UP Puts Cold Cash Into Reefers

UP Puts Cold Cash Into Reefers

For the first time in a decade, a U.S. railroad is adding refrigerated railcars to its fleet.

Union Pacific Railroad is receiving the first of 225 72-foot boxcars it ordered from Greenbrier Industries. The mechanical reefers cost about $270,000 each, making it a capital investment of about $60.8 million, but the carrier isn’t scrambling for new business to keep the equipment in use.

“We’ve started taking delivery of the new cars,” said John Philp, assistant vice president for food and refrigerated products. “Right now, we are oversubscribed and rationing cars, especially the 72s.”

When UP placed the order, the cars were intended for delivery in late 2013 and into 2014. UP and Greenbrier accelerated the timetable after the manufacturer had an unexpected opening in its production schedule.

“We had demand for the cars, so we moved some capital around to take delivery ahead of schedule,” Philp said.

The 72-foot cars are designed for products that are bulky, rather than dense, he said. “A lot of commodities — like fries — cube out before reaching maximum weights. These cars work well with those type products.”

The new cars aren’t that attractive to shippers of heavier frozen goods, such as beef, pork and poultry. “Most of the beef and poultry we move is headed to export, so it gets loaded in by exact container ratios. A 50-foot car is loaded with exactly two containers of meat and a 64-foot with three containers to make trans-loading easier at the ports. If we used a 72-foot for that trade, it would still only be loaded with what would fit in three containers.”

That factor doesn’t concern to UP executives, however, because the demand for cars is so high. “We have some customers that would like to use all our new cars. We don’t have to worry about utilization,” Philp said.

Demand is so high, in fact, that the carrier last year repaired about 300 cars that were then 46 years old. “We didn’t plan to repair those because the mandatory retirement age for cars is 50 years. After that, the AAR  (Association of American Railroads) won’t allow them to be interchanged by carriers. You really have to think hard about investing in equipment that old.”

Although the cars had only four years of working life remaining, UP decided to fix a few hundred to meet demand. About 3,500 cars will be retired after 2016.

Having such a large number of cars about to be scrapped was a catalyst for the orders for new cars, Philp said. “We’re starting the replacement process now and would like to get a similar number next year as we have on order now, or even accelerate that pace,” he said.

Several hundred of UP’s reefer fleet are dedicated to the Railex services from Washington state and central California to New York. Demand for the weekly reefer unit train service has increased, and other companies and investor groups would like to start something similar, he said.

“There is a lot of interest out there, and I’m sure a lot of customer demand,” Philp said. “But the fact is that people coming to us with ideas isn’t enough. We just don’t have equipment for new services to use. Anybody that wants to start new refrigerated rail service is going to have to come to the table with enough financing to provide their own equipment.

“We’ve met with people that have some pretty good ideas for new companies,” he added, “but there are more ideas than money right now.”

Contact Stephanie Nall at stephnalljoc@gmail.com.