By RSI Staff
Recent changes to economic and trade policies are fueling significant challenges within the freight rail industry. As decision-makers face uncertainty, particularly around rail traffic and equipment demand, many are left to wonder whether they should proceed with caution or move forward as planned.
At Railway Interchange, taking place May 20-22 in Indianapolis, Joseph Towers, senior analyst for rail and intermodal at FTR Transportation Intelligence, will help attendees try to make sense of the current landscape. Ahead of that session, we spoke with him to understand how today’s economic outlook is impacting the freight rail industry and what leaders can keep in mind as they navigate this territory.
How are you seeing tariffs impact freight rail? What are some considerations leaders need to keep in mind?
Over the past few months and weeks, we’ve seen a pull forward of rail freight for certain commodities in anticipation of tariffs, with intermodal and autos being the most notable. Those strong volumes, however, are expected to come at the expense of traffic later in the year, due in large part to the broad tariffs on non-United States-Mexico-Canada Agreement (USMCA) auto imports, and the 145% tariffs recently levied against Chinese imports.
Our outlook for the other commodities is not much better. With broad tariffs on steel and aluminum imports, much of which comes from Canada and Mexico, along with the tariffs on non-USMCA covered goods, and the possibility of reciprocal tariffs on some of our closest trade partners, we’re expected rail traffic this year to be flat at best.
On the equipment side, the uncertainty surrounding tariffs is arguably the most significant effect, even more so than the inflationary pressures. With tariff policy constantly changing, and the lead times required between the order and delivery of a car, few want to buy a piece of rail equipment that could cost substantially more than anticipated by the time it arrives.
What changes in railcar demand are you anticipating this year, and how is that different from your expectations coming into 2025?
As we entered 2025, we were already anticipating softer railcar demand due to flat freight demand and diminishing industry backlogs. Since then, our expectations have become even less optimistic. Based on recent build and economic data, along with conversations with stakeholders across the industry, we now expect demand for new railcars to be even softer, with this weakness likely to affect a broad range of car types.
Much of this softness appears to stem from the uncertainty surrounding tariff policies and the possibility of railcar owners and lessees facing higher-than-anticipated costs for their equipment. Concerns about the strength of the industrial economy also seem to be contributing to this uncertainty.
The effects of this hesitancy could manifest in various ways. We may see increased shop demand as operators look to extend the useful life of existing railcars, as well as higher lease rates, as demand for lessor-owned cars rises to fill the gap that would typically be filled by new cars. Lastly, if freight and economic conditions remain flat, we may see an uptick in scrappage levels as car owners look to offload idled rail equipment.
What is your advice for leaders trying to navigate this uncertainty?
Whatever you think is going to happen, is not going to happen. This is usually the case, but it’s especially true now. My advice to leaders is to be as nimble as possible and create a strategy framework based on multiple scenarios, rather than a single base case. It’s also important that these scenarios are not static but are constantly updated as new information becomes available.
I would also suggest trying to avoid unnecessarily postponing decisions until a time when there is less uncertainty in the market. Economic conditions will remain volatile for the foreseeable future, and in many cases the ability to course correct will serve you better than waiting for calmer seas.
About the Railway Supply Institute (RSI)
The Railway Supply Institute (RSI) is dedicated to advancing safety, innovation, technology, and sustainability within the freight and passenger railway supplier industry, both in North America and global markets. As the voice of the industry, RSI strategically engages in critical and urgent industry matters by leveraging the technical expertise of our members to advocate in the legislative and regulatory arenas, foster education, host impactful events, and facilitate networking opportunities. For more information visit www.rsiweb.org, follow RSI on Twitter and LinkedIn.