization levels greater than 95% as companies leasing railcars are reticent to give them up due to the lack of available replacement inventory and the cost of new/replacement cars, the cost of return maintenance and the ever-increasing cost of empty freight.
This is the fourth-plus year of almost “full” utilization for the operating lessor railcar owners. What started out as an exception to a history of volatility has started to feel like a rule. It is what GATX’s Paul Titterton called a “Supply Led Recovery” at Rail Equipment Finance 2025. It shows no signs of abating.
By this point, the overwhelming majority of the lessor-owned cars should have churned, and their rates are higher than they were pre-pandemic (see “Around the Market” in this Leasing Guide). But the hesitation to return cars and the unwillingness to commit to new cars is creating a new kind of market.
This kind of over-fleeting is being used by the shipper community to hedge against costs, as a hedge against downturns in railroad service, and as a hedge to handle additional growth if there is an economic surge. It is a circumstance unique to today’s leasing marketplace.
Faith in the future and in growth is not high on anyone’s list. If full bonus depreciation gets passed in the current tax bill, this will certainly help to provide some small motivation for growth, but it is more likely to spur a more fervent volume of secondary market trades over new builds.
The questions that will hang over the market if the new build pace continues at current levels are: What happens if there actually is an economic burst of activity and loadings increase materially? How will the industry respond after years of fleet contraction? Will the industry be able to respond effectively to the challenge? For an industry used to a kind of consistency, this is high drama for the future.
Locomotives Sit on the Park Bench
The undoing of the California Air Resources Board’s (CARB) electric car rules by the EPA drove the last nail into the already displayed coffin for CARB’s similarly related locomotive rules (covered in the February 2025 Financial Edge). If nothing else, the policy changes coming out of the Executive Branch set back any sales momentum for locomotives that are at the Tier IV EPA emissions standards.
That does not come as a great surprise to anyone, and it misses the key point that really matters to today’s locomotive market. Over the past four years, there have been roughly 800 new locomotives manufactured in North America. Over the same span, there have been roughly 1,000 locomotives rebuilt by the manufacturers. The only problem? The overwhelming majority were manufactured and/or remanufactured by Wabtec. This isn’t a problem if you’re Wabtec, who deserves credit for creating a dominant market position.
While the shifting market has moved to favor Wabtec, overall, the national fleet has continued to age. In fact, the average age of the fleet has increased every year since 2016 and now sits at 28 years. The national locomotive fleet is anchored by a rough total of 1,000 locomotives built per year between 1997 and 2016, with more than 50% of those built between 1999 and 2009. (Most of the data in this section is courtesy of Dr. David Humphrey of Railinc, who presented it at Rail Equipment Finance 2025.)
At Rail Equipment Finance 2025, Oliver Wyman’s Jason Kuehn noted that the average working life of a locomotive tends to be about 25 years. Through rebuilding and overhaul, that window can very easily be extended. These do not provide a cure for the long term; they are only short- or medium-term preventive or prophylactic solutions. North American rail lacks a cohesive strategy for the future of motive power. It is challenged directly or indirectly by today’s EPA emissions compliance requirements (impacting efficiency, fuel consumption and availability); a scattershot handling of the future of locomotive fueling by the Class I railroads; and a domestic energy policy that could kindly be described as schizophrenic as it rejects science, stifles innovation and promotes reactionary thinking.
The math becomes pretty simple from there. As an industry, we are heading into a situation, rebuilds aside, for which we are unprepared. As Wabtec stretches its dominance over the new and rebuild market, what role remains for Progress Rail today and in the future?
For as long as most people can remember, there have been two primary manufacturers of new six-axle locomotives. Occasionally, as any industry insider will tell you, North American rail has struggled with managing its supplier base. Sometimes it is the result of poor execution and pricing from suppliers; sometimes it is the result of competitive forces in a small (by number of customers) marketplace.
EMD (Electro-Motive Diesel) is a subsidiary of Progress Rail, itself a very small subsidiary of Caterpillar (59th on the 2025 Fortune 500 list). It doesn’t take the imagination of Dr. Seuss to conceive of a world where Caterpillar, seeing little upside in the locomotive market, decides that it’s not in its best interest to continue to participate in the locomotive marketplace and closes up shop.
Walk that forward a little bit and reflect on the future locomotive needs of the Class I railroads when there is only one primary supplier. Cost is one problem, but that is probably manageable. But where will the locomotives come from when the supply chain has atrophied over several years and the ability (and the willingness) of one supplier to supply the market with the necessary number of units to replenish the North American fleet with whatever the next generation of reliable and serviceable locomotives needs to be made available? Perhaps EMD gets sold. Then it is up to the next buyer or another builder of locomotives, such as Alstom (who builds mostly passenger locomotives), which would need to fill the locomotive supplier gap.
There are roughly 25,000 road locomotives operating in Class I service, again with an average age of 28 years. At some point those units will require replacement. Maybe it’s not today, but this need will transcend emissions requirements, fuel selection and individual railroads. To be clear, this isn’t a matter of blame. Companies have budgets and profitability goals, and they are run by people. People make choices. If the industry finds itself with one primary supplier of six-axle locomotives, it might look back on some of the choices that were made and wonder how it got here.
In the past 70 years, the peak of new locomotive production was roughly 1,500 units in one calendar year (2013). Do the math: One supplier who hasn’t manufactured more than 300 locomotives on average over the past seven years may not be able to meet that demand. The industry cannot be shortsighted about its future.
Around the Market
As noted earlier in the text, the dearth of new railcar orders has continued to provide foundational strength to the operating leasing of railcars. Except intermodal, loadings excluding coal are floating barely above 2024 volumes. Add coal into the mix and the numbers trend slightly higher.
The commodity mix in early 2025 is different than 2024, with almost every commodity group lagging 2024 except for coal, grain and chemicals. Meanwhile on the intermodal front, an almost 8% YOY increase is in large part due to pull-ahead loads trying to avoid tariff-related concerns. Most industry watchers expect an “air pocket” (the “quiet quitting” of 2025) through mid-year as the world resets to a new tariff-based landscape. Yes, Virginia, 30% is still a tariff, whether you’re passing it along (like Walmart) or suggesting for the moment you will eat it (like Home Depot).
The AAR notes that coal volumes in 1Q25 were down by roughly 50% from the 1Q09 peak. The 2Q25 rebound in coal that is materializing has put a new spin on traffic mix. In mid-May, coal loadings were up 20% over the previous year. Part of that is the price of natural gas, which had trended up to approximately $4.00 per MMBTU before backing off to the mid-$3.50 range.
As a result of all these factors, including the over-fleeting and tariff concerns discussed earlier, railcar market stability has been maintained, even as modest softness in some commodity groups has been present. Here’s what going on around the market.
Covered Hoppers for Grain: Loadings are on a two-year run. This market continues to be living with the shadow of the aging out of older cars over the next seven years. There is limited availability, and prices have come down off highs from a few years ago, but rents remain strong. For 5,200cf cars, expect rates in the high $500s to low $600s FS (full service) for five years. For larger cars for DDG or soybean service, look for rates in the high $600s. Looking at the older side of the spectrum, 4,750s continue to punch above their weight in the high $300s to low $400s.
Covered Hoppers for Plastics: This market has reached a moment of saturation, and it is being quickly reflected in reduced lease rates across all sizes of cars. Some of this is clearly tariff-related but is also a harbinger for some general economic weakness. For 5,800cf pellet hoppers, expect mid-$300s; for 6,200cf cars, look for mid-500s to low-600s.
Covered Hoppers for Cement and Sand: This market has softened a bit, and rates have come down slightly. Look for low $200s FS and don’t expect much improvement. Rumors of a fracking boom driving demand have more likely than not been exaggerated.
Mill Gondolas: The hottest car on the planet for the past year-plus has recently cooled to the touch. Metals loadings continue to decline, and scrap prices have stepped back from early-year peaks. 52-foot gons—still an expensive car to build—are trending in the mid-$500s. Heading to the West? 66-foot mill gons are trending higher, as they usually do, in the mid-$600s.
Centerbeam Flat Cars: There is some hesitation in this market as the new housing market continues to list with the economic tides held back by rising costs, inflation threats and persistently high interest rates. As cars come off lease, many are likely coming back right now, so expect rates to keep them on lease to be low—low 300s FS would probably be a win right now.
Boxcars: Even with the pull forward of imports for tariff dodging, you know before the air pocket, this market has fallen back on its heels a bit: 50-foot Plate F boxes are in the high 500s FS, while a 60-foot box is running in the low-$700s for an older railcar. Expect to pay more (high-$800s) for a newer one.
Tank Cars: There has been some softening here as well. This is not unexpected considering the lower price of oil over the past few months, but the ongoing strength speaks to the over-fleeting and the high cost of offloading and onboarding tank railcars. For DOT117Rs, look for prices ranging from the mid-$900s to the low-$1,000s. For DOT117Js, look for prices in the low- to high-$1,200s. For pressure cars, look for rates in the low $1,000s. Expect continued strength here as the industry works through the recertification cycle and builds are low. Probably some upside here.
Coal Cars: Coal is, well, having a moment. A year ago, loadings were down 17%. Today, they are up 5% YOY. The growth in loadings and the policies rushing out of the Executive Branch in support of coal have given many investors in coal equipment an exuberance and enthusiasm that they have not felt in quite some time. As mentioned in the April 2025 Financial Edge summary of Rail Equipment Finance 2025, the realization that coal and the coal car fleet will require new equipment at some point seems to have taken root. The surge in demand and increase in loadings is reflected in today’s current lease rates. Coal gons have risen into the mid-$300s FS, while rapid discharge cars are trending in the high-$300s to low-$400s.
