RAILROAD FINANCIAL DESKBOOK 2017
“we always overbuild.” While the causes for the overbuilding are understandable, after a landmark year in which the building of 80,000-plus railcars occurred, many people wish there would be a new world where we didn’t. Around the Market
It would be great to write that, in finding a bottom, rates are stabilizing and beginning to rise. Alas, that is not the case. Rates over almost all market segments continue to be depressed, and the case for change or improvement, especially in some markets, seems thin. Sadly for car owners, after a period of good rates, current lease rates are almost punitive to lessors. Yet, for investors, low lease rates and the ability to avoid storage costs add up to a proverbial win. Here’s your semi-annual update on rates and market sentiment (all rates are per-car, per-month, full service): Coal: You want the good news or the bad news? Good news: The hot summer that carried into September has lifted natural gas up to $3.00/million BTUs for the third time since July. Some industry watchers have a sense that the coal market has bottomed out. Some lessors seem to have pulled back on some planned scrapping or bottom selling, looking for a little bump in the market to take advantage of, nearterm. Bad news? With the number of cars in storage, bottom trolling does not offer much hope. Lease rates are all below
$200 (and in many cases much lower). This market needs a weaker dollar to bring exports into play again. The impact from exports is tangible but not game changing. The available inventory of bottom-dump hopper cars is less than that of gondola cars. Plastics: Demand hasn’t materialized near-term as expected, but it is on its way. Rates have dropped into the low $500s. Expect them to stay there near-term. The buildout of new production is coming, and the forecasted need for cars will arrive. There has been some building of cars that might have begun their order life as small-cube hoppers, but it hasn’t been extreme. Grain: Commodity prices (corn and soybeans) continue to drop as the 2016 harvest is expected to be at historical levels. Low prices are hurting the farm community. Global demand due to non-U.S. crop-related issues haven’t yet materialized at expected levels. There has been speculative building. New cars are out and in competition with existing equipment. Prices are partying like it’s the 1990s, with jumbo cars (5,200 or 5,400 cubic-foot-capacity) going off in the low $300s, but that is likely to rise. 4,750s? Rates are in the $225 range and rising. These are in abundant supply and many are headed back to their current lessors. Many investors are pinning their hopes on weather that may delay the harvest (especially in Canada) and ultimately spur railcar demand. “Wait until next year” might be more prescient than
CIT Knows
Rail Leasing Optimized rail equipment solutions based on industry-leading leasing and financing expertise. CIT Rail keeps your operations on-track with innovative leasing solutions for your railcar and locomotive transportation needs. Our full suite of leasing and management services is designed to free up capital for your growth and operating priorities. With one of the most diversified and high-capacity fleets, we are committed to serving a wide range of industries in North America and Europe. CIT knows rail leasing, so work with us to power your growth. Visit citrail.com or call 312-906-5701. ATTRACTIVE ASSETS • FLEET MANAGEMENT CAPABILITIES CAPITAL PRESERVATION
©2016 CIT Group Inc. All rights reserved. CIT and the CIT logo are registered trademarks of CIT Group Inc.
36
Railway Age
October 2016