RAILWAY AGE AUGUST 2025 ISSUE: North America’s tank car fleet is relatively young. Regulations, though tricky and challenging, should benefit carbuilders, component suppliers and lessors.
Tank cars, the second-largest railcar group in the North American fleet after covered hoppers, represent the most diverse commodity base in railroading. They are their own ecosystem, with a whopping 854 STCC (Standard Transportation Commodity Code) designations. Chemicals and Refined Products represent the largest subgrouping of the commodity groups, each with more than a half-million loads annually.
Tank car designs have mostly stabilized after the post Lac-Mégantic period of evolution and redesign. The replacement rate is approximately 8,000 cars annually, excluding regulatory requirements to phase out older, hazmat-carrying cars. In 2024, approximately 10,000 new units were built.
Regulatory issues remain on the table, among them HM-246, governing very-high hazard-commodities, mostly TIH (Toxic Inhalation) commodities such as chlorine, anhydrous ammonia and ethylene oxide. More regulatory changes fall under the FAST Act, such as HM-251, governing hazardous flammable liquids like crude oil and ethanol. There is potential for regulation acceleration in the wake of East Palestine.
Tank car regulations are tricky and challenging, but should benefit carbuilders, component suppliers and lessors. The U.S. and Canadian governments enacted legislation updating the phaseout date of all tank cars used for transport of flammable liquids, except DOT-117J (new) and DOT-117R (rebuilt) cars, to May 1, 2029. The phaseout is applicable to loaded and residue shipments.
According to U.S. DOT Hazardous Materials Regulations, all jacketed and unjacketed legacy Class 111s, as well as jacketed and unjacketed enhanced Class 111s (also called CPC-1232s), will be prohibited from importing, offering for transport, handling or transporting unrefined petroleum products, ethanol, and Class 3 flammable liquids in Packing Group I. Under Transport Canada’s Containers for Transport of Dangerous Goods by Rail standard, the same restrictions apply for Packing Groups I, II and III.
New legislation affecting tank cars is the OBBBA (One Big Beautiful Bill Act), which significantly impacts the Section 45Z Clean Fuel Production Credit, extending the credit period, modifying feedstock requirements and clarifying rules related to Foreign Entities of Concern (FEOCs). Specifically, the OBBBA extends the sale deadline for eligible fuel under Section 45Z to Dec. 31, 2029. It also introduces stricter domestic feedstock requirements for fuel produced after Dec. 31, 2025, limiting eligible feedstock to that produced or grown in the U.S., Mexico or Canada. Additionally, the OBBBA introduces restrictions on FEOCs claiming the credit, with specific rules for entities related to or conducting significant transactions with FEOCs, impacting various clean energy credits including 45Z.
For this report, Railway Age asked tank car market stakeholders for their long-term view on the tank car market. What types will be in demand and why? What is the regulatory outlook? The equipment finance perspective?
“The rental market for tank railcars is the most service oriented of any operating lessor dominated railcar leasing market,” says Railroad Financial Corp. President and Railway Age Financial Editor David Nahass. “That’s not exactly news—it has been that way for some time. However, as the cost of maintaining a tank car continues to rise, that dynamic continues to favor lessors who can provide the necessary levels of service to their customers.
“What specifically has changed? The regulatory process and record-keeping requirements provide lessors an opportunity to flex their financial muscle and expertise to the benefit of their customers. Specifically, the ten-year required recertification process for all tank railcars, HM-216, is costly, and shop availability can be sporadic. Railcar end users need to maintain technical and operational expertise to handle the process in a timely, efficient and cost-effective manner. Having a lessor partner to help with the process is a draw for end users.
“Overall, the rental market for tank cars continues to remain relatively robust even as the market has seen some limited pockets of weakness. There is anecdotal evidence that rates have retreated from loftier highs of late 2024, but there is fundamental strength underpinning the market that is unlikely to dissipate in the near future. There are a few core reasons for this:
- “Tank railcar supply is running below at the rate of replacement.
- “The replacement cycle for cars included in HHFT (high hazard flammable trains) is not yet completed.
- “Growth in the chemicals loadings segment (chemicals, along with petroleum and petroleum products are the largest commodity groups for tank railcar use).
- “Even with modest annual production of new tank railcars, tank railcar prices remain elevated vs. pre-pandemic prices.
“The industry has handled the HM-216 bubble well—better than many people expected. Tank railcar supply remains consistent, so expectations for a downturn in rates should be tempered. The costs of tank railcar maintenance seem to be rising more rapidly than the cost of new cars; that would suggest continued opportunities for lessors to provide high-level service to customers and to maintain strong leasing margins into the near future.”
At Railway Age’s Rail Insights 2025 conference, Nahass spoke with Katherine Suprenuk, President of Leasing and Manufacturing, Union Tank Car Company & Procor (a Marmon/Berkshire Hathaway Company), about the tank car market. “We’ve talked about circumstances that might change the demand cycle and potentially be drivers for increased building of new cars,” Nahass said. “Additionally, we see fleet attrition in many classes of assets due to the aging of cars. Can you imagine a time where, because of having had low backlogs for some time, we struggle to build the railcars necessary to serve current demand levels?
“It is a fair concern for tank cars, as coming out of COVID we had about three years where we were building below replacement levels. However, things have since turned and we’ve had net additions over the past, say, year and a half as the cars previously ordered have been built and delivered. Order volume began to soften in 2024. And then the tariff policy and economic conditions have exacerbated the situation, and ordering has continued to slow over the past few months. It’s quite possible that, if this continues without a meaningful hit to demand, the North American fleet could tighten up further. That said, whether it’s tank cars or freight cars, while shortages happen, they tend to be short term, and I can’t imagine a situation where there’s a prolonged car shortage. The market is fluid and adaptive. When push comes to shove, orders will be placed if customers need the cars. They’ve just slowed down. We’ll adapt, and I don’t see any major shortage coming.”
“From the tank car perspective, chemicals continue to be a bright spot in a fairly tepid loadings landscape,” Nahass observed. “Even with the tariffs and other economic related uncertainty, the economy seems like it’s poised for a downturn. We’re not sure, but are we seeing it to some degree in the plastics market as an example? Do you see continued strength through the remainder of the year in the chemicals segment, or will we see economic weakness cause a little bit of a pullback?
“Chemicals are very relevant for tank cars,” Suprenuk said. “Half of tank car loaded moves comes from chemicals. We do watch that closely, and you’re right, that has been a relative bright spot in the loadings profile for things moving in tank cars. But the year-over-year growth we’re seeing is about one percentage point year to date, which is more modest. Generally, I believe it should be positive in 2025, but the growth may wane to some extent. Looking at the broader economic context, there’s other indicators that are showing signs of contraction in manufacturing. The PMI (Purchasing Managers Index) has been signaling a slowdown for the past several months. GDP (Gross Domestic Product) and IP (Industrial Production) forecasts show modest year-over-year growth. All this points to continued fragility in overall demand, which if it continues could soften chemicals to some degree. But I still think for the year, it’ll probably be up vs. last year.”
“Are there notable regulatory initiatives under way that could shape the tank car market and have an impact on all the things we’ve been discussing?” Nahass asked.
“There’s one area that could have a significant impact on the industry in a positive way: HM-265, which addresses hazardous materials regulations. Last year, PHMSA (Pipeline and Hazardous Materials Safety Administration) put forth a notice of proposed rulemaking (NPRM) that proposes revising the hazardous materials regulations. Union Tank Car, through the RSI (Railway Supply Institute), submitted input through the normal comment process as we usually do, and that will help shape the regulations, aiming overall to increase efficiency while maintaining safety standards that we have. With this evolving NPRM, there are a couple of areas related to deregulation of authority that RSI would like to see included in a final rule. One relates to quality assurance programs for tank car repair shops. The other has to do with tank car design approvals.”
“As for existing quality assurance programs, the AAR owns and enforces them. The proposal is that we allow tank car facilities to adopt any established quality assurance program and still be subject to audits against that program, giving them more flexibility. This would align the AAR with what is already in place at Transport Canada. As for tank car designs, currently they require approval by the AAR Tank Car Committee. On the table is making it acceptable to use ‘design-certified engineers’ instead of the existing AAR approval process. Both these changes, if implemented, would promote efficiency and innovation. The tank car supply industry is quite supportive. We view these changes to be in alignment with the objectives of the current Administration, and we hope that PHMSA continues to make HM-265 a priority and push it forward.”
“The tank car fleet is young, so replacement will play less of a role in tank deliveries than regulatory and commodity growth drivers,” says TrinityRail Chief Commercial Officer Charley Moore. “Deliveries for HM-251 and HM-246 compliance are ongoing, and tank cars move key commodities integral for North American Energy Transition, like soybean oil, renewable diesel and acids. Regulatory requirements have been a big driver in new and existing tank car demand over the past several years. Shippers continue to make progress in complying with HM-251 and HM-246. In addition, qualification requirements for existing tank cars are a big driver of elevated maintenance events and costs for shippers and lessors. As well, we have seen strong interest for telemetry within the tank car fleet. Given the sensitive nature of some of the commodities moved in tank cars, increased visibility to location, temperature, etc., can give tank car shippers a competitive edge.”
“We view the long-term tank car outlook as stable, led by replacements, with some modest growth at roughly 10,000 units annually for the next five years,” says The Greenbrier Companies, Inc. Vice President of Marketing and General Manager Tom Jackson. “One of the key areas driving this growth is renewable feedstock, particularly from seed oils such as soybeans. Our confidence in this outlook was further bolstered by the recent passage of the 45Z tax credit within the OBBBA on July 4. While we do not foresee major growth catalysts like those experienced during the Ethanol Boom or the Crude-by-Rail eras, this stability is beneficial from a builder’s planning perspective, as it allows us to avoid significant production ramp-ups and ramp-downs.
“Additionally, we are expecting modest growth in the Pressure tank car segment. Of the 450,000 tank cars in service, General Purpose (GP) tanks make up 80% of the total, while Pressure tanks comprise the remaining 20%. Interestingly, we expect the Pressure segment to outpace the growth of GP tanks over the next five years. This anticipated growth is largely driven by the regulatory phase-out deadline of May 1, 2029, for other flammable liquids in Packing Groups II and III.”
