Orders for new railcars in 2025’s third quarter amounted to 3,071. We’re not facing a financial crisis, or a COVID lockdown, but orders are behaving as though we’re in a crisis. This is a travesty with potential harm to the industry over the next few years.
Carloads have been resilient, railcar scrapping remains elevated, cars in storage are stable, utilization remains elevated, orders for new railcars are anemic, railcar prices are higher, and the fleet is shrinking—and lease price renewals are proving sticky above 20%! What’s going on?
Lessors love scarcity and hate surplus. With most car types in short supply, pricing power shifts to lessors. But without carload growth, that pricing power eventually disappears. As Paul Titterton, Executive Vice President at GATX North America, reflected at Rail Equipment Finance 2025 in March and at the GATX 1Q25 earnings call: “We continue to believe in what we’ve been calling the supply-led market thesis and the self-correcting market thesis, which is basically to say … that it is relative to history, expensive to build and expensive to finance new railcars, and that has been a constraint on new car production” The industry is in a supply driven cycle triggering shortages of certain car types and stronger pricing power for lessors.
In December 2022, I predicted a sustained period of higher railcar prices and lease rates. Now, three years later, my prediction has become reality. How much longer will it last, what is driving higher lease rates, and what impact will this trend have on the industry?
Shrinking North American Fleet
The North American railcar fleet has contracted roughly 3% between 2020 and today, from a high of 1,675,511 to 1,635,097, a net decline of 40,414. Railcar scrap rates remain elevated, driven by attractive scrap prices and railcar demographics. It is anticipated that 188,000 railcars will age out over the next five years. If railcars built between 1993 and 2004 that have been loaded to 286K GRL but were designed to 263K specs start fatiguing out, the number of scrapped cars may go much higher. If orders for new railcars don’t pick up soon, the fleet may shrink by 60,000-80,000 railcars over the next three to five years, dipping well below 1.6 million in the North American fleet—all this in the face of growing carload demand:
Orders for new railcars for the past two years have been well below replacement levels of 35,000-42,000 railcars annually:
The order spike in 3Q22 reflects the GATX/Trinity long term supply agreement for 5,000 railcars annually.
From 3Q23 through 4Q24, deliveries of new railcars were steady at 10,000/quarter. However, since 4Q24, deliveries have trended down to 7,500/quarter. With anemic orders and elevated deliveries, the overall backlog has fallen precipitously. At the end of 3Q22, the railcar backlog was 61,415, while today the backlog is down to 25,637. Unless orders pick up, carbuilders will need to scale down operations significantly very soon.
Reinforcing this message, Paul Titterton said during the GATX 1Q25 earnings call: “If you look at the ARCI (RSI American Railway Car Institute Committee) numbers for the past couple of quarters, we’re on an annualized run rate of around 20,000 car orders per year, which is well below the replacement rate, well below what we’ve seen in history. That is supportive of our business.”
New Railcar Prices
Railcar builders have been disciplined on pricing and margin, driven by pressure from the investment community. To illustrate: when Greenbrier announced 3Q25 earnings on 7/1/25 that beat estimates, the share price shot up 22% the next day! It has since retreated, driven by the order trough. Combined with higher input costs, particularly steel and components, new railcar prices remain elevated. Higher prices for new railcars increase the value of older railcars, to the benefit of lessors in terms of asset values and higher lease prices. Higher interest rates further add to the cost of new railcars.
Carloads Remain Steady, With Upside Potential
From a recent AAR publication, U.S. carloads have grown 2.1% year-to-date. In contrast to truckloads, rail carloads have proven to be far more resilient. Coal and grain have contributed significantly to rail’s overall performance. A couple of years ago I postulated that the decline of coal would slow down, and when that time came, we would begin to see net carload growth for the first time in almost 20 years. The “Pivot to Growth” is being led by coal carload increases, and growth in grain, intermodal and possibly construction-related products (i.e. lumber, aggregates) if housing starts rebound. All other commodities, including motor vehicles, have been steady.
Railcars in Storage
There are currently 330,085 railcars in storage, 35% of which, or 110,000, are tank cars. The second largest car type in storage is covered hoppers, representing 29% of stored cars, or 103,000. Coal cars, including hoppers and gondolas, represent another 62,000 cars, or 17% of stored railcars. Together, these three classifications represent 81% of stored railcars. The question becomes: Will these cars ever return to service given the changes in their respective markets as well as better, more productive designs? The real number of stored railcar candidates to return to service is likely much lower than 317,000. This supports tightness in railcar availability.
Railcar Ownership Changes Have Shifted Toward Lessors
Over the past 30 years, railcar ownership has shifted to lessor-owned fleets as railroads devote their capital toward infrastructure and locomotives:
As railcar ownership has shifted toward lessors, there has been tremendous reorganization and rationalization within the lessor community, as exemplified by the recent acquisition of the Wells Fargo fleet by GATX/Brookfield Infrastructure Partners: A new joint venture of GATX Corp. and Brookfield Infrastructure Partners L.P. have entered into a definitive agreement to acquire Wells Fargo’s rail operating lease portfolio of approximately 105,000 railcars for $4.4 billion. Initial joint venture equity ownership will be GATX (30%) and Brookfield Infrastructure (70%), with GATX having the option to acquire 100% of the joint venture equity over time. With the GATX/Brookfield JV acquisition of the Wells Fargo fleet, GATX market share of the lessor-owned fleet will increase from 13% to 25%.
Going forward, there will likely be fewer, larger lessors who will yield more control and discipline over railcar supply and availability. Gone are the days of upstart leasing companies who speculate recklessly, driven largely by 0% rates.
Lease Price Trends
Both GATX and TrinityRail offer tools for tracking the directionality of lease prices. GATX utilizes its LPI (Lease Price Indicator), while TrinityRail offers its FLRD (Future Lease Rate Differential) chart:
TrinityRail reported a 17.9% increase in its FLRD in the 1Q25 earnings report, while GATX reported a 24.5% increase in the same period. GATX has offered the LPI for years, yielding insight into historical lease price trends in response to market dynamics:
As reflected above, the railcar leasing industry has weathered its share of prolonged ups and downs. What we’ve seen over the past couple of years is a re-pricing of the “COVID Era” leases, reflected in 20%-plus changes in lease rates. Absolute lease rates, on the other hand, have proven relatively flat.
Going forward, there is high probability that lease rate renewal pricing will remain elevated, given the consolidation in leasing companies, further disciplined supply and continued elevated railcar retirements and scrapping. These factors all contribute to a sustained favorable lease price environment. But is all this good for the overall freight rail industry?
Anemic orders for new railcars aren’t good. Railcar ownership has shifted squarely toward lessors, who have learned that railcar tightness results in higher lease rates. Why add to supply and possibly risk lease price pressure? With the fleet trending toward sub-1.6 million railcars, will the industry be able to support any uptick in carloads?
Railroad carloads have proven resilient, with a few growth opportunities imminent. When railcars aren’t available to prospective shippers, or the railcar that is delivered is a piece of junk, that growth opportunity disappears. Furthermore, running 20-plus-year-old equipment detracts from overall performance through higher track and wheel costs, higher fuel costs, lower reliability and higher risk of failure (remember East Palestine?) Railcars produced today are far superior to those produced more than 20 years ago. Delaying innovative designs detracts from overall railroad performance. Above all, the rail industry won’t be able to grow if good railcars aren’t available. It’s time to start rebuilding the fleet!
