Driller's Pain Is Railcar Owner's Gain

Business

By Bob Tita
Updated May 30, 2014 1:08 a.m. ET

A shortage of railcars bedeviling farmers, auto makers and oil drillers has become a windfall for some railcar manufacturers, lessors and finance companies.

"There's strong demand for a broad base of car types and there's not enough inventory," said David Nahass, senior vice president at Railroad Financial Corp., a Chicago-based investment adviser. "As an operator or lessor in this environment, this is what you pray for."

Monthly rates for tank cars, which transport liquids such as crude oil, have increased to $1,500 to $2,000 a car from about $500 in early 2011, before hydraulic fracturing ramped up in North Dakota's Bakken Shale oil field.
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Railcars are considered good investments because their costs can be depreciated over several years, sheltering income from federal taxes, and they provide a predictable stream of income as long as the cars remain leased. Railcars can remain in service for at least 40 years and change hands frequently as one owner sells when prices are high and another buys to take advantage of depreciation benefits.