Report: 2020 Economic Impact Study on Car Hire Rates

By Railway Supply Institute

A 2020 economic impact study on car hire rates by The Brattle Group lays out a compelling and ongoing need for immediate reform by the Surface Transportation Board (STB). The study illustrates that the car hire default rate methodology significantly discourages investment in new boxcars by independent freight car lessors, who are the principal owners and investors of the majority of these rail assets. With over 22% of the boxcar fleet projected to retire by 2030, the potential for another severe boxcar shortage looms, which could have far-reaching consequences on various commodities and the broader economy. The STB is positioned to use its regulatory authority to address these issues proactively to ensure a well-functioning rail freight system. 

The importance of reform in this sector cannot be overstated. The current default rate rule, which ties the rate to the lowest negotiated positive rate from the previous quarter, results in an artificially low default rate that is non-responsive to changing market conditions. As highlighted by the Brattle Group in 2020, adjusting default rates for existing cars every five years and revising the default rate formula could incentivize investments for new cars by independent lessors. Policy change is critical to maintaining the health of the boxcar supply and preventing anticipated crises within the transportation network. 

Key Findings from The Brattle Group’s 2020 Economic Impact Study on Car Hire Rates

  • Boxcars are being retired faster than new ones are being built, representing an imminent shortfall in the boxcar fleet. 
  • The default rate methodology discourages investment in new boxcars, constraining fleet growth and future capacity. 
  • A sizeable portion of the boxcar fleet is reaching the end of service life, necessitating urgent action to prevent economic repercussions. 
  • Revising default rate rules could spur private investment in new boxcars, ensuring the fleet’s sustainability. 
  • The STB possesses the jurisdiction and authority to amend the default rate rule, which is critical to addressing the boxcar shortage.
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