Shipper acceptance of refrigerated rail has grown in the past several years as new services have proved reliable in intermodal and boxcar sectors.
That acceptance has translated in expansion of existing services and new companies entering the arena. But growth of the fledgling industry niche will be difficult to sustain as thousands of refrigerated boxcars — almost half of the domestic fleet — are scheduled for retirement during the next few years.
With capacity already tight, shippers face a true squeeze play in which they could be forced to scramble for equipment and capacity, while paying a premium for it. Some carriers and marketing companies are investing in equipment, but it’s unlikely to be enough to keep up with rapidly growing demand.
Cold Train, which designed and ordered the first refrigerated domestic intermodal boxes, in September announced it was expanding with an order for 100 53-foot boxes and a handful of new service destinations. The carrier, which started service in 2010 between Quincy, Wash., and Chicago, expects its monthly loads to increase to 1,000 by the end of the year from 700 now.
Shippers were initially skeptical that intermodal rail could handle perishables safely, but high fuel costs and increasing confidence among produce companies in the quality and reliability of service has helped Cold Train grow, CEO Steve Lawson said.
Railex, which markets 55-car refrigerated unit trains between enclosed reefer terminals in Wallula, Wash., and Delano, Calif., to upstate New York, launched an express reefer boxcar service in 2006. The three facilities are large enough for the train to pull into and unload and load cargoes in a temperature-controlled environment.
Railex provides the terminals and the marketing, and uses Union Pacific boxcars. The trains are pulled between the terminal points in five days by UP and CSX Transportation.
Railex, which is building a new distribution center in Jacksonville, in August announced two new express services featuring reefer boxcars.
McKay TransCold plans to launch a service sending a unit train of 50 72-foot cars from Selma, Calif., to Wilmington, Ill., each Wednesday, with an identical train leaving Wilmington for the Central Valley the same day. The crisscrossing service will haul meat, eggs and dairy products west and produce east on equipment owned and operated by BNSF Railway. The service is scheduled to begin in the first quarter of 2014 and take just five days for each leg of the trip.
A separate express unit-train service is scheduled to begin at the beginning of the year connecting the Port of Tampa with Kingsbury, Ind. The transit time for the Green Express is pegged at 56 hours, with the twice-weekly service operated by CSX.
The unit trains will be made up of refrigerated and dry boxcars, according to Green Express Group. The reefer cars will be from Iowa Pacific Holding’s fleet of owned and leased boxcars. The project will include construction of a 75,000-square-foot refrigerated warehouse near Tampa’s container terminal on Hooker’s Point.
Port and CSX officials said preliminary service should begin by the end of this year. CSX and other business partners in September 2012 opened the $11 million Gateway Rail project at the port, which allows dedicated unit trains to make a two-mile loop at the Hooker’s Point waterfront. “They came to us, looking for cars,” Iowa Pacific President Ed Ellis said. “We’re in the reefer boxcar business, and we’re happy to be part of this.”
The cars are part of a fleet owned by Iowa Pacific and others leased from Frito Lay and Rail Logistics, parent company of Cold Train. The fleet is already kept busy with single-car manifest service, but express and unit train service offer better car utilization. With manifest service, the boxcars head out on mixed trains and result in less than one revenue trip a month. With express service, each car should average two head-haul, or revenue-generating, trips each month, Ellis said.
That increased utilization is at the heart of the reefer express industry. With the exception of Cold Train’s 400 53-foot containers, the equipment has been rerouted into express unit train service from less efficient and less profitable manifest service. None of the refrigerated boxcar services use new equipment.
Ellis would like to see more of Iowa Pacific’s fleet used in service with better turn times, and the company is considering several possibilities. One concept, shopped around several years ago by fledging company Green Zephyr, would put reefer boxcars on the tail end of intermodal express trains. Those boxcars can be operated as part of an intermodal unit train if modifications are made to the cars’ braking system.
With new reefer boxcars carrying a stiff price tag of about $270,000 each, Green Zephyr couldn’t come up with financing for the project. Iowa Pacific hired the entrepreneurs behind the concept and is talking with carriers for such service, Ellis said.
A limited number of new boxcars enter the U.S. fleet each year. Leasing company Cryo-trans buys an average of 100 reefer boxcars annually, according to Dwight Price, director of sales and marketing.
For a 10-year stretch, Cryo-trans was the only purchaser of new reefers in the U.S. and now has more than 1,200 cars, the second-largest reefer fleet in the U.S. behind Union Pacific. The company leases cars to frozen-food manufacturers.
“Our customers include Conagra, Heinz, Frito Lay — we provide full cold chain service,” Price said. “We manage the cars, provide the fuel, track and trace, and do reporting.”
UP this year took delivery of the first of 225 new reefers, the first order for new refrigerated equipment by a U.S. railroad in more than a decade. Valued at more than $60 million, the order represents a fraction of what UP needs to spend to maintain its current fleet size. About 3,500 cars in the Omaha-based railroad’s fleet face mandatory retirement in 2016.
The U.S. mechanical refrigerated boxcar fleet, which has been declining for decades as railroads scrap old cars, stands at about 8,000. Approximately three-fourths of the fleet belongs to UP, which keeps the cars in constant use.
Demand is so high that UP has to ration its boxcars to customers. Last year, it fixed up about 300 cars that were then 46 years old, even though the Association of American Railroads won’t allow equipment older than 50 years to be interchanged between carriers.
Replacing the entire number to be scrapped would require UP to invest almost $1 billion, something considered highly unlikely. That will only tighten already-tight capacity, a scenario that could make investment in reefers more attractive, Price said.
“Increased demand is great news for us,” he said. “Our business model is to purchase cars when we have a pre-committed customer ready to sign a long-term lease. These cars are too expensive to buy on spec, so we always know where they are going.”
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