EQUIPMENT LEASING GUIDE
rates mid-year 2016. Investors should expect that lease rates will more than likely flounder around at current levels. Working hard to keep cars active and employed will be as challenging as the return negotiations in which lessors engage when markets soften. As we heard from one lessor, the general consensus suggests that today’s market will continue at least through the end of 2017 (some sources believe 2018 is the first chance for a rebound). Typically, a two-year downturn has been the norm; this cyclical slump might challenge that standard. As lease rates languish, lessors will look for opportunities to move rates higher as the market allows while rates will move lower if the current state of the market continues apace. Right now, an Eeyore style approach of “No Expectations, No Disappointments,” disappointingly, seems just about right. Round the Market
A general weakness in the market is leaving many market segments floundering and those with cars ready to lease frustrated by overall weakness and the low rates for railcars on lease today. Here’s an update on cars and lease rates: Tank Railcars for Crude: Oversupply, increasing pipeline capacity, lower oil pricing, an end to the Brent Crude/WTI (West Texas Intermediate Crude) price spread, rail tariffs on
cars that are not DOT-117A standard and impending regulatory changes in tank railcar design have all combined to leave the lease market for tanks for hauling crude and ethanol on the ropes. Rumors of cars in storage in the thousands have investors, lessors and lessees wondering when a recovery might occur. If a car gets leased, and that’s a big if, we hear rates of $500 per car per month full-service, but there’s a lot of hope in that number. When does this market recover? Back to the 2014 speculator’s paradise? Probably never. However, consensus suggests that 2018 could be a year when regulatory issues are settled and oil pricing may rebound to where CBR has a more relevant role in the car leasing marketplace, albeit likely not to the peak levels of late 2014. Tank Railcars (Non Crude): Pressure tank railcars continue to suffer from oversupply, but the medium size range of tank (20,000-25,000 gallon) railcars continues to show strength vs. other tank railcar types and other asset classes. New-builds continue to push capacity into the market. Older “legacy” cars are most at risk as the bubble in tank railcars that have no chance for retrofit or that might be subject to tariff continues to grow as cars come off lease. For newer cars, lease rates continue to hold steady in the mid- to high$800s today, down from $1,100 to $1,400 a year ago. Older cars continue to show strength, sitting in the $600s. Grab it
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