Who Owns Train Cars? Hint: Usually Not the Railroad

The derailment of a Norfolk Southern Corp. train carrying toxic chemicals has rightfully sparked a broad debate about railroads’ operating practices and safety standards. But the railroads aren't the only ones that bear responsibility for making sure that train cars are fit to ferry cargo to their destination.

The railroads themselves don't own many cars outright. There were 149 cars on the Norfolk Southern train that veered off the tracks in East Palestine, Ohio, on Feb. 3, but only nine were owned by railroads; 30 others were owned by TTX, a company that is jointly controlled by the main North American railroads and pools car assets among the operators, according to John Gray, senior vice president of policy and economics at the Association of American Railroads. The remainder were privately owned; this includes the 23rd car — a hopper car carrying plastic pellets — whose overheated wheel bearing was singled out by the National Transportation Safety Board's preliminary findings as the trigger for the derailment.

That kind of ownership breakdown is fairly typical. Private, non-railroad owners — which can include shippers, rail-car lessors such as GATX Corp. and Trinity Industries Inc., and third-party investors — account for about two-thirds of the cars operating on North American lines, Gray said in an interview. When the railroads or TTX are the owner, the car is far more likely to be a box car used to carry products like canned goods, beer and household appliances or an intermodal car whose container can be transferred from ships and trucks to the rails. Tank cars used to transport raw chemical inputs or fuel are 99.9% privately owned, and hopper cars used for dry bulk commodities such as wheat, coal, rocks or roofing granules are about 80% privately owned, he said.

The owner of a rail car typically bears ultimate responsibility for its maintenance, and the railroads have the right to request these (now mostly electronic) records at anytime, Gray said. The railroads are required by regulators to inspect the condition of cars when they come onto a line, including whether the brakes are working properly and whether there is any obvious damage to wheels or axles, but their obligations are mostly limited to what can be assessed visually and without taking the car apart, he said. Bearings — like the one that overheated in the Norfolk Southern derailment — are sealed and enclosed in a metal box, so they can't be thoroughly inspected by just running eyeballs over them, Gray said. This is one reason railroads have installed heat sensors along their tracks to alert crews to possible bearing failures. The Norfolk Southern train passed three of these detectors during its journey, but only the third registered a temperature high enough to trigger an audible alert for the crew to stop the train. By that point, it was too late to avert a derailment.

"It's reasonable to think on this train you had a variety of different people that performed maintenance on these cars and the locomotives," Justin Long, an analyst at Stephens Inc. who covers both railroads and car-lessors, said in an interview.

Much is still unknown about the circumstances leading up to the Norfolk Southern derailment, which forced the railroad to undertake a controlled release and ignition of vinyl chloride — a colorless, carcinogenic gas that's used to make hard plastic resin — to prevent a potentially catastrophic explosion. The NTSB has issued only a preliminary report; a full investigation will take 12 to 18 months. It's not clear at this point why the bearing overheated or what other factors may have been at play.

A lot of the political and public blowback thus far has centered on Norfolk Southern — for obvious reasons. The railroad didn't help itself by fumbling the initial messaging around this accident. While there are no obvious indications at this point of gross negligence on the part of Norfolk Southern, the railroad industry must look inward and assess what sort of additional safety measures might have prevented this derailment or whether other regulations it has previously resisted might help avoid other, similar environmental disasters. But the people of East Palestine deserve a complete picture of what went wrong, and that should include a conversation about the owner and maintenance record for the car in question and others that derailed.

The NTSB said on Thursday that it was also looking closely at aluminum protective covers used on three of the derailed tank cars carrying vinyl chloride. These cars were manufactured in the 1990s, and the covers may have melted, potentially dripping onto and impacting the devices used to relieve pressure in the tank and prevent catastrophic failuresRead more: Norfolk Southern CEO Talks About Derailment

"The remediation of this and how we address this going forward points directly to an industrywide effort that include shippers and customers and tank-car manufacturers and tank-car lessors and the other railroad operators," Norfolk Southern Chief Executive Officer Alan Shaw said in an interview earlier this week.

Shaw confirmed that Norfolk Southern didn't own the hopper car whose wheel overheated, but he declined to identify who did. A representative for the NTSB didn't respond to questions about the ownership of the hopper car. The NTSB has said its full investigation will include an examination of the wheelset and bearing, rail-car design and maintenance procedures, as well as Norfolk Southern's use of heat detectors and inspection practices. Rail-car lessors GATX and Trinity were named as parties to the investigation. The companies own most of their fleets, but they also manage rail cars for third-party investors.

A representative for Trinity didn't respond to questions about the company's involvement. "We continue to fully cooperate with the NTSB in its ongoing investigation into the derailment to help ensure the agency has the technical assistance it needs to support its investigative efforts," GATX said in an e-mailed statement. "We are also providing all requested information that the NTSB may require. GATX takes all safety-related events seriously."

GATX does the majority of its maintenance in-house, but other lessors such as a bank or an investor would typically outsource that work, Long of Stephens said. Car owners must ensure that work is conducted at a facility certified to be in compliance with whatever is the more stringent between AAR and Federal Railroad Administration standards, Gray said. The railroads have some maintenance operations and will take cars there in the event of a problem, but they’ll send the bill to the owner, he said.

Norfolk Southern has pledged to do whatever is necessary to make things right with the East Palestine community, including reimbursing displaced residents and supporting local schools and the fire department. The Environmental Protection Agency has said the company is on the hook for all clean-up costs. Norfolk Southern can't duck its responsibilities here. But neither can anyone else with oversight obligations for train car maintenance.