2026 RAILROAD FINANCIAL DESK BOOK, RAILWAY AGE OCTOBER 2025 ISSUE: Welcome to the 2026 Railroad Financial Desk Book. If you have made it through a tumultuous summer, you have finally reached the point where after almost a year of waiting and handwringing, the Federal Reserve finally dropped interest rates by a quarter point. The question, still fresh in the minds of market watchers everywhere, is and remains, “was the cut based on economics or politics?”
The high drama of the fight over the Fed playing on in text and on video (if you didn’t see the video of POTUS 47 and Fed Chair Jerome Powell facing reporters after the construction tour, give it a look) with criminal conspiracy and the constant threat of firing and replacements is a slow-motion car crash for the modern political era.
While the Fed indicated further cuts are in the future, the bond market, having already priced in a quarter point drop, responded with a “meh.” The fight for the Fed has been one thing on the watch list since January. Few anticipated the playbook of stacking the team with homers (or is that foamers?) as a way of controlling the Fed without the Executive Branch taking over. You say there should be an independent Fed, and the Administration pulls a “John Wick” and says everyone serves under the High Table.
If that drama wasn’t high enough for you, perhaps you were captivated by the railroad side of the political theater. Union Pacific President and CEO Jim Vena went to Washington to sit down with POTUS 47—as if anyone needed more evidence that the “fix is in” for the approving of the merger. The UP’s post-conference press release noted UP feels the Administration sees “how creating an American transcontinental railroad is a win for U.S. competition, consumers, and the unionized workers whose jobs will be protected when the merger is approved.” The promise of “competition” and a “victory” for unionized workers makes one wonder if they actually discussed North American rail at all. The sense that this merger is the stuff of afflatus is off the register.
It definitely is not “Mr. Smith goes to Washington.”
The unbridled enthusiasm was echoed in a piece by The New York Times discussing North American rail as having an abundant opportunity to get trucks off the road (as if The Times just discovered railroads exist). It was clearly a planted piece complete with feel-good stories about short lines delivering good service and having a positive impact on communities. Unfortunately, the piece wasn’t meant to really highlight short lines; they were just foil for the larger propaganda message. The article comes out first with the origin of the story, “Two freight giants, Union Pacific and Norfolk Southern, recently announced a merger plan that would create the nation’s first coast-to-coast rail network under a single company. They hope the deal will win business from trucks.” And then second with the ignorance that so often comes from reporting meant to deliver a message, “A resurgent freight rail industry would benefit businesses, the public and the planet.” Can I get an “Amen!”
But the coup de grâce and what seals the deal on the story being more propaganda than actual reporting comes under the heading of “‘Game Changer’: Union Pacific and Norfolk Southern say their proposed $85 billion merger is all about fighting back against trucking … The merger is an attempt to solve the disconnect between railroads east and west of the Mississippi River.” Raise your hand if you missed the meeting about the east-west disconnect and how it is the lynchpin holding back railroad growth. Didn’t think so.
At least the story gave Canadian Pacific Kansas City (CPKC) CEO Keith Creel three lines to present an opposing point of view. Balance.
Nonetheless, merger malaise still reigns.
In the world of railcars, the mojo is a little different. At the 2025 FTR Transportation Conference, there was enthusiasm for a market where, were it up to its participants, the will to make it better would by itself lift the market to new growth and opportunity. However, that will to power is not resonating in the market itself. The clear consensus from participants at the conference was that new car orders in 2026 are not expected to exceed 30,000 units. Ouch. That means that as an industry, North America is building railcars below the rate of replacement during a period of (more or less) normal economic growth over a multi-year period.
However, since this period of low new car builds corresponds to a period of rental rate stability, the market doesn’t seem as bluntly negative as one might expect. In fact, the discussions were about how high utilization continues to be the new normal for pretty much all railcar lessors. This high utilization is happening at lease rates that continue to be higher than pre-COVID pandemic norms. (When will that stop being a frame of reference?)
Fascinating right now is that rail loadings are staying in a relatively stable range year over year, and cars in storage are 2% to 3% higher YOY. Not only is the total railcar fleet contracting, it is very possible that the operating fleet (cars in service) is also contracting. This is happening while coal is seeing its largest YOY increase in five years. (For the impact current utilization and loadings levels are having on railcar rents see “Around the Market” in this Desk Book).
There was, in addition, lots of discussion about the more than 100,000 cars reaching their 50 years maximum interchange service life over the next five to seven years. At some point, the discussion about the replacement cycle starts to sound a bit like the unfulfilled promise of intermodal loadings driving massive railroad growth and the disconnect between east and west railroads—another “fake it ’till you make it” moment. Yes, the cars do need to be replaced, but that alone will not rescue the soft build cycle in an industry that grows at GDP.
But that’s only one part of the story.
Railcar builders, investors and users in North America spend prodigious amounts of time thinking about railcar valuations and their correlation to the concept of a fair market. Every time there is an M&A event, there is a discussion about “overpayment” or “underpayment.” Did they overpay? How did they get it for that price? How did they convince them to pay that much for that?! In an industry often viewed as being challenged to grow, the impact of asset valuations on returns is a meaningful calculus.
No matter what the size of the deal, these are the messages one hears. Why? It’s human nature: Everyone loves a bargain and everyone wants higher returns. No one wants to be accused of overpaying. In August’s “Financial Edge,” in a discussion about the M&A market for railroads and railcar owners, the discussion centered on consolidation and its impact on a low-growth industry (freight rail) and not on valuations. But a key point from that discussion remains: There is significant private equity (PE) capital looking to make investments in the railcar ownership and leasing space.
There is by some estimates more than US$1 trillion available for investment by PE firms. This is a slightly aged number, but let that sink in for a second. The UP+NS merger is $85 billion; that’s 12 of those. The CP purchase of KCS (CPKC) was US$31 billion; that’s 32 of those. There are 1.6 million railcars in North America; at an average price of $75,000 per car, that’s just a measly $120 billion. That trillion dollars may or may not include the $344 billion in cash sitting on the Berkshire Hathaway balance sheet. Wowza.
All these dollars are clearly not devoted to investment in transportation assets. But that is not the concern here. At some point, this available ocean of liquidity needs to find a home. Railcar assets with their consistent cash flow (rental payments), long useful life (50 interchange years), high barrier of entry (railcars are expensive), high likelihood of continued use (most railcars are in stable commodity businesses), and low default rates (railcar lease defaults are generally low) have an attractive profile for investment. Plus, there is the opportunity for upside as railcar asset values have been appreciating measurably during the past five to six years and consistently during the past 20.
It wouldn’t be a stretch to imagine that asset valuations at today’s levels, rather than being at a market peak, actually have a runway ahead of them for higher valuations from investors. If new car builds remain within a reasonable range (just below or at replacement levels) and there is an ongoing replacement cycle for older cars with consistent loading levels (as opposed to a downturn), the attractiveness of those sticky, highly utilized railcars to the people holding the private equity checkbooks will only increase.
Well, wait a minute, you’re saying. Didn’t you just say that everybody loves a bargain? The answer to that is “yes,” everybody loves a bargain, but they love their jobs more. Very few people hired to find investment opportunities and deploy capital on a large-scale basis get paid for taking the high ground and not doing deals. PE firms are paid for the capital they deploy and the balance sheet magic they often perform to extract dividends. Fees are generated when money moves. Money that doesn’t move is returned to investors. Who wants that?
Let’s be really clear: There is no judgment here. It was recently reported that Bank of America expects to earn $130 million from the UP+NS transaction. Bank of America has been a longtime advisor to UP in a variety of capacities and has earned the right to represent UP in this endeavor. But there is little reason to debate if the investment bankers from Bank of America are worried about whether UP is paying a “fair price” for NS. Certainly, they have confidence it is the “right” price, but $130 million buys a lot of confirmation bias.
The same rule essentially will apply for railcar investments. Consistent cash flow and an asset life that exceeds your employment sunset date make for a great strategic plan.
Alternatively, maybe the PE firms will band together and pay off 1/37th of the national debt with that money. Ha! In your dreams!
AROUND THE MARKET
As noted earlier in this Desk Book, the lease market for railcars continues to demonstrate stability and a kind of strength. While rates have pulled back from previous highs of earlier in the year, most railcars remain on lease at rates that would be considered reasonable or attractive. Nothing suggests significant change is on the wind currently. One question on people’s minds is the impact the UP+NS merger will have on lease rates. Historically, railroad mergers mess up the system causing lease rates and railcar demand to increase. Here’s what happening around the market.
Covered Hoppers for Grain: There is continued stability here with some rental rate retrenching as a few more cars have come on the market. Even with a weak export market (check out the drop in soybean exports to China down 51% YOY through July 2025 and now resting at zero being exported just as the harvest is beginning), these loadings are up YOY and continue to support strength. For 4,750s, look for high $300s and low $400s full service. For jumbo cars, expect rates in the high $500s to low $600s. For DDG cars, look for rates in the high $600s to low $700s.
Covered Hoppers for Plastics: There is a little more weakness in this market segment, reflected in rates. 5,800cf cars are leasing in the low to mid $300s while older 6,200cf cars can be found in the low to mid $500s. New car pricing still drives the higher end of the newer car market where rates are into the high $600s to low $700s. These are full-service rates.
Covered Hoppers for Sand and Cement: There is some softness here as well. There remain significant quantities of cars still returning to market after their first leases from 2014-2016, and the current need for cars of this size has been satiated. Tariff disruption here has flattened the construction market, and that has softened cement demand. Rents are in the mid $200s full service. They will likely stay here for a while but there is some chance rates drift to the downside.
Coal Cars: Chat GPT may disagree, but coal cars are a good investment right now. Perhaps the AI hasn’t thought from where all the power to keep its wheels spinning is going to come. A revisionist energy policy and the incredible power greed of AI data centers along with some higher natural gas pricing (above $3.20 per MMBTU) continue to propel the coal car market. Gondola cars are red hot with nary a car to be found in the market. Look for rates in the high $300s to low $400s full service, with stability as loadings are up 6% YOY. For rapids, look for rates in the same range, as demand there is a little more tempered. Expect this run to continue at least into 2028.
Mill Gondolas for Scrap: Definitely some softening here, and rates are off their highs. There has been an introduction of some newer cars into the market, so there is some incongruity in rates. For 52-foot older cars, look for rates in the mid to high $500s. For newer cars, look for mid $700s. For 66-foot cars, look for mid to high $600s. Keepers of well-maintained older cars can expect high demand for cars that can be had at those lower prices.
Centerbeam Flatcars: Housing starts? More like housing stops. This business is banking on lower interest rates to jump start demand, but be cautious here as cars seem a little oversupplied and the market is soft. Look for rates in the low to mid $300s.
Tank Cars: Corn syrup and other food grade tank railcars continue to run at elevated ranges in the mid $1,000s to low $1,100s per car per month (certain lining requirements may increase those costs). This is for newer cars. Older cars can be had for less money if they are even available. On the energy-related side of the world, 117Rs continue to run in the high $900s to high $1,000s per car per month. Moving into a 117J will set you back mid $1,200s to low $1,300s. Again, these are full service. So much of this is dependent on the time since HM-216 recertification and who is paying for it. The standard 112J340 has been in excess inventory through the summer. That seasonality is not surprising, and rates have drifted down accordingly into the high $800s to high $900s depending on age. Expect rates to pick up in the fall and winter and move into the high $900s and mid $1,000s.
Boxcars: This market is a little soft right now with paper demand driving some idle capacity. Some cars are being returned, and that is pushing 50-foot Plate F rates down into the low to mid $500s. For 50-foot Plate C cars, look for rates in the low to mid $400s. Need 60-foot Plate F boxes? Those are running in the low $600s. These are full-service rates on existing cars. It bears noting that new cars would need to be at higher rates reflecting the cost of the new car in today’s market and the capital cost associated therewith.
