Intermodal rail freight is a well-known sector of long-haul freight. But one of the services for making it efficient is managed by a company few shippers know much about.
This commentary explores TTX. TTX is not a railroad; and it not a railcar leasing company. TTX is a railcar pooling company.
Interestingly, most shippers and receivers of freight probably never interact with TTX staff. Thus, my characterization that TTX is a silent player in intermodal rail.
Originally created in 1955 as Trailer Train by the Pennsylvania Railroad, in 1974 the company changed its name to TTX and became a “pooling agreement” operation. A pooling operation describes a shared collection of assets (in this case freight railcars). Under a contract agreement between participating railroads, they use designated cars in the pool as a fleet as and when and where the railcars become available.
There are no provisions that require the railcars to be returned to owners or to certain locations before they can be reloaded with more freight.
This pooling process requires federal government oversight. The original shared concept was approved by the federal government’s old Interstate Commerce Commission (ICC), which was replaced by the Surface Transportation Board when the ICC was dismantled. Interestingly, this pooled business model was approved before the passage of the 1980 Staggers Act, which provided the regulatory reform sought by the railroads.
Since the 1970s, TTX freight carpooling has been reauthorized four times – most recently during 2014. The 2014 reauthorization extends the TTX pooling function for a 15-year term that extends through this decade.
The use of the TTX freight carpool is not mandatory. Each railroad that participates in the TTX pool is free to pursue its own fleet acquisition strategy and to use its own railcar fleet if it so chooses with no obligation to use TTX railcars.
While the original name Trailer Train and the vast number of TTX cars are used for intermodal movement of trailers and containers, the current TTX fleet has many different railcar types and commodity movement roles. The STB specifically acknowledged in its 2014 decision that TTX pool equipment includes autorack cars (which carry finished automobiles and small trucks), centerbeam flatcars (designed to transport lumber) and chain tie-down flatcars (designed to transport military, agricultural and heavy industrial equipment). TTX even has general purpose boxcars and gondolas.
Figure 1 identifies the owners of TTX. These are the nine major capital investment parties who participate both financially and as the TTX Board of Directors.
Today, TTX owns and provides more than 165,000 cars out of the approximately 1.68 million North American freight railcar fleet. That is about $14 billion of TTX assets and 10% of the Canadian, Mexican and U.S. freight railcar fleet.
Think of TTX in part as a risk management company
The pool car business model plays an important part in sharing risks associated with cyclical economic periods. For example, during the Great Recession (for railroads this was the 2007 to mid-2009 period), rail freight traffic fell significantly. During those declines, railcar fleet debt still had to be serviced (paid). During that recession, intermodal traffic fell by nearly 20%.
Under those circumstances, TTX’s “member” railroads exercised their pooling agreement rights to “turn back” idle flatcars to TTX and thereby avoid railcar usage charges from TTX.
Here is how bad the recession decline was for the TTX car fleet:
- During 2009,
only 72% of the TTX double-stack fleet remained in service
- Only 44% of
bulkhead flats remained in service
- 30% of
centerbeam railcars remained in service
- 50% of pipe
movement flat cars remained in service
TTX, as the pool operator, absorbed the ownership costs of the out-of-service railcars – and in the process saved its member railroads nearly $450 million from 2007 through 2009.
After the Great Recession…
From 2011 through 2013, TTX expanded its fleet by purchasing more equipment. TTX’ s capital spending on new flatcars totaled almost $1.4 billion. That is an average of $460 million per year.
Here is what the company acquired. TTX spent approximately $920 million to acquire new 53-foot double-stack cars and convert 48- foot cars into 53-foot cars. That increased the capacity of the TTX fleet of 53-foot well cars by more than 46% between December 2010 and December 2013.
During the decade between 2004 through 2013, TTX spent about $3.1 billion to acquire 81,200 new intermodal platforms and 9,700 other flatcars. Of those flatcars, 5,500 were built to handle automotive industry shipments. TTX offers more car types than just intermodal platforms. TTX is also the largest pool source of boxcars.
World-class railcar utilization is the day-to-day objective
Beyond providing a degree of risk management and railcar type diversification, TTX is perhaps best known in the railway market for its railcar use utilization rates.
TTX railcars can secure the next and nearest available traffic loads without the delay of long- distance railcar repositioning.
The result? TTX intermodal cars often operate empty for less than 8 out of every 100 miles traveled.
The overall in-use fleet metrics are outstanding. The company’s average fleet usage was 91.6% as of a 2015 published report by the respected rating agency Fitch.
TTX’s distribution methodology for routing empty and available cars to the nearest available loads recently was calculated as saving its member railroads approximately $345 million in annual operating expenses and annual capital carrying costs. How much is that in terms of the cost of buying more freight cars? At today’s prices, likely about the equivalent of more than 2,500 cars not needed.
William Rennicke of Oliver Wyman analyzed the TTX flatcar pool concept back in 2014. Without TTX pooling, he calculated that empty intermodal car miles could be expected to increase more than 45%. Environmentally, that would be a waste of repositioning time and fuel.
Without pooling, the so-called financial bottom line is that the rates charged for using intermodal equipment would have increased.
How does TTX meet its financial obligations? Its main source of revenue is railcar hire charges paid by the participating railroads. Some revenue comes from railcar repair services. TTX operating expenses mostly cover related railcar maintenance and re-positioning expenses. Cash flow from operations covers debt service.
Credit oversight agencies report that TTX is financed primarily by debt.
Here are a few management actions by TTX staff.
The charges and rules for distribution of railcars in the pool are governed by a member “car contract.” Under this agreement, each participating railroad receives an entitlement to a share of the railcars, based on its historic use. If a railroad has more pool railcars on its tracks than its entitlement, TTX can require it to send TTX railcars to another railroad that has less than its entitlement.
TTX charges participating railroads an hourly charge and a mileage charge for the use of its railcars. For example, in 2013, the base rate for a TTX single unit railcar was ~$0.70 per hour; compared to about $ 1.37 per hour for stack cars.
When a railroad has more railcars than it needs, it informs TTX. TTX then limits the charges and redistributes the cars within its member network – or directs the railcars to a storage location at TTX expense.
A few concluding points
While freight shippers might have few (if any) direct dealings with TTX or its staff, they certainly benefit from its business model.
TTX managers seem to operate the railcar pool to maximize fleet utilization. It does not appear to be a cash flow or profit maximization operation model.
When next we see TTX ordering intermodal well cars (container stack cars), that will be a good sign of intermodal growth ahead. Perhaps in 2020?
Here is one report on how effective TTX pooling is from a 2008 report to the STB.
Providing just 10% of the North American fleet:
- TTX accounts
for ~8% of all rail tons
- It accounts
for 12% of all ton-miles
- It accounts
for 18% of the gross earned railroad revenue
Why such a large share of revenue? It is because the TTX railcar fleet moves higher value and higher cost per mile freight.
Yes, pooling clearly works. If you disagree, please share your counter-observations.
- Testimony by Thomas Wells and Patrick Casey at past STB hearings
- Fitch Ratings – various years
- Selected TTX presentations available on the internet